taxation} case survey (mostly 99-2001)} made 2003} by su law (daki courtesy of atty mascardo)} 31

8/12/2019 Taxation} Case Survey (Mostly 99-2001)} Made 2003} by SU Law (Daki Courtesy of Atty Mascardo)} 31

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Silliman University College of Law – 1999/2000/2001CASES – TAXATI!

"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 1 of -1

CI. vs) La Cam,ana ari'a %e Taa'os In') !ovemer 1 2001 #ar%o 3)

4(estion5 La Campana is a cigar manufacturer which purchased tobacco leaf fromcigar manufacturers classified by the Regulations as L-6 permittees. The BIR assessed

La Campana of excise taxes on its purchases of raw tobacco leaf amounting to

!"#$%"&&$.#%. La Campana in'o(ed the Tax Code pro'ision which expressly allows thesale of stemmed leaf tobacco as raw material by one manufacturer directly to another

without payment of the excise tax. Is La Campana liable to pay the excise tax)

Answer5 *es. In the case at bar" the stemmed leaf tobacco purchased by La

Campana came from L-6 permittees. +ection ,&# ,/0 of the Tax Code 1ualifies the

term 2manufacturer3 by the phrase 2under such conditions as may be prescribed in the

regulations of the 4epartment of 5inance.3 nder such regulations the term2manufacturers3 refers only to L-# permittees. den0

666"an7 of t8e #8ili,,ine Islan%s vs) CI. A(g(st 2 2001 *E!:;A 3)

4(estion5 5amily Ban( merged with BI on 7uly ," ,8$%. rior to the merger"

5amily Ban( had excess creditable withholding tax credits amounting to ,#"/6%. BIfiled 5amily Ban(9s final ad:ustment return on ;pril ,%" ,8$6. Thereafter" BI filed a

claim for refund of 5amily Ban(9s excess tax credits with the BIR. ;ccordingly" BI

filed a petition for re'iew see(ing refund with the Court of Tax ;ppeals on 4ecember !8"

,8$#.The CT; dismissed the petition and denied the claim on the ground of prescription.

BI argued that the two-year period should be counted from ;pril ,%" ,8$6. CT; ruled

that the two-year period commenced to run 7uly &," ,8$% or &/ days after the appro'al of

the +<C of the plan of dissolution.4ecide.

Answer5 The two-year period has prescribed. The two-year period must be counted

from 7uly &," ,8$% or &/ days after the appro'al of the +<C of the plan of dissolution

pursuant to +ec. #$ now %! C00 of the Tax Code and +ec. ! of Re'enue Regulations !the consolidated income tax regulations0.

+ec. #$ and +ec. ! of RR !0 pro'ides that within &/ days after the adoption by

the corporation of a resolution or plan for dissolution of the corporation or for theli1uidation of the whole or any part of its capital stoc( xxx render a correct return short

return0 to the CIR setting forth terms of such resolution or plan.

Thus" 5amily Ban(" after the end of its corporate life on 7une &/" ,8$%" should

ha'e filed its income tax return called short return0 within thirty &/0 days after the

cessation of its business or thirty days after the appro'al of the ;rticles of =erger" whichis 7uly &," ,8$%. The two-year period therefore shall end on 7uly &," ,8$#. den0

CI. vs) Isaela C(lt(ral Cor,) 3(ly 11 2001 #anganian 3)




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age - of -1

where =eralco maintained deposits. =eralco without exhausting administrati'eremedies obtained an in:unction before the trial court arguing that since it is no longer the

owner of the property in 1uestion now with ?;@C@R0" it can obtain in:uncti'e relief

with the trial court e'en without the condition precedent protest payment as re1uiredunder the Real roperty Tax Code now in the LC0. In effect" =eralco is saying that

the trial court has :urisdiction as it is the issuance of the warrants of garnishment he is

see(ing to en:oin not the tax assessment. Is =eralco correct)

Answer5 ?o. The trial court has no :urisdiction to entertain a petition for

prohibition absent =eralco9s payment under protest of the tax assessed pursuant to +ec.6 of the RTC now in LC0. +uch payment under protest is a condition sine 1ua non

and failing to do so" the RTC has no :urisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment" under protest" of the taxes is consistent with the doctrine that taxes are the

lifeblood of the nation and as such their collection cannot be curtailed by in:unction or

any li(e action.

There is also no merit on the contention that the trial court could ta(e cogniance

of the petition as it only 1uestions the 'alidity of the warrants of garnishment on the ban(deposits and not the tax assessment. ;s the warrants were issued to collect bac( taxes

from =eralco" the petition for prohibition would in effect forestall the collection of said

bac( taxes.

This" =eralco cannot do without first resorting to the proper administrati'e

remedies @R pay under protest the tax assessed" to allow the court to assume :urisdiction

o'er the petition.

