Taxation I Case Digest CompilationCollege of Law, Silliman
UniversityJD Class 2016Table of ContentsGENERAL PRINCIPLES &
LIMITATIONS6Republic vs Cocofed6Osmena vs Orbos7Tan vs Del
Rosario8Shell Co. vs Vano9Tolentino vs Sec. of Finance11ABAKADA vs
Ermita12Coconut Oil vs Torres14John Hay Alternative vs Lim15CIR vs
Lincoln16Philex Mining vs CIR17Southern Cross vs CMAP18CIR vs
Marubeni20Republic vs CA & Precision21CIR vs Santos22Pepsi vs
Municipality of Tanauan24Kilosbayan, Inc. et al vs Guingona25MCIAA
vs MarcosARCIDE26Republic vs ICC27CIR vs Benguet Corp.29CIR vs
Benguet Corp.30Planters Products vs Fertiphil31Gerochi vs DOE32CIR
vs Central Luzon Drug33Carlos Superdrug vs DSWD34Diaz vs Sec. of
Finance36TAX REMEDIES CASES37CIR vs CTA & Citytrust37South
African Airways vs CIR38Procter & Gamble vs Municipality of
Medina40CIR vs Solidbank41CIR vs Wyeth42CIR vs Pascor Realty43Ungab
vs Cusi44CIR vs CA46Vda. de San Agustin vs CIR48Calamba Steel vs
CIR50Phil Journalists vs CIR52CIR vs Tulio54CIR vs PNB56CIR vs
BPI57CIR vs Reyes59Barcelon vs CIR60CIR vs BPI61CIR vs Phil
Global62Silkair PTE, Ltd. vs CIR65CIR vs Fortune Tobacco Corp.66CIR
vs Acosta69Filinvest Dev. Corp. vs CIR & CTA70ME Holding Corp
vs CA & CIR71CIR vs FMF Dev. Corp.72CIR vs PERF Realty
Corp75Pilipinas Shell vs CIR77State Land Inv. Corp vs CIR78Allied
Bank vs CIR79CIR vs Kudos Metal81CIR vs Far East Bank/BPI84Lascona
Land vs CIR85CTA CASES86Meralco vs Savellano86Yamane vs BA
Lepanto87P vs Sandiganbayan 467 SCRA 137LENTORIO88PPA vs
Fuentes89TFS Inc. vs CIR91CIR vs Fort Bonifacio Dev. Corp93INCOME
TAX CASES94Conwi vs CTA94CIR vs British Airways96CIR vs CA &
Soriano97CIR vs Solidbank98Mobil vs City Treasurer100CIR vs CA
& Castaneda101Abello vs CIR102CIR vs BPI 492 SCRA
551104Cyanamid vs CA105Republic vs Meralco106Esso vs
CIR109Aguinaldo vs. CIR110PRC vs. CA112China Bank vs CA113CIR vs
General Foods115Gancayco vs CIR116CIR vs CA & YMCA118CIR vs
CTA120FEBTC vs CIR 488 SCRA 473121CIR vs Trustworthy Pawnshop
Inc.122Lhuillier Pawnshop vs CIR123Systra vs CIR124Philam Asset Mgt
vs CIR126Delpher Trades vs IAC128Campagnie vs CIR130B. Van Zuiden
Bros vs GTVL132CIR vs Tulio133CIRvs Citytrust134CIR vs
Baier-Nickel135PDIC vs BIR137Pansacola vs CIR138Intercontinental vs
Amarillo140Security Bank 499 SCRA 453 (DST)--ARCIDE142Manila
Banking Corp vs CIR143Bicolandia Drug Corp vs CIR144Reyes vs.
NLRC145Phil. Health Care Providers vs CIR147Dizon vs CTA &
CIR148PNB vs CIR149Sunlife 473 SCRA 129
(coops)LENTORIO151Tambunting Pawnshop Inc. vs CIR152MJOPFI vs CA
& CIR153CIR vs PHILAMGEN154CIR vs McGeorge GR174157 Oct20/10
(sec 76 irrevocable but unused...)DONGGAY155Belle Corp vs CIR156CIR
vs Aquafesh GR170389 Oct20/10 (sec 27 (1,5) CGT, Sec 196
DST)LENTORIO157CIR vs Sony Philippines, Inc.158CIR vs CA &
Commonwealth Management & Services Corp160Exxon vs CIR161V.A.T.
CASES162CIR vs Seagate 451 SCRA 132KHIO162Atlas vs CIR GR 146221,
25 Sep 2007 (proof of excess input VAT)YBIO162CIR vs Cebu
Toyo163CIR vs American Express 462 SCRA2197 (destination
principle)ARCIDE164CIR vs Toshiba165CIR vs Manila Mining 468 SCRA
571--MALCAMPO167Phil. Geothermal vs CIR 465 SCRA 308CATACUTAN167CIR
vs Philhealth 6R 168129 24 April 07 (VAT on Sale of svcs; BIR
rutings not retro.)ACAS167CIR vs Burmeister GR 153205 22 J an
07CRUZ167CIR vs Global 499 S 53 [evat; franchise tx]GAMO167CIR vs
PhilGlobal 499 SCRA 53LIU167Magsaysay Lines 497 SCRA
63BANQUERIGO167Sekisui 496 SCRA 206 (exports)DELOS SANTOS167Contex
433 SCRA 376 (effects re VAT exempt status)GANIR167Atlas 546 SCRA
150 (invoices, rcpts for proving input VAT)FILIPINAS167First
Planters Pawnshop 560 SCRA 606 (non-bank instns;
DST)GANIR167Panasonic G.R. 178090, Feb 8, 2010 (refund of VAT)
MONTEJO167Toshiba G.R. 157594, March 9, 2010 (cr/ref of input
VAT)BANQUERIGO167TFS Inc. , G.R. 166829, Apr 19, 2010 (CTA law; VAT
on pawnshops)LIU167CIR vs Eastern Telecom, GR 163835, July 7, 2010
(sec 104 (a))GAMO167AT&T vs CIR, GR182364, Aug 3/10 (req for tx
refund in 0 rated tranxs)CRUZ167JRA vs CIR GR 177127 Oct 11/10 (eff
failure to print 0 rated on invoice)CULMINAS167Tambunting vs CIR
GR172394 Oct13/10 (pawnshops)CATACUTAN167Hitachi vs CIR168CIR vs CA
& Commonwealth Mgt170Kepco vs CIR GR181858 Nov24/10 (fail to
indicate 0 rated; inv vs rcpt)PORCINA171Silicon vs CIR GR172378
Jan17/11 (req 0 rated sales, Sec112 A & B)KHIO171BEST EVIDENCE
RULE172Mindanao Bus vs CIR172CIR vs Hantex Trading Co., Inc.173Sy
Po vs CTA & CIR175
GENERAL PRINCIPLES & LIMITATIONSRepublic vs CocofedGR
147062-64, 14 December 2001
Elements of a tax; coco-levy as tax
FACTS: R.A 6260 was enacted creating the Coconut Investment
Company (CIC) to administer the Coconut Investment Fund (CIF) which
was to be sourced from a fund levied based upon every sale of
copra. Charged with the collection of the fund is the PCA. One of
the purposes of the law was to acquire a commercial bank in order
to provide readily available credit to coconut farmers at a
preferential rate. Because of this, PCA acquired a commercial bank
(which we now know as UCPB) and deposited the coco-levy funds and
collections in the said bank. In addition, it is also provided in
the law that the funds shall not be construed as special and/or
fiduciary funds, or as part of the general funds of the National
Government. ISSUE: What are the elements of taxation? Is the
coco-levy fund a tax?RULING: The court ruled that the coconut levy
was imposed in the exercise of the State's power to tax. Coconut
levy funds partake of the nature of taxes, which, in general, are
enforced proportional contributions from persons and properties,
exacted by the State for the support of the government and the
public.A tax has three elements: a) It is an enforced proportional
contributions from persons and properties; b) It is imposed by the
State by virtue of its sovereignty; and c) it is levied for the
support of the government. The coconut levy funds fall squarely
into the elements.The funds were imposed for a public purpose and
were collected to advance the government's policy of protecting the
coconut industry. The court further pointed that taxes are thus
imposed only for a public purpose and cannot be used for purely
private purposes.
Osmena vs Orbos GR 99886, 31 March 1993Tax if primary purpose is
revenue generation; requisites of valid delegation of legislative
powerFACTS: Petitioner Osmena challenges the constitutionality of
the PD 1956, which created a special account in the general fund
for the Oil Price Stabilization Fund (OSPF) as buffer mechanism to
protect the domestic oil industry from frequent fluctuations of
crude oil prices in the world market. PD 1529 created a trust
account in the books of the Ministry of Energy. He alleges that the
law is unconstitutional because:1. The monies collected are
supposed to treated as a special fund, not a trust fund considering
that it is a special tax collected for a specific purpose2. PD 1529
unduly delegates legislative power by conferring the Energy
Regulatory Board the authority to impose additional amounts on
petroleum products without a sufficient standard by which such
authority may be exercised. ISSUES: 1) Was the Oil Price
Stabilization Fund (OSPF) a tax?2) What are the requisites for a
valid delegation of the taxation power? Was there undue delegation
of such power?RULING: 1) No. Petitioner assumed that PD 1956 was
enacted to collect taxes for a fund for a special purpose. The
purpose for the fund, however, is not to generate revenue. The OPSF
was designed to reimburse oil companies for cost increases in crude
oil and imported petroleum products resulting from exchange rate
adjustments and from increases in the world market prices of crude
oil.[footnoteRef:1] As such, establishment and maintenance of the
OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and
economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power
of the State, because its purpose is to regulate the oil industry
pursuant to public policy. [1: The OPSF acts as a buffer mechanism
into which a portion of the purchase price of oil and petroleum
products paid by consumers as well as some tax revenues are
inputted and from which amounts are drawn from time to time to
reimburse oil companies, when appropriate situations arise, for
increases in, as well as underrecovery of, costs of crude
importation.]