4(estion5 Is =eralco9s argument correct in saying that since ?;@C@R is now the

owner of the plant and machineries it is no longer the taxpayer liable)

Answer5 ?o. It is =eralco that misdeclared the property in 1uestion way bac( in

,8#6-,8#$. The fact that ?;@C@R is the present owner of the property does notconstitute a legal barrier to the collection of delin1uent taxes from the pre'ious owner

who defaulted in its payment.

The unpaid tax attaches to the property and is chargeable against the person whohad actual or beneficial use of it regardless of whether he is the owner. But to impose the

real property tax on the subse1uent owner which was neither the owner nor the beneficialof the property during the designated periods ,8#6-,8#$0 would not only be contrary tolaw but also un:ust. den0

4(estion5 =eralco argues that real property tax constitutes a lien on the propertysub:ect to tax" thus" payment thereof should be made by proceeding against the real

property itself plant machineries and e1uipment0 or any personal property located




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age = of -1

therein" and ?@T the separate personal property of =eralco" specifically the ban(deposits. Is =eralco correct)

Answer5 ?o. There are & concurrent and simultaneous remedies to enforce thecollection of real property taxes" namelyD ,0 distraint of personal property !0 sale of

delin1uent real property" and &0 collection of real property tax through ordinary court

action.

The remedy of le'y can be pursued by putting up for sale of R<;L R@<RT*

sub:ect to tax" i.e." the delin1uent property upon which the tax lien attaches" regardless ofthe present owner or possessor thereof.

The remedy of distraint and le'y of <R+@?;L R@<RT* meanwhile allows

the taxing authority to sub:ect ;?* personal property of the taxpayer to execution" sa'ecertain exceptions as enumerated under +ec. 68 of the Real roperty Tax Code. Ban(

deposits are not among those exceptions. den0

Sea$Lan% Servi'e vs) Co(rt of A,,eals A,ril -0 2001 #ar%o 3)

4(estion5 nder R-+ =ilitary Bases ;greement" the hilippine go'ernment shallexempt from payment of income tax to + nationals or corporations in respect to profit

deri'ed under a contract made in + with + o'ernment in connection with

construction" maintenance" operation and defense of the bases.

ncle +am Corporation deri'ed income ser'ices in transporting household goodsand effects to + military personnel. 4oes the income fall under the exemption)

Answer5 ?o. The transport or shipment of household goods and effects of +

military personnel is not included in the term 2construction" maintenance" operation anddefense of the bases.3 ?either could the performance of this ser'ice to the +

go'ernment be interpreted as directly related to the defense and security of the hilippineterritories. den0

Anot8er answer5 The a'owed purpose of tax exemption 2is some public benefit orinterest" which the lawma(ing body considers sufficient to offset the monetary loss

entailed in the grant of the exemption.3 The hauling or transport of household goods and

personnel effects of + military personnel would not directly contribute to the defense

and security of the hilippines.

Laws granting exemption from tax are construed strictly against the taxpayer andliberally in fa'or of the taxing power. den0

Cagayan .oina S(gar *illing Co) vs) Co(rt of A,,eals 't) 12 2000

4(estion5 In ,88/" the ;sset ri'atiation Trust ;T0 offered for sale all assets of

+ugar Co. ; which had been foreclosed and transferred to ;T by the 4B. The ;T

set the floor bid price at &%% =illion. +ugar Co. B" bidding 66 =illion ac1uired said




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age of -1

properties. @n @ctober ,$" ,88/" the ro'incial ;ssessor of Cagayan issued 2notice ofassessment of real property3 computing the assessed 'alues using the mar(et 'alue of the

properties at &8,"6!&"%!/.

@n 5ebruary ,$" ,88," petitioner appealed the assessment to the Local Board of;ssessment ;ppeals LB;;0 on the ground that it was excessi'e" erroneous and un:ust.

LB;; resol'ed on ;pril ," ,88! that the proper assessed 'alue be the ;T floor bid

price &%% =illion0. The assessor obliged and after deducting 'alue of machineries notsub:ect to real property tax came up with the assessed 'alue of !/$"!6,"6%/.

@n ;pril ,$" ,88!" +ugar Co. B filed an appeal of assessment to the LB;;. @n the

same day" the LB;; denied the appeal. @n ?o'ember !%" ,88!" +ugar Co. B appealedto the Central Board of ;ssessment ;ppeals CB;;0 which denied the same on the basis

that it was filed out of time.

a0 Is the contention of +ugar Co. B correct that the use of the ;T 2floor bid

price3 for 'aluation of its properties was erroneous as the 'aluation should ha'e been based on other factors such as goodwill and future business potentials as well as

operating conditions of said properties)

b0 Is the CB;; correct in denying the appeal on the ground of prescription)

Answer5

a+ ?o. The applicable law (is the Real Property Code not the 1991 LGC) does not

preclude the LB;; and CB;; from adopting 'arious approaches to 'alue determination"

including the ;T 2floor bid price3 for +ugar Co. B9s properties. Ealuation on the basis

of a floor bid price is not bereft of any basis in law. @ne of the approaches to 'alue is thesales analysis approach or the market data approach where the source of mar(et date

for 'aluation is from offer of sales or bids of real property.