That a portion of the fund is taken from collections of ad
valorem taxes and the increases thereon does not change its primary
purpose. Hence, if the primary purpose of the law is to regulate
but has incidental taxing effects, then it is legislated by virtue
of the police power. If the primary purpose of the law is to
generate revenue but has incident regulatory effects, then it is
legislated by virtue of the power to tax. The OSPF law falls under
the first type.2) The power to tax is reposed in the legislative,
but the latter may delegate it to the executive provided that the
law delegating the power:i. is complete in itself, that is, it must
set forth the policy to be executed by the delegateii. fixes a
standard, the limits of which are sufficiently determinate or
determinable to which the delegate must conform.There was no undue
delegation in this case because a standard was fixed, albeit
impliedly, as when the law intended to permit the additional
impositions as long as there exists a need to protect the general
public and the petroleum industry from price fluctuations.
Tan vs Del RosarioGR 109290, 3 October 1994Uniformity rule
FACTS: These two consolidated special civil actions for
prohibition challenge, in G.R. No. 109289, the constitutionality of
Republic Act No. 7496, also commonly known as the Simplified Net
Income Taxationn Scheme (SNIT), amending certain provisions of the
National Internal Revenue Regulations No. 293, promulgated by
public respondents pursuant to said law.Petitioner intimates that
Republic Act No. 7496 desecrates the constitutional requirement
that taxation shall be uniform and equitable in that the law would
now attempt to tax single proprietorships and professionals
differently from the manner it imposes the tax on corporations and
partnerships. Petitioners claim to be taxpayers adversely affected
by the continued implementation of the amendatory
legislation.ISSUE: Does Republic Act No. 7496 violate the
Constitution for imposing taxes that are not uniform and
equitable.
RULING: The Petition is dismissed. Uniformity of taxation, like
the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be
treated alike both in privileges and liabilities (Juan Luna
Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not
forfend classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the categorization
is germane to achieve the legislative purpose, (3) the law applies,
all things being equal, to both present and future conditions, and
(4) the classification applies equally well to all those belonging
to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco
vs. PAGCOR, 197 SCRA 771).What may instead be perceived to be
apparent from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the schedular
approach in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment on taxable
corporations. We certainly do not view this classification to be
arbitrary and inappropriate.Having arrived at this conclusion, the
plea of petitioner to have the law declared unconstitutional for
being violative of due process must perforce fail. The due process
clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the
exercise of the tax power.
Shell Co. vs Vano GR L-6093, 24 February 1954Occupational tax
via local ordinance; non-discrimination rule; uniformity rule;
specific tax; percentage tax
FACTS: The municipality of Cordova in Cebu adopted the following
ordinances:1. No. 10, series of 1946, which imposes an annual tax
of P150 on occupation or the exercise of the privilege of
installation manager; 2. No. 9, series of 1947, which imposes an
annual tax of P40 for local deposits in drums of combustible and
inflammable materials and an annual tax of P200 for tin can
factories; and 3. No. 11, series of 1948, which imposes an annual
tax of P150 on tin can factories having a maximum output capacity
of 30,000 tin cans.Shell Co. of P.I. Ltd., a foreign corporation,
filed suit for the refund of the taxes paid by it, on the ground
that the ordinances imposing such taxes are ultra vires. Defendant,
as Municipal Treasurer, denies such allegation.ISSUES:1. WON
Ordinance No. 10 is ultra vires considering that installation
manager is merely a designation created by plaintiff and the same
is a salaried employee which may not be taxed by the municipality
under CA No. 472?2. WON Ordinance No. 10 is discriminatory and
hostile because there is no other person in the locality who is an
installation manager?3. WON Ordinance No. 9 is ultra vires
considering that the same is in violation of Sec. 2244 of the
Revised Administrative Code limiting the amount of the permit to
P10 per annum?4. WON Ordinance No. 11 is ultra vires?RULING: 1. The
ordinance is not ultra vires. The municipal ordinance was enacted
in pursuance of CA 472 which authorizes municipal councils and
municipal district councils "to impose license taxes upon persons
engaged in any occupation or business, or exercising privileges in
the municipality or municipal district, by requiring them to secure
licenses at rates fixed by the municipal council or municipal
district council, xxx." Even if the installation manager is a
salaried employee, it does not take away the fact that it is an
occupation. Further, the fact that the occupation is exercised in
relation to another occupation which pays an occupation tax does
not exempt an individual exercising the occupation to pay a
separate occupation tax.2. No, it is not discriminatory and
hostile. The fact that there is no other person in the locality who
exercises such a "designation" or calling does not make the
ordinance discriminatory and hostile for the ordinance is and will
be applicable to any person or firm who exercises such calling or
occupation named or designated as "installation manager."3. The
ordinance is not ultra vires. It was enacted by the municipality in
the exercise of its regulative authority as supported by the
aforementioned provision of CA 472 and as long as they are just and
uniform and not percentage taxes and taxes on specified articles.4.
The ordinance is not ultra vires. It is neither a percentage tax
nor a tax on specified articles. Specific tax under the NIRC are
those imposed on things manufactured or produced in the Philippines
for domestic sale or consumption" and upon "things imported from
the United States and foreign countries," such as distilled
spirits, domestic denatured alcohol, fermented liquors, products of
tobacco, cigars and cigarettes, matches, mechanical lighters,
firecrackers, skimmed milk, manufactured oils and other fuels,
coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine. Tin can factories do not fall under any
of these as enumerated. It is also not a percentage tax as it is
tax on business and the maximum annual output capacity is not a
percentage, because it is not a share or a tax based on the amount
of the proceeds realized out of the sale of the tin cans
manufactured [Not x% of the total gross sales of the business] but
on the business of manufacturing tin cans having a maximum annual
output capacity of 30,000 tin cans.
Tolentino vs Sec. of FinanceGR 115455, 30 October 1995VAT vs
license tax; tax exemption is a privilege; equality and
uniformity
FACTS: The Value Added Tax (VAT) is levied on the sale, barter,
or exchange of goods as well as on the sale or exchange of
services. It is equivalent to 10% of the gross selling price or
gross value in money of goods or properties sold, bartered or
exchanged or of the gross receipts from the sale or exchange of
services. Republic Act No 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the
National Internal Revenue Code. Among the petitioners was the
Philippine Press which claims RA 7716 violates their press freedom
and liberty having removed them from the exemption to pay Value
Added Tax. They maintain that by withdrawing the exemption granted
to print media transactions involving printing, publication,
importation or sale of newspapers, R.A. No. 7716 is a license tax
which singled out the press for discriminatory treatment and that
within the class of mass media the law discriminates against print
media by giving broadcast media favoured treatment.
ISSUE: Whether or not the purpose of the VAT is similar to a
license tax.
RULING: No. A license tax, unlike any ordinary tax, is mainly
for regulation. Its imposition on the press is unconstitutional
because it lays a prior restraint on the exercise of its right.
Hence, although its application to others, such those selling
goods, is valid, its application to the press or to religious
groups, such as the Jehovah' s Witnesses, in connection with the
latter' s sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is one
thing to impose a tax on income or property of a preacher. I t is
quite another thing to ex act a tax on him for delivering a
sermon." In withdrawing the exemption, the law merely subjects the
press to the same tax burden to which other businesses have long
ago been subject.The VAT is, however, different. It is not a
license tax, it is not a tax on the exercise of a privilege, much
less than a constitutional right. It is imposed on the sale,
barter, lease, or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its pay its income tax or subject
it to general regulation is not to violate its freedom under the
Constitution.The exemption of the press was a privilege granted by
the State, which has the right to revoke it by including the Press
under the VAT system without offending press freedom under the
Constitution.Equality and uniformity of taxation means that all
taxable articles or kinds of property of the same class be taxed at
the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. To
satisfy this requirement it is enough that the statute or ordinance
applies equally to all persons, forms and corporations placed in
similar situation. The VAT is regressive, because it is indirectin
other words, its imposition may be transferred to a person other
than it is directed to. In comparison, income tax is progressive,
because it is directit is imposed directly on a person and his
ability to pay, which accordingly puts him in the proper bracket on
a previously-fixed scale.
ABAKADA vs ErmitaGR 168056, 1 September 2005Delegation of
taxation power; input and output tax; uniform and equitability of
EVAT
FACTS: Before R.A. No. 9337 took effect (July 1, 2005,
petitionersABAKADA GUROParty List, et al., filed a petition for
prohibition. Petitioners argue that the law is unconstitutional, as
it constitutes abandonment by Congress of its exclusive authority
to fix the rate of taxes under Article VI, Section 28(2) of the
1987 Philippine Constitution. They further contend that Sections 4,
5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC giving the President thestand-by
authorityto raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative
power to tax. It states. . . That the President, upon the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been
satisfied:(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or(ii) National government deficit as
a percentage of GDP of the previous year exceeds one and one-half
percent (1 %).
ISSUE: Do Sections 4, 5 and 6 of R.A. No. 9337, giving the
President thestand-by authorityto raise the VAT rate from 10% to
12% when a certain condition is met, constitutes undue delegation
of the legislative power to tax?RULING: There is no undue
delegation of legislative power but only of the discretion as to
the execution of a law. Congress does not abdicate its functions or
unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority. It is simply a
delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. A
(permissible delegation) is valid only if the law (a) is complete
in itself, setting forth therein the policy to be executed, carried
out, or implemented by the delegate;and (b) fixes a standard the
limits of which are sufficiently determinate and determinable to
which the delegate must conform in the performance of his
functions. In this case, the legislature has made the operation of
the 12% rate effective January 1, 2006, contingent upon a specified
fact or condition. It leaves the entire operation or non-operation
of the 12% rate upon factual matters outside of the control of the
executive. No discretion would be exercised by the President. Thus,
it is the ministerial duty of the President to immediately impose
the 12% rate upon the existence of any of the conditions specified
by Congress.Notes: There was no delegation of legislative power at
all, because the legislature merely specified factual conditions
that must concur before the executive may apply the provision of
the law. Fact-finding processes may be delegated by the Congress to
the Executive. The phrase upon the recommendation of the Sec. of
Finance makes the latter an agent of the Legislature, so his
functions as an alter-ego of the Executive are not necessarily
affected by the provision. FISCAL ADEQUACYthe sources of tax should
coincide with the needs of government expenditures. This is a
question of wisdom, which the judiciary cannot take cognizance
of.
Output vs Input TaxOUTPUT VATtax paid when selling a
productINPUT VATtax paid when buying the materials of the thing
sold; it is not a property, it is a statutory privilege which the
legislative may remove at any timeVAT Payable = Output VAT - Input
VAT Is the EVAT uniform and equitable?Yes. A uniform rate of 0%,
12%, or exemption, are respectively imposed on the same class of
goods.
Coconut Oil vs TorresGR 132527, 29 July 2005Delegation of
taxation power to the executive
FACTS: On March 13, 1992, RA No. 7227 was enacted, providing
for, among other things, the sound and balanced conversion of the
Clark and Subic military reservations and their extensions into
alternative productive uses in the form of special economic zones
in order to promote the economic and social development of Central
Luzon in particular and the country in general. The law contains
provisions on tax exemptions for importations of raw materials,
capital and equipment. After which the President issued several
Executive Orders as mandated by the law for the implementation of
RA 7227. Herein petitioners contend the validity of the tax
exemption provided for in the law. ISSUE: Whether or not the
Executive Orders issued by President for the implementation of the
tax exemptions constitutes executive legislation. RULING: To limit
the tax-free importation privilege of enterprises located inside
the special economic zone only to raw materials, capital and
equipment clearly runs counter to the intention of the Legislature
to create a free port where the free flow of goods or capital
within, into, and out of the zones is insured. The phrase tax and
duty-free importations of raw materials, capital and equipment was
merely cited as an example of incentives that may be given to
entities operating within the zone. Public respondent SBMA
correctly argued that the maxim expressio unius est exclusio
alterius, on which petitioners impliedly rely to support their
restrictive interpretation, does not apply when words are mentioned
by way of example. It is obvious from the wording of RA No. 7227,
particularly the use of the phrase such as, that the enumeration
only meant to illustrate incentives that the SSEZ is authorized to
grant, in line with its being a free port zone. The Court finds
that the setting up of such commercial establishments which are the
only ones duly authorized to sell consumer items tax and duty-free
is still well within the policy enunciated in Section 12 of RA No.
7227 that . . .the Subic Special Economic Zone shall be developed
into a self-sustaining, industrial, commercial, financial and
investment center to generate employment opportunities in and
around the zone and to attract and promote productive foreign
investments. However, the Court reiterates that the second
sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A,
allowing tax and duty-free removal of goods to certain individuals,
even in a limited amount, from the Secured Area of the SSEZ, are
null and void for being contrary to Section 12 of RA No. 7227. Said
Section clearly provides that exportation or removal of goods from
the territory of the Subic Special Economic Zone to the other parts
of the Philippine territory shall be subject to customs duties and
taxes under the Customs and Tariff Code and other relevant tax laws
of the Philippines.It is public policy that the zones have a
different tax policy with the rest of the country. This
classification is valid, as long as it is:1. Germane to the purpose
of the law, RA 72272. Not limited to the existing conditions3.
Apply equally to all retailers found within the secured area, i.e
the SEZ
John Hay Alternative vs LimGR 119775, 19 March 2002Strict
application of tax exemption; power to exempt comes from power to
tax
FACTS: Then President Ramos issued Proclamation No. 420 which
created the John Hay Special Economic Zone pursuant to Republic Act
No. 7227 entitled Bases and Development Act of 1992. Said Republic
Act created the Subic Special Economic Zone and also granting it
exemptions from local and national taxes. Proclamation No. 420 also
grants tax exemptions similar to that which is granted to the Subic
SEZ by RA 7227.ISSUE: Is this constitutional?RULING: No. Under RA
7227 it is only the Subic SEZ[footnoteRef:2] which was granted by
Congress with tax exemptions, investment incentives and the like.
The grant of economic incentives to John Hay SEZ cannot be
sustained. The incentives under RA 7227 are exclusive only to Subic
SEZ, hence the extension of the same to the John Hay SEZ finds no
support. More importantly, the nature of most of the assailed
privileges is one of tax exemption. It is the legislatureunless
limited by the provision of the state Constitutionthat has full
power to exempt any person or corporation or class of property from
taxation, its power to exempt[footnoteRef:3] being as broad as its
power to tax. Other than Congress, the Constitution may itself
provide for specific tax exemptions, or local governments may pass
ordinance on exemption only from local taxes. The challenged grant
of tax exemption would circumvent the Constitutions imposition that
a law granting any tax exemption must have the concurrence of a
majority of all the members of Congress. [2: Special Economic Zones
are made to encourage investment. They are considered separate tax
customs territory and follow different rules. Buying in SEZs has a
similar effect of importing into the Philippines. ] [3: In the same
way that the imposition of a tax must be explicit, the provisions
for a tax exemption must also be explicit. No law granting any tax
exemption shall be passed without the concurrence of a majority of
all the Members of Congress. Art VI, Sec. 28, 1987 Charter]
Tax exempt character of an SEZ proceeds from statutory
provision; hence, an SEZ may not necessarily be tax exempt
CIR vs LincolnGR 119176, 19 March 2002Documentary stamp tax
FACTS: Private respondent Lincoln Philippine Life Insurance Co.,
Inc. is a domestic corporation engaged in life insurance business.
In the years prior to 1984, private respondent issued a special
kind of life insurance policy known as the "Junior Estate Builder
Policy," the distinguishing feature of which is a clause providing
for an automatic increase in the amount of life insurance coverage
upon attainment of a certain age by the insured without the need of
issuing a new policy. The clause was to take effect in the year
1984. Documentary stamp taxes due on the policy were paid by
petitioner only on the initial sum assured.Sec173 of the National
Internal Revenue Code provides that for any documents, instruments,
and papers, there there shall be levied, collected and paid for the
corresponding documentary stamp taxes. Section183 of the same code
also imposes tax on life insurance policies.
ISSUE 1: Whether or not the automatic increase clause is
distinct and separate from that of the original agreement, and thus
the payment of documentary stamp taxes should also be imposed.
RULING: No, the SC affirmed the ruling of the Court of Tax
Appeals which stated that there was only one transaction involved,
and that the automatic increase clause is an integral part of the
policy.It is clear from Section 49 and 50, Title VI of the
Insurance Code that any rider, clause, warranty or endorsement
pasted or attached to the policy is considered part of such policy
or contract of insurance.Although the clause was to take effect
only in 1984, it was written into the policy at the time of its
issuance.The distinctive feature of the "junior estate builder
policy" called the "automatic increase clause" already formed part
and parcel of the insurance contract, hence, there was no need for
an execution of a separate agreement for the increase in the
coverage that took effect in 1984 when the assured reached a
certain age.
ISSUE 2: How should the documentary stamp tax be
computed?RULING: Section 183 states that it is to be computed in
the amount fixed in the policy. However, there was no fixed amount
computed on the additional increase based on the automatic increase
clause since it is a suspensive condition. The SC ruled that
Although the automatic increase in the amount of life insurance
coverage was to take effect later on, the date of its effectivity,
as well as the amount of the increase, was already definite at the
time of the issuance of the policy. Thus, the amount insured by the
policy at the time of its issuance necessarily included the
additional sum covered by the automatic increase clause because it
was already determinable at the time the transaction was entered
into and formed part of the policy.
Philex Mining vs CIRGR 125704, 28 August 1998No off-setting in
tax collection
FACTS: Petitioner Philex Mining Corp. assails the decision of
the Court of Appeals affirming the Court of Tax Appeals decision
ordering it to pay the amount of P110.7 M as excise tax liability
for the period from the 2nd quarter of 1991 to the 2nd quarter of
1992 plus 20% annual interest from 1994 until fully paid pursuant
to Sections 248 and 249 of the Tax Code of 1977. Philex protested
the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid
for the years 1989 to 1991 in the amount of P120 M plus interest.
Therefore these claims for tax credit/refund should be applied
against thetax liabilities.
ISSUE: Can there be an off-setting between the tax liabilities
vis-a-vis claims of tax refund of the petitioner?
RULING: No. Philex's claim is an outright disregard of the basic
principle in tax law that taxes are the lifeblood of the government
and so should be collected without unnecessary hindrance. Philex
cannot be allowed to refuse the payment of its tax liabilities on
the ground that it has a pending tax claim for refund or credit
against the government which has not yet been granted. Taxes cannot
be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each
other. There 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. There can be
no off-setting of taxes against the claims that the taxpayer may
have against the government.
A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results
of a lawsuit against the government.
Southern Cross vs CMAPGR 158540, 3 August 2005Jurisdiction of
Court on Tax Appeals; Delegability of tariff power to President
FACTS: Philcemcor, an association of at least eighteen (18)
domestic cement manufacturers filed with the Department of Trade
and Industry (DTI) a petition seeking the imposition of safeguard
measures on gray Portland cement, in accordance with the Safeguard
Measures Act (SMA). After the (DTI) issued a provisional safeguard
measure, the application was referred to the Tariff Commission for
a formal investigation pursuant to Section 9 of the SMA and its
Implementing Rules and Regulations, in order to determine whether
or not to impose a definitive safeguard measure on imports of gray
Portland cement. The Tariff Commission held public hearing and
conducted its own investigation and issued its Formal Investigation
Report that no definitive general safeguard measure be imposed on
the importation of gray Portland cement. The DTI Secretary then
promulgated a decision expressing its disagreement with the
conclusions of the Tariff Commission but at the same time denying
Philcemcors application for safeguard measures in light of the
Tariff Commissions negative findings. Philcemcor challenged this
decision of the DTI Secretary by filing with the Court of Appeals a
petition for certiorari, Prohibition and Mandamus seeking to set
aside the DTI Decision as sell as the Tariff Commissions Report.
The appellate court partially granted the petition and ruled that
it had jurisdiction over the petition for certiorari since it
alleged grave abuse of discretion and also held that DTI Secretary
was not bound by the factual findings of the Tariff Commission. The
Southern Cross then filed the present petition, arguing that the
Court of Appeals has no jurisdiction over Philcemcors petition.
Despite the fact the Court of Appeals Decision had not yet became
final, its binding force was cited by the DTI Secretary when he
issued a new Decision, wherein he imposed a definitive safeguard
measure on the importation of gray Portland cement, in the form of
a definitive safeguard duty in the amount of P20.60/40 kg. bag for
three years on imported gray Portland Cement.Southern Cross filed a
Temporary Restraining Order and/or A Writ of Preliminary Injunction
with the Court, seeking to enjoin the DTI Secretary from enforcing
his new issued Decision. Philcemcor then filed its opposition
stating that it is not the CA but the Court of Tax Appeals (CTA)
that has jurisdiction over the application under the law. Southern
Cross then filed with the CTA a Petition for Review against the
Decision which imposed the definite safeguard measure but did not
promptly inform CA about the filing. Philcemcor argued with the CTA
that Southern Cross resorted to forum shopping. The Court in its
decision granted Southern Crosss Petition which nullified the
Decision of the DTI secretary and declared the Decision of the
Court of Appeals null and void, and also concluded that the same
had not committed forum shopping for there was no malicious intent
to subvert procedural rules. Philcemcor and the DTI Secretary then
promptly filed their respective motions for reconsideration. The
Court En Banc then resolve the two central issues pertaining to the
jurisdictional aspect and to the substantive aspect of whether the
DTI Secretary may impose a general safeguard measure despite a
negative determination by the Tariff Commission and whether the
Tariff Commission could validly exercise quasi-judicial powers in
the exercise of its mandate under the SMA. In its resolution, the
Court directed the parties to maintain the status quo and until
further orders from this Court.ISSUES: I. Jurisdiction to Review
the Secretarys DecisionsII. Reviewability of the Tariff Commissions
Report
RULING: I. On the Issue of jurisdiction, the DTI secretarys
decisions - whether imposing safeguard measures or not are subject
to review by the Court of Tax Appeals pursuant to Section 29 of RA
8800. Under section 29, there are three requisites to enable the
CTA to acquire jurisdiction over the petition for review
contemplated therein (1) there must be a ruling by the DTI
Secretary (2) the petition must be filed by an interested party
adversely affected by the ruling and (3) such ruling must be in in
connection with the imposition of a safeguard measure. Obviously,
there are differences between a ruling for the imposition of a
safeguard measure, and one issued in connection with imposition of
a safeguard measure. The first adverts to a singular type of
ruling, namely one that imposes a safeguard measure. The second
does not contemplate only one kind of ruling, but a myriad of
rulings issued in connection with the imposition of a safeguard
measure. II. The DTI Secretary is not bound by the Tariff
Commissions recommendations. The Power to impose Tariffs is
essentially legislative; it is delegable only to the president. The
application of safeguard measures, while primarily intended to
protect domestic industries, is essentially in the nature of a
tariff imposition. Pursuant to the Constitution, the imposition of
tariffs and taxes is a highly prized legislative prerogative.
Pursuant also to the Constitution, such power to fix tariffs may as
an exception, be delegated by Congress to the President. Section 28
of Article VI of the Constitution provides for that exception. *The
motivation behind many taxation measures is the implementation of
police power goals. Progressive income taxes alleviate the margin
between the rich and the poor. Taxation is distinguishable from
police power as to the means employed to implement these public
good goals. Those doctrines that are unique to taxation arose from
peculiar considerations such as those especially punitive effects
of taxation, and the belief that taxes are the lifeblood of the
state. These considerations necessitated the evolution of taxation
as a distinct legal concept from police power. Yet at the same
time, it has been recognized that taxation may be made the
implement of the states police power.*
CIR vs MarubeniGR 137377, 18 December 2001Situs rule/taxing
jurisdiction
FACTS:On August 27, 1986, Marubeni received a letter from CIR
assessing it for several deficiency taxes. CIR claims that the
income respondent derived were income from Philippine sources,
hence subject to internal revenue taxes. On Sept 1986, respondent
filed 2 petitions for review with CTA: the first, questioned the
deficiency income, branch profit remittance and contractors tax
assessments and second questioned the deficiency commercial brokers
assessment.
ISSUE:W/N Marubeni should be exempted from tax.
RULING: Yes. CIR argues that since the two agreements are
turn-key, they call for the supply of both materials and services
to the client, they are contracts for a piece of work and are
indivisible. The situs of the two projects is in the Philippines,
and the materials provided and services rendered were all done and
completed within the territorial jurisdiction of the Philippines.
Accordingly, respondents entire receipts from the contracts,
including its receipts from the Offshore Portion, constitute income
from Philippine sources. The total gross receipts covering both
labor and materials should be subjected to contractors tax (a tax
on the exercise of a privilege of selling services or labor rather
than a sale on products). Marubeni, however, was able to
sufficiently prove in trial that not all its work was performed in
the Philippines because some of them were completed in Japan (and
in fact subcontracted) in accordance with the provisions of the
contracts. All services for the design, fabrication, engineering
and manufacture of the materials and equipment under Japanese Yen
Portion I were made and completed in Japan. These services were
rendered outside Philippines taxing jurisdiction and are therefore
not subject to contractors tax. Petition denied.
Republic vs CA & PrecisionGR 109193, 1 February 2000Tax
amnesty
FACTS: On June 10, 1985, the BIR issued an assessment notice and
letter against Precision Printing, Inc., demanding payment of the
sum of P248, 406.11. Despite repeated demands, however, the latter
failed to pay within the period prescribed by law and as a result
the tax assessment became final and demandable. But pursuant to
Executive Order No. 41, on October 31, 1986, Precision Printing,
Inc. filed a Tax Amnesty Return together with the Statements of Net
Worth, covering the period for which taxes were demanded. The same
was certified.As a result, BIR filed a case for collection in the
RTC which was ruled in favor of the Precision Printing, Inc. On
appeal in the CA, the lower courts decision was affirmed. Hence,
this present petition for review on the ground that the respondent
corporation was already assessed of its tax deficiency on June 10,
1985 prior to the promulgation of Revenue Memorandum 4-87 which
implemented E.O. 41 that only covers tax assessments after August
21, 1986. ISSUE: Whether or not the respondent court erred in
affirming the trial court's finding that private respondent's tax
liability was extinguished when it availed of tax amnesty under
Executive Order no. 41?RULING: No. The decision of the respondent
court is correct. Executive Order No. 41 declaring a tax amnesty on
unpaid income taxes which was promulgated on August 22, 1986 covers
estate and donor's taxes and taxes on business, for the taxable
years 1981-1985. This was later amended by Revenue Memorandum 4-87
stating:1.02. A certification by the Tax Amnesty Implementation
Officer of the fact of availment of the said tax amnesty shall be a
sufficient basis for:x x x x x x x x x1.02.3. In appropriate cases,
the cancellation/withdrawal of assessment notice and letters of
demand, issued after August 21, 1986 for the collection of income,
business, estate or donor's taxes during the taxable years.It is
therefore decisively clear that R.O. 4-87 reckoned the
applicability of the tax amnesty from August 22, 1986 the date when
E.O. 41 took effect. However, Executive Order No. 41 contained no
limitation whatsoever delimiting its applicability to assessments
made prior to its effectivity. Rather, the said E.O. 41 merely
provided for a general statement covering all tax liabilities
incurred from 1981-1985. If Executive Order No. 41 had not been
intended to include 1981-1985 tax liabilities already assessed
(administratively) prior to 22 August 1986, the law could have
simply so provided in its exclusionary clauses. It did not. The
conclusion is unavoidable, and it is that the executive order has
been designed to be in the nature of a general grant of tax amnesty
subject only to cases specifically excepted by it. Indeed,
administrative issuances seeking to carry into effect an act of
Congress must be in harmony with the provisions of the law, it
cannot modify nor supplant the same.
CIR vs SantosGR 119252, 18 August 1997Wisdom of tax policy not a
justiciable issue
FACTS: On August 5, 1988, the then Regional Director of Region
4-A, acting for and in behalf of the Commissioner of Internal
Revenue, issued Regional Mission Order directing BIR officers to
conduct surveillance, monitoring, and inventory of all imported
articles of Hans Brumann, Inc., a member of the Guild of Philippine
Jewelers, Inc., and place the same under preventive embargo. This
was to see if the proper taxes have been paid. The duration of the
mission was from August 8-20, 1988. The BIR officers inventoried
the articles, requested for proof of necessary payments for excise
and VAT taxes on said articles, and requested not to sell the
articles until it can be proven that the necessary taxes thereon
have been paid. The owner, Brumann, signed a receipt acknowledging
that the articles inventoried have been seized and left in his
possession, and promising not to dispose of the same without
authority of the CIR pending investigation. The BIR requested that
certain documents be presented for stocktaking investigation for
excise tax purposes but Brumann did not produce them. Other members
of the Guild (Miladay Jewels, Mercelles, Solid Gold, Diagem
Traders) were also subjected to the same request. On Nov. 29, 1988,
private respondents prayed that Sec. 126, 127(a)(b), 150(a) of the
National Internal Revenue Code and Hdg. No 71.01, 71.02, 71.03,
71.04, Chapter 71 of the Tariff and Customs Code be declared
unconstitutional and void, and that the CIR and Customs be
prevented or enjoined from issuing mission orders and other orders
of similar nature. The RTC declared Sec 104 of the Tariff and
Custom Code of the Philippines, Hdg, 71.01, 71.02,71.03,71.04,
Chapter 71 as amended by EO 470, imposing 3%-10% tariff and customs
duty on natural and cultured pearls and precious or semi-precious
stones, and Sec. 150(1) of the National Internal Revenue Code of
1977, as amended, renumbered and rearranged by EO 273, imposing 20%
excise tax on jewelry, pearls, and other precious stones, as
inoperative and without force and effect insofar as petitioners are
concerned.
ISSUE: Whether or not the RTC has authority to pass judgment
upon taxation policy of the government.
RULING: Passing judgment on the wisdom of the laws is a matter
on which the RTC is not competent to rule. It is a matter for the
legislature to decide. The Judiciary does not pass upon question of
wisdom, justice or expediency of legislation (Angara vs. Electoral
Commission). Judicial power only allows to settle actual
controversies involving rights which are legally demandable and
enforceable and may not annul an act of the political departments
simply because the judiciary feel it unwise or impractical.
Respondent RTC judge encroached upon matters properly falling
within the province of legislative functions. In citing as basis
for his decision unproven comparative data pertaining to
differences between tax rates of various Asian countries, and
concluding that the jewelry industry in the Philippines suffers as
a result, the respondent judge took it upon himself to supplant
legislative policy regarding jewelry taxation. In advocating the
abolition of local tax and duty on jewelry simply because other
countries have adopted such policies, the respondent judge
overlooked the fact that such matters are not for him to decide.
There are reasons why jewelry, a non-essential item, is taxed as it
is and these reasons are deliberated by our legislature, are beyond
the reach of judicial questioning. As held in Macasiano vs.
National Housing Authority:The policy of our courts is to avoid
ruling on constitutional questions and to presume that the acts of
the political departments are valid in the absence of a clear and
unmistakable showing to the contrary. To doubt is to sustain, this
presumption is based on the doctrine of separation of powersThe
theory is that as the joint act of Congress and the President of
the Philippines, a law has been carefully studied and determined to
be in accordance with the fundamental law before it was finally
enacted.BUT, this is not to say that the RTCs have no power to
declare a law unconstitutional. The Constitution contemplates that
the inferior courts should have jurisdiction in cases involving
constitutionality of any treaty or law, for it speaks of appellate
review of final judgments of inferior courts in cases where such
constitutionality happens to be in issue. But this authority does
not extend to deciding questions which pertain to legislative
policy. The RTC can only look into the validity of a provision,
that is, whether or not it has been passed according to the
procedures laid down by law, and thus cannot inquire as to the
reasons for its existence. Judges can only interpret and apply the
law, they cannot repeal or amend it.
Pepsi vs Municipality of TanauanGR L-31156, 27 February
1976Double taxation; delegation of tax powers
FACTS: In 1963 Pepsi-Cola Bottling Company of the Philippines,
Inc., (herein petitioner) commenced a complaint with preliminary
injunction before the CFI Leyte to declare Section 2 of Republic
Act No. 2264, otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well
as to declare Ordinances Nos. 23 and 27, series of 1962, of the
municipality of Tanauan, Leyte, null and void. Municipal Ordinance
No. 23 levies and collects on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of
one centavo P0.01) on each gallon of volume capacity while
Municipal Ordinance No. 27 levies and collects on soft drinks
produced or manufactured within the territorial jurisdiction of
this municipality a tax of one centavo P0.01) on each gallon of
volume capacity. The tax imposed in both Ordinances Nos. 23 and 27
is denominated as "municipal production tax.It was also alleged by
petitioner that the aforementioned municipal ordinances constitute
double taxation in two instances: a) double taxation because
Ordinance No. 27 covers the same subject matter and impose
practically the same tax rate as with Ordinance No. 23, b) double
taxation because the two ordinances impose percentage or specific
taxes.The CFI of Leyte dismissed the complaint and upheld the
constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional. From this
judgment, Pepsi-Cola Bottling Company appealed to the CA which, in
turn elevated the case to the SC. ISSUES: a. Whether or not there
is undue delegation of taxing powersb. Whether or not there is
double taxation.RULING:A. No. The Constitution even allows such
delegation. Legislative powers may be delegated to local
governments in respect of matters of local concern.By necessary
implication, the legislative power to create political corporations
for purposes of local self-government carries with it the power to
confer on such local governmental agencies the power to tax. Under
the New Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy taxes.
Section 5, Article XI provides: Each local government unit shall
have the power to create its sources of revenue and to levy taxes,
subject to such limitations as may be provided by law. Withal, it
cannot be said that Section 2 of Republic Act No. 2264 emanated
from beyond the sphere of the legislative power to enact and vest
in local governments the power of local taxation.B. No. The
argument of the Municipality is well taken. Further, Pepsi Colas
assertion that the delegation of taxing power in itself constitutes
double taxation cannot be merited. It must be observed that the
delegating authority specifies the limitations and enumerates the
taxes over which local taxation may not be exercised.The reason is
that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not
forbidden by our fundamental law unlike in other jurisdictions.
Double taxation becomes obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental entity or by the
same jurisdiction for the same purpose,but not in a case where one
tax is imposed by the State and the other by the city or
municipality.Kilosbayan, Inc. et al vs GuingonaGR 113375, 5 May
1994
FACTS: Pursuant to Section 1 of the charter of the PCSO (R.A.
No. 1169, as amended by B.P. Blg. 42) which grants it the authority
to hold and conduct charity sweepstakes races, lotteries and other
similar activities, the PCSO decided to establish an on-line
lottery system for the purpose of increasing its revenue base and
diversifying its sources of funds. The Philippine Gaming Management
Corporation (PGMC) which is organized by Berhad group, a
multinational company and one of the ten largest public companies
in Malaysia, was granted to provide the technical and management
services for the needed for project in the form of a lease contract
approved by the President. KILOSBAYAN sent an open letter to
President Fidel V. Ramos strongly opposing the setting up of the
on-line lottery system on the basis of serious moral and ethical
considerations.The protest was denied by the Office of the
President, contemplating that only a court injunction can stop
Malacaang . Hence, this petition. ISSUES: 1. Whether or not the
petitioners have locus standi.2. Whether or not the Contract of
Lease in the light of Section 1 of R.A. No. 1169, as amended by
B.P. Blg. 42, which prohibits the PCSO from holding and conducting
lotteries in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or
foreign. is legal and valid.RULING:1. The Court ruled that
petitioners have legal standing considering that the ramifications
of such issues immeasurably affecting the social, economic, and
moral well-being of the people even in the remotest barangays of
the country and the counter-productive and retrogressive effects of
the envisioned on-line lottery system are as staggering as the
billions in pesos it is expected to raise. The legal standing then
of the petitioners deserves recognition, setting aside its
procedural technicality.2. Section 1 of R.A. No. 1169, as amended
by B.P. Blg. 42, prohibits the PCSO from holding and conducting
lotteries in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or
foreign. There is undoubtedly a collaboration between PCSO and PGMC
and not merely a contract of lease. The relations between PCSO and
PGMC cannot be defined simply by the designation they used, i.e., a
contract of lease. The contracts nature can be understood to form
the intent of the parties as evident in the provisions of the
contract. Article 1371 of the CC provides that the intent of
contracting parties are determined in part through their acts. The
only contribution PCSO will be giving is the authority to operate.
PCSO bears no risk and all it does is to provide its franchise.
Pursuant to the wordings of their agreement, PGMC at its own
expense shall build, operate, and manage the network system
including its facilities needed to operate a nationwide online
lottery system. Indeed, PCSO cannot share the franchise in any way.
Clearly, the challenged Contract of Lease violates the exception
provided for in paragraph B, Section 1 of R.A. No. 1169, as amended
by B.P. Blg. 42, and is, therefore, invalid for being contrary to
law.
MCIAA vs MarcosARCIDE
Republic vs ICCGR 141667, 17 July 2006Regulatory nature of
permit fees
FACTS: On April 4, 1995, respondent ICC,holderof a legislative
franchiseunder Republic Act (RA) No. 7633to operate domestic
telecommunications, filed with the NTC an application for a
Certificate of Public Convenience and Necessityto install, operate,
and maintain an internationaltelecommunicationsleased circuit
service between the Philippines and other countries, and to charge
rates therefor, with provisional authority for the
purpose.Respondent ICC filed a motion for partial reconsideration
of theOrder insofar as the same requiredthe payment of apermit fee.
In a subsequent Order datedJune 25, 1997,theNTC denied the
motion.Therefrom, ICC went to the CA on a petition
forcertiorariwith prayer for a temporary restraining order and/or
writ of preliminary injunction,questioning the NTC's imposition
against it of a permit fee ofP1,190,750.50as a condition for the
grant of the provisional authority applied for.Inits
originaldecision, datedJanuary 29, 1999, the CA ruled in favor
oftheNTC whose challenged orders were sustained,and accordingly
denied ICC'scertioraripetition. In time, ICC moved fora
reconsideration. This time, the CA, in itsAmended
DecisiondatedSeptember 30, 1999, reversed itself, granting ICC its
motion for reconsideration. Petitioner NTC filed a motion for
reconsideration, but its motion was denied by the CA.
ISSUES: 1. Whether the feein questionis in the nature of a tax,
or is merely a regulatory measure.2. Whether or not there is a
repeal of Section 40 of the Public Service Act.RULING: 1. Section
40(g)of the Public Service Act is not a tax measure but a simple
regulatory provision for the collection of fees imposed pursuant to
the exercise ofthe Statespolice power. A tax is imposed under the
taxing power of government principally for the purpose of raising
revenues. The law in question, however, merely authorizes and
requires the collection of fees for the reimbursement of the
Commission's expenses in the authorization, supervision and/or
regulation of public services. There can be no doubt then that
petitioner NTC is authorized to collect such fees. However, the
amountthereof must be reasonably related to the cost of such
supervision and/or regulation.
2. The CA ratiocinated thatwhile Section 40(g)of the Public
Service Act (CA 146, as amended),supra,allowed NTC to impose fees
asreimbursement of its expenses related to,among otherthings, the
authorization of public services, Section 5(g), above,of R.A.No.
7921no longer speaks of authorization but only of regulation and
supervision. To the CA,the omissionby Section 5(g) of R.A.No.
7921of the word authorizationfound in Section 40(g) of the Public
Service Act, as amended,meant thatthefeeswhich NTC may impose are
onlyfor reimbursement ofits expenses forregulation and supervision
but no longer for authorization purposes.
We find, however, thatNTCis correct in saying that there is no
showing of legislative intent to repeal, even impliedly, Section
40(g),supra,of the Public Service Act, as amended. An implied
repeal is predicated on a substantial conflict between the new and
prior laws. In the absence of an express repeal, a subsequent law
cannot be construed as repealing a prioroneunless an irreconcilable
inconsistency and repugnancy existin the terms of the new and old
laws. The two laws must be absolutely incompatible such that they
cannot be made to stand together.
CIR vs Benguet Corp.GR 134587-77, 8 July 2006Prospective
application of VAT
FACTS: Benguet Corp. (Benguet) is a domestic corporation engaged
in mining. It is a VAT-registered enterprise. Benguet filed an
application for zero-rating of its sales of mine products. The
application was approved.The CIR issued the 1st VAT Ruling which
declared that the sale of gold to the Central Bank (CB) is
considered an export sale and therefor subject to 0% VAT. In
reliance to the CIRs position, Benguet sold gold to the CB and
treated these sales as 0% VAT rated. In this same period, Benguet
incurred input taxes attributable to its sale of gold to the CB.
Consequently, Benguet filed with the CIR applications for the
issuance of Tax Credit Certificates for input VAT Credits
attributable to its export sales.The CIR issued the second VAT
Ruling declaring that the sales of gold to the CB are considered
domestic sales subject to 10% VAT (instead of 0% in the 1ST VAT
RULING). Subsequently, the CIR issued another VAT Ruling. It stated
the retroactive application of the 2ND VAT RULING to all such prior
sales. Hence, Benguet prayed for the issuance of Tax Credit
Certificates with the CTA. ISSUES: Whether or not the 2nd VAT
RULING (subjecting sales of gold to the CB to 10% VAT) would be
prejudicial to Benguet since it retroacts to prior sales.RULING:
Benguets claim of the tax credit of input tax amounting to P50M
represents the costs or expenses incurred by Benguet in connection
with its gold production. Relying on the 1ST VAT RULING (sales of
gold to the CB are considered export sales subject to 0%), Benguet
sold gold to the CB without passing on CB its input VAT costs,
obviously intending to obtain a refund or credit thereof from the
BIR at the end of the taxable period. However, by the time Benguet
applied for credit of its input VAT costs, the 2ND VAT RULING
treated sales of gold to the CB as domestic sales subject to 10%
VAT. And the 3RD VAT RULING retroactively applied the 2ND VAT
RULING to such prior sales made. By reason of the denial of its
claim for credit, Benguet has been precluded from recovering its
input VAT costs. (1) Benguet has clearly shown that it has no other
transactions subject to 10% VAT and CIR has failed to prove the
existence of such other transactions against which to set off
Benguets input VAT. (2) Treating the input VAT as an income tax
deduction will yield only to a partial benefit. The use of input
VAT as a tax deductions results in a loss of 65% of the input VAT
which could have otherwise fully utilized as a tax credit. There is
substantial difference between a tax credit and a tax deduction. A
tax credit reduces tax liability, while a tax deduction only
reduces taxable income Prejudice is all the more highlighted by the
fact that it has been issued assessments for deficiency output VAT.
Benguet relied on the formal assurances of the BIRs 1st VAT RULING.
To retroact a later ruling revoking the grant of 0% rating status
and applying a new and contrary position that such sales are now
subject to 10% is inconsistent with justice and fair play.
CIR vs Benguet Corp.GR 145559, 14 July 2006Non-retroactive
application of taxes; Passing on of indirect taxes like VAT
FACTS: Since the inception of the VAT in 1988, sale of gold to
Central Bank has been considered by the BIR to be zero-rated. (VAT
Ruling 378-88 and RMC No. 5988). On January 23, 1992, Commissioner
Ong issued VAT Ruling No. 008-92 declaring and holding that the
sale of gold to the CB are considered domestic sales subject to the
10% VAT. Subsequently, VAT Ruling No. 59-92 dated April 28, 1992
was issued reiterating the treatment of sales of gold to CB and
expressly countenancing the retroactive application of VAT Ruling
No. 008-92 to all such sales made starting January 1, 1988.ISSUES:
(1) Can a ruling, changing the tax treatment of a transaction from
one subject to 0% to one subject to 10%, be given a retroactive
application? (2) Is there really an actual and imminent injury to
the taxpayer if the ruling is given a retroactive
application?RULING:(1) The SC ruled in the negative.
Well-entrenched is the rule that rulings and circulars, rules and
regulations, promulgated by the Commissioner of Internal Revenue,
would have no retroactive application if to so apply them would be
prejudicial to the taxpayers. There is no question, therefore, as
to the prohibition against the retroactive application of the
revocation, modification or reversal, as the case maybe, of
previously established Bureau on Internal Revenue (BIR) Rulings
when the taxpayer's interest would be prejudiced thereby.The CIR is
precluded from adopting a position inconsistent with one previously
taken where injustice would result therefrom, or when there has
been a misrepresentation to the taxpayer. (citing ABS-CBN
Broadcasting Corp. vs. CTA and CIR, 108 SCRA 142)(2) While the CTA
said there is none, the CA had taken a contrary view which was
affirmed by the SC. The VAT system of taxation allows a
VAT-registered taxpayer to recover its input VAT either by (1)
passing on the 10% output VAT on the gross selling price or gross
receipts, as the case may be, to its buyer, or (2) if the input tax
is attributable to the purchase of capital goods or to zero-rated
sales, by filing a claim for refund or tax credit with the BIR.
Simply stated, a taxpayer subject to 10% output VAT on its sales of
goods and services may recover its input VAT costs by passing on
said costs as output VAT to its buyers of goods and services but it
cannot claim the same as a refund or tax credit, while a taxpayer
subject to 0% on its sales of goods and services may only recover
its input costs by filing a refund or tax credit with the BIR.The
SC is correct in holding that a retroactive imposition of the VAT
on the sale of gold to Central Bank will definitely result to
substantial economic prejudice to respondent. First, the respondent
could no longer pass-on to CB the 10% output VAT which would be
retroactively imposed on said transactions, and second, it will
also be prevented from claiming the refund because the sale is no
longer zero rated. If this happens the entire cost of the input VAT
will be borne by respondent Benguet without any avenue for
recovery. Indeed, respondent stands to suffer substantial economic
prejudice by the retroactive application of the VAT Ruling in
question.
Planters Products vs FertiphilGR 166006, 14 March 2008Police
power and power to tax distinguished; tests to determine which
power is used
FACTS: On June 3, 1985, for the purpose of rehabilitating
Philippine Planters, Inc., the then President Ferdinand E. Marcos
issued Letter of Instruction (LOI) No. 1465 which imposed a charge
of P10.00 per bag of fertilizer on all domestic sales of fertilizer
in the Philippines. Respondent Fertiphil Corporation, a domestic
entity engaged in the fertilizer business, questioned the
constitutionality of LOI NO. 1465 and brought an action to recover
its accumulated payment thereunder in the amount of P6,698,144.00,
the case docketed as Civil Case No. 17835 before Branch 147 of the
Regional Trial Court of Makati. ISSUE: Whether or not, LOI 1465
constitutes valid legislation pursuant to the exercise of the power
of taxation and police power of the state RULING: No. Court said,
"It is clear from the Letter of Understanding that the levy was
imposed precisely to pay the corporate debts of PPI. We cannot
agree with PPI that the levy was imposed to ensure the stability of
the fertilizer industry in the country. The letter of understanding
and the plain text of the LOI clearly indicate that the levy was
exacted for the benefit of a private corporation, therefore not for
public purpose. Also, even if We consider LOI No. 1465 enacted
under the police power of the State, it would still be invalid for
failing to comply with the test of lawful subjects and lawful
means. Jurisprudence states the test as follows: (1) the interest
of the public generally, as distinguished from those of particular
class, requires its exercise; and (2) the means employed are
reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals. For the same reasons as
discussed, LOI No. 1465 is invalid because it did not promote
public interest. The law was enacted to give undue advantage to a
private corporation."
Gerochi vs DOEGR 159796, 17 July 2007
Regulatory exactions are not taxes
FACTS:RA 9136, otherwise known as the Electric Power Industry
Reform Act of 2001 (EPIRA), which sought to impose a universal
charge on all end-users of electricity for the purpose of funding
NAPOCORs projects, was enacted and took effect in
2001.Petitionerscontestthe constitutionality of the EPIRA, stating
that the imposition of the universal charge on all end-users is
oppressive and confiscatory and amounts to taxation without
representation for not giving the consumers a chance to be heard
and be represented.ISSUE:Whether or not the universal charge is
atax.RULING:NO. The assailed universal charge is not a tax, but an
exaction in the exercise of the States police power. That public
welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which
enumerates the policies of the State regarding electrification.
Moreover, the Special Trust Fund feature of the universal charge
reasonably serves and assures the attainment and perpetuity of the
purposes for which the universal charge is imposed (e.g. to ensure
the viability of the countrys electric power industry), further
boosting the position that the same is an exaction primarily in
pursuit of the States police objectivesIf generation of revenue is
the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the
fact that revenue is incidentally raised does not make the
imposition a tax.The taxing power may be used asan implement of
police power.The theory behind the exercise of the power to tax
emanates from necessity; withouttaxes, government cannot fulfill
its mandate of promoting the general welfare and well-being of the
people.
CIR vs Central Luzon DrugGR 148512, 26 June 2006Tax credit and
tax deductions in Senior Citizens Act
FACTS: Central Luzon Drug Corporation is a retailer of medicines
and other pharmaceutical products. Pursuant to the mandate of
Section 4(a) of Republic Act No. 7432, otherwise known as the
Senior Citizens Act, it granted a twenty percent (20%) discount on
the sale of medicines to qualified senior citizens amounting to
P219,778.00 (for the period January 1995 - December 1995). It then
deducted the same amount from its gross income for the taxable year
1995, pursuant to Revenue Regulations No. 2-94 implementing the
Senior Citizens Act, which states that the discount given to senior
citizens shall be deducted by the establishment from its gross
sales for value-added tax and other percentage tax purposes. For
the said taxable period, Central Luzon Drug reported a net loss of
P20, 963.00 in its corporate income tax return, and as a result, it
did not pay income tax for 1995. Central Luzon Drug filed a claim
for refund in the amount of P150,193.00, claiming that according to
Sec. 4(a) of the Senior Citizens Act, the amount of P219,778.00
should be applied as a tax credit. ISSUE: Whether or not the 20%
discount granted by the respondent to qualified senior citizens may
be claimed as tax credit or as deduction from gross sales?
RULING: Tax credit is explicitly provided for in Sec4 of RA
7432. Nothing in the provision suggests for it to mean a deduction
from gross sales. Thus, the 20% discount required by the law to be
given to senior citizens is a tax credit, not a deduction from the
gross sales of the establishment concerned. As a corollary to this,
the definition of tax credit found in Sect. 2(1) of Revenue
Regulations No. 2-94 is erroneous as it refers to tax credit as the
amount representing the 20% discount that shall be deducted by the
said establishment from their gross sales for value added tax and
other percentage tax purposes. When the law says that the cost of
the discount may be claimed as a tax credit, it means that the
amount, when claimed, shall be treated as a reduction from any tax
liability. The law cannot be amended by a mere regulation. Sec. 229
of the Tax Code does not apply to cases that fall under Sec. 4 of
the Senior Citizens Act. Under the Senior Citizens Act, tax credit
is considered a form of just compensation, not a remedy for taxes
that were erroneously or illegally assessed and collected. In the
same vein, prior payment of any tax liability is not a precondition
before a taxable entity can benefit from the tax credit. The credit
may be availed of upon payment of the tax due, if any. Where there
is no tax liability or where a private establishment reports a net
loss for the period, the tax credit can be availed of and carried
over to the next taxable year.
Carlos Superdrug vs DSWDGR 166494, 29 June 2007Tax credits vs
tax deductions; superiority of general welfare over property
rights
FACTS: This is a petitionfor Prohibition with Prayer for
Preliminary Injunction assailing the constitutionality of Sec. 4(a)
of RA 9257 (Expanded Senior Citizens Act of 2003) based on the
grounds that (1) the law is confiscatory; (2) it violates the equal
protection clause; and, (3) the 20% discount on medicines violates
the constitutional guarantee in Article XIII, Section 11 that makes
"essential goods, health and other social services available to all
people at affordable cost." Sec. 4(a) of the Act states that the
senior citizens shall be entitled to 20% discount from all
establishments relative to the utilization of services in hotels
and similar lodging establishments, restaurants and recreation
centers, and purchase of medicines in all establishments for the
exclusive use or enjoyment of senior citizens, including funeral
and burial services for the death of senior citizens; and, the
establishment may claim the discounts astax deductionbased on the
net cost of the goods sold or services rendered. ISSUES:1) What is
a tax credit and what are its effects2) What is a tax deduction and
what are its effects3) Whether the State, in promoting the health
and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government
programRULING:1) Under RA 7432 (the old Senior Citizens Act) the
20% discount may be claimed by the private establishments concerned
as tax credit. Atax creditis a peso-for-peso deduction from a
taxpayers tax liability due to the government of the amount of
discounts such establishment has granted to a senior citizen. The
establishment recovers the full amount of discount given to a
senior citizen and hence, the government shoulders 100% of the
discounts granted. A tax creditscheme under the Philippine tax
system, necessitates that prior payments of taxes have been made
and the taxpayer is attempting to recover this tax payment from
his/her income tax due. 2) Under RA No. 9257, the establishment
concerned may claim the 20% discounts astax deductionfrom gross
income, based on the net cost of goods sold or services rendered.
Under this scheme, the establishment concerned is allowed to deduct
from gross income, in computing for its tax liability, the amount
of discounts granted to senior citizens. Effectively, the
government loses in terms of foregone revenues an amount equivalent
to the marginal tax rate the said establishment is liable to pay
the government. This will be an amount equivalent to 32% of the 20%
discounts so granted. The establishment shoulders the remaining
portion of the granted discount3) A tax deduction does not offer
full reimbursement of the senior citizen discount. As such, it
would not meet the definition of just compensation. However, the
Senior Citizens Act was enacted primarily to maximize the
contribution of senior citizens to nation-building, and to grant
benefits and privileges to them for their improvement and
well-being as the State considers them an integral part of our
society, as provided for in Art. XV, Sec. 4 of the Constitution.
The law is a legitimate exercise of police power which has general
welfare for its object. When the conditions so demand as determined
by the legislature, property rights must bow to the primacy of
police power because property rights, though sheltered by due
process, must yield to general welfare.
Diaz vs Sec. of Finance GR 193007, 19 July 2011
FACTS: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol
(petitioners) filed this petition for declaratoryrelief assailing
the validity of the impending imposition of value-added tax (VAT)
by the Bureau ofInternal Revenue (BIR) on the collections of
tollway operators. Court treated the case as one ofprohibition.
Petitioners hold the view that Congress did not, when it enacted
the NIRC, intend to include toll feeswithin the meaning of "sale of
services" that are subject to VAT; that a toll fee is a "user's
tax," not a sale of services; that to impose VAT on toll fees would
amount to a tax on public service; and that, since VAT was never
factored into the formula for computing toll fees, its imposition
would violate the non-impairment clause of the constitution. The
government avers that the NIRC imposes VAT on all kinds of services
of franchise grantees, including tollway operations; that the Court
should seek the meaning and intent of the law from thewords used in
the statute; and that the imposition of VAT on tollway operations
has been the subject as early as 2003 of several BIR rulings and
circulars. The government also argues that petitioners have no
right to invoke the non-impairment of contracts clause since they
clearly have no personal interest in existing toll operating
agreements (TOAs)between the government and tollway operators. At
any rate, the non-impairment clause cannot limit the State's
sovereign taxing power which is generally read into contracts.
ISSUE: May toll fees collected by tollway operators be subjected
to VAT (Are tollway operations a franchise and/or a service that is
subject to VAT)?
RULING:When a tollway operator takes a toll fee from a motorist,
the fee is in effect for the latter's use of the tollway facilities
over which the operator enjoys private proprietary rights that its
contract and the lawrecognize. In this sense, the tollway operator
is no different from the service providers under Section108 who
allow others to use their properties or facilities for a fee.
Tollway operators are franchise grantees and they do not belong to
exceptions that Section 119 spares from the payment of VAT. The
word "franchise" broadly covers government grants of a special
right to do an act or series of acts of public concern. Tollway
operators are, owing to the nature and object of their business,
"franchise grantees." The construction, operation, and maintenance
of toll facilities on public improvements are activities of public
consequence that necessarily require a special grant ofauthority
from the state.A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund
public expenditures. Toll fees, on the other hand, are collected by
private tollwayoperators as reimbursement for the costs and
expenses incurred in the construction, maintenance and operation of
the tollways, as well as to assure them a reasonable margin of
income. Although toll fees are charged for the use of public
facilities, therefore, they are not government exactions that can
be properly treated as a tax. Taxes may be imposed only by the
government under its sovereign authority, toll fees may be demanded
by either the government or private individuals or entities, as an
attribute of ownership.
TAX REMEDIES CASESCIR vs CTA & Citytrust GR 106611, 21 July
1994
FACTS: City Trust filed its claim of tax refunds for its income
tax overpayments for years 1983, 1984 and 1985. The case was
submitted for decision based solely on the pleadings and evidence
submitted by City Trust. Herein petitioner could not present any
evidence by reason of the repeated failure of the Tax Credit/Refund
Division of the BIR to transmit the records of the case to the
Solicitor General. CTA ruled that petitioner is entitled to a
refund but only for the overpaid taxes incurred in 1984 and 1985.
The refundable amount in its 1983 income tax return was denied on
the ground of prescription. An MR was thereafter filed, wherein it
was contended for the first time that City Trust had outstanding
unpaid deficiency income taxes for 1984. The MR was denied. On
Appeal, the CA affirmed CTAs ruling.
ISSUES:1. Is the government bound by the errors of its
agents/employees?2. Is City Trust entitled tax refund when it was
found out that it has unpaid tax liabilities?
RULING: 1. No. It is a settled rule of law that the Government
is not bound by the errors committed by its agents. In the
performance of its governmental functions, the State cannot be
estopped by the neglect of its agent and officers. This rule is
especially true in the field of taxation.It is axiomatic that the
Government cannot be estopped particularly in matters involving
taxes. Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the State
effects its functions for the welfare of its constituents.The
errors of certain administrative officers should never be allowed
to jeopardize the Government's financial position.
2. No. The fact of such deficiency assessment is intimately
related to with the right of City Trust to claim for a tax refund
for the same year. To award such refund despite the existence of
that deficiency assessment is an absurdity. City Trust cannot be
entitled to refund and at the same time be liable for a tax
deficiency assessment for the same year. The grant of a refund is
founded on the assumption that the tax return is valid, that is,
the facts stated therein are true and correct. The deficiency
assessment, although not yet final, created a doubt as to and
constitutes a challenge against the truth and accuracy of the facts
stated in said return which, by itself and without unquestionable
evidence, cannot be the basis for the grant of the refund.
South African Airways vs CIR GR 180356, 16 February 2010
Income tax liability of international carriers; off-setting of
tax deficiency and tax refund
FACTS: Petitioner is a foreign corporation duly established
under the laws of South Africa, having its principal office at
Johannesburg International Airport. It has no landing rights in the
Philippines, being merely an internal carrier. It is not registered
with the SEC and is not licensed to do business in the Philippines,
but has a general sales agent in the Philippines, Aerotel Ltd.
Corp, which sells passage documents for compensation or commission
for petitioners off-line flights for the carriage of passengers and
cargo between ports or points outside Philippine territory.In 2000,
petitioner paid about Php 1.7 million in taxes as 2.5% of its GPB
(Gross Philippine Billings). The definition of GPB has changed over
the years. Under the 1939 NIRC, 2.5% tax on GPB was imposed on
international carriers existing under foreign laws but engaged in
business within the Philippines. Under the 1977 NIRC, it was
imposed on international carriers selling passage documents in the
Philippines provided the cargo/mail is of Philippine origin. Under
the 1986 and 1993 NIRC, it was imposed on gross revenue realized
from uplifts of passengers anywhere in the world and excess
baggage, cargo, and mail of Philippine origin covered by passage
documents sold in the Philippines. Under the 1997 NIRC, it refers
to gross revenue from carriage of persons, excess baggage, cargo
and mail of Philippine origin in a continuous and uninterrupted
flight irrespective of where the passage document for such was
sold. In 2003, petitioner filed for a tax refund with the BIR,
claiming that Php 1.7 million was erroneously paid on the ground
that it is not liable for tax on its GPB or for any other income
tax. The claim, however, was not answered, prompting petitioner to
file for a review before the CTA.The CTA denied the petition on the
ground that although petitioner was not liable for 2.5% of GPB, it
was liable to pay 32% income tax because it was engaged in a
business in the Philippines. Hence, petitioner appeals before the
SC, arguing that granting that it is liable for the 32% income tax,
it is nevertheless has the right to be refunded of the taxes it
wrongly paid for 2.5% of its GPB or that such amount should be
offset from its 32% income tax liability as a matter of legal
compensation. ISSUES: 1. What tax is petitioner liable for? 2. Can
there be off-setting where taxpayer, who has not paid taxes it is
liable for (tax deficiency), has paid taxes it is not liable for
(tax refund)?RULING: 1. Petitioner is not liable for the 2.5% tax
on GPB because it does not maintain flights to or from the
Philippinesit is merely selling passage documents for the transfer
of such on flights outside Philippine territory. However, it is
liable for the 32% income tax because off-line air carriers having
general sales agents in the Philippines are engaged in or doing
business in the Philippines, and that their income from sales of
passage documents here is income from within the Philippines (CIR
vs British Overseas Airways).
The general rule is that under Sec. 28 (A) (1) of the 1997 NIRC,
resident foreign corporations are liable for 32% tax on all income
from sources within the Philippines. The exception is that under
Sec. 28 (A) (3) of the 1997 NIRC, they are only liable for 2.5% on
their GBP if such foreign corporation is an international carrier
maintaining flights to and from the Philippines lifting persons,
excess baggage, cargo, or mail, originating from the Philippines.
Petitioner does not belong to the latter category; hence the
general rule applies to it.2. Yes. The general rule is that taxes
cannot be subject to compensation because the government and the
taxpayer are not creditors and debtors of each other. Taxes are not
debts to the government. Debts are due to the government in its
corporate capacity, while taxes are due to the government in its
sovereign capacity. There can be no off-setting of taxes against
the claims that the taxpayer may have against the government in its
corporate capacity. A person cannot refuse to pay taxes on the
ground that the government owes him an amount equal to or greater
than the tax to be collected. The collection of a tax cannot await
the results of a lawsuit against the government.
However, in CIR vs CTA (GR 106611, 21 July 1994), a tax refund
may be off-set with a tax deficiency to avoid multiplicity of suits
and for efficiencys sake, provided that no doubt is created as the
accuracy of the facts in the tax return since a refund assumes a
valid tax return. In this case, there is doubt to the validity of
petitioners tax return as it has been found that it is liable for
one tax but not for another. Hence, the case was remanded for
retrial to establish the correct amount that should have been in
petitioners tax return for year 2000.
Procter & Gamble vs Municipality of Medina GR L-29125, 31
January 1972
FACTS: Procter & Gamble Trading Company and Union Import
& Export Corporation, herein appellants, engaged in an
occupation or business of copra in the Municipality of Medina
question the decision of the lower court upholding the validity of
Ordinance No. 13 of the Municipality of Medina, which was approved
pursuant to Commonwealth Act No. 472. The subject provision reads:
"The following taxes, charges, and fees are imposed in the
Municipality upon the businesses, occupations, and privileges,
specific hereunder, and shall be collected in accordance with the
following schedule of rates: ... ." Both appellants seek to annul
or at least to obtain a judicial declaration of their being outside
the scope of Ordinance No. 13 on the contention that they are not
merchants within the meaning of the ordinance and that what is
imposed by the ordinance is an export tax expressly prohibited by
law. ISSUE: 1. Whether or not the appellants are not merchants
within the meaning of Ordinance No. 13 of the Municipality of
Medina and hence the ordinance is inapplicable to them?1. Whether
or not Ordinance No. 13 of the Municipality of Medina is an export
tax expressly prohibited by law?RULING:1. No. Undoubtedly, the
plaintiffs are engaged in an occupation or business in the
municipality. This fact is evidenced by the existence in Medina of
plaintiffs branch offices or buying agencies, manned by their
branch managers and clerical forces; their establishments like
bodegas and equipment necessary in the buying, storing and shipping
of copra; actual purchase of millions of kilos of copra in Medina
and its environs in terms of millions of pesos every year and round
the year; and direct exportation and shipment of this commodity by
the plaintiffs to foreign countries thru foreign vessels that
periodically and regularly call in defendant's municipal wharf at
the instance of plaintiff. Certainly, these series of activities of
plaintiffs constitute business in every essence of the word for it
could not deny that the same is carried for profit or gain. It is
explicitly provided in the ordinance in question that defendant
Municipality would collect taxes, charges and fees on businesses
conducted therein. The conferment of such competence under
Commonwealth Act No. 472 is in accordance with the well-settled
principle that a public corporation may tax a business or
profession conducted within its territorial jurisdiction. There
should be greater awareness on the part of firms and entities
conducting business within a municipality that the exercise of such
a privilege could be subject to the appropriate exercise of the
prerogative to tax. Hence, said ordinance is applicable to
appellants Procter & Gamble Trading Company and Union Import
& Export Corporation.1. No. The appellants were