+ *es. +ugar Co B9s appeal to the CB;; was timely barred. The applicable pro'ision of the Real roperty Code pro'ides for &/ days from the receipt of the LB;;

decision to appeal to the CB;;. pon receipt by +ugar Co B of the denial of his appealon ;pril ,$" ,88!" it has until =ay ,$" ,88! to appeal the LB;;9s resolution to the

CB;;. +ince" it appealed only on ?o'ember !%" ,88!" its action has clearly prescribed.&see ,age =<= Aan re% oo7 for L>C ,ro'e%(re &similar++

>ell entrenched is the rule that the perfection of an appeal within the

reglementary period is both mandatory and :urisdictional" and that failing in this regardrenders the decision final and executory. den0

666Lig8t .ail Transit A(t8ority vs) Central "oar% of Assessment A,,eals 't) 122000

4(estion5 The City ;ssessor of =anila assessed the properties of LRT;" a

go'ernment owned and controlled corporation consisting of carriageways and passengerterminal stations. LRT; refused to pay the real property tax contending that these are not

real property and if the same are considered realty" these are not taxable since these are




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age < of -1

for public useFpurpose and moreo'er these are owned by the national go'ernment. IsLRT;9s carriageways and passenger terminal stations sub:ect to real property tax)

Answer5 *es. nder the Real roperty Tax Code now part of LC0" real property is classified for assessment purposes on the basis of actual use" which is defined

as 2the purpose for which the property is principally or predominantly utilied by the

person in possession of the property.

Though the creation of LRT; was impelled by public ser'ice G to pro'ide mass

transportation to alle'iate traffic and transportation situation in == G its operationundeniably parta(es of ordinary business. +ince it is engaged in a ser'ice-oriented

commercial endea'or" its carriageways and terminal stations are patrimonial property

sub:ect to tax" notwithstanding its claim of being a go'ernment-owned or controlled

corporation.

The carriageways and terminal stations ser'e a function different from that of

public roads. The former are part and parcel of the LRT system while the latter are opento use by the general public. The carriageways are accessible only to LRT trains" while

the terminal stations ha'e been built for the con'enience of LRT; and its customers who

pay the re1uired fare.

<'en granting that the ?ational o'ernment indeed owns the carriageways and

terminal stations" the exemption would not apply because their beneficial use has been

granted to LRT;" a taxable entity. den0 ,ls) See Aan?s %igests

#8ili,,ine "as7etall Asso'iation vs) Co(rt of A,,eals A(g) 2000

4(estion5 B; contested the deficiency amusement tax assessed against it by theBIR for conducting the professional bas(etball games and for the cession of ad'ertising

and streamer spaces to Eintage <nterprises" Inc.a0 should the amusement taxes be paid to the local go'ernment instead of the

BIR)

b0 Is the cession of ad'ertising and streamer spaces to sub:ect to the payment ofamusement taxes)

Answer5

a+ ?o. rofessional bas(etball games should pay the amusement taxes collected bythe BIR and not the amusement taxes collected by the local go'ernments.

The amusement tax which pro'inces and cities are allowed to collect under +ec.,/ of the Local o'ernment Code" refers to amusement tax to be collected from

proprietors" lessees or operators ofD

a0 theaters b0 cinemas

c0 concert halls

d0 circuses




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age @ of -1

e0 boxing stadiaf0 other place of amusement.

The authority to tax professional bas(etball games is not included therein because itis a national tax pro'ided for under +ection ,!% of ,88# ?IRC pro'iding that 2there shall

be collected from proprietor" lessee" or operator ofD

a0 coc(pits b0 cabarets

c0 night or day clubs

d0 boxing exhibitionse0 professional bas(etball games

f0 :ai-alaiH and

g0 race trac(s3 4omondon0

Anot8er answer5 >hile +ec. ,/ mentions 2other places of amusement"3

professional bas(etball games are not within its scope. nder the principle of e:usdem

generis" in determining the meaning of the phrase 2other places of amusement"3 referencemust be made to the prior enumeration. rofessional bas(etball games do not fall under

the same category as theaters" cinematographs" concert halls and circuses which basically

belong to artistic forms of entertainment" while the former caters to sports and gaming.aban0

b0 *es. +ec. ,!% of ?IRC pro'ides that the term 2gross receipts embraces all the

receipts of the proprietor" lessee or operator of the amusement place. This term is broadenough to embrace the cession of ad'ertising and streamer spaces as the same embraces

all receipts of the proprietor" lessee or operator of the amusement place. It is thus" a

national tax not a local tax. 4omondon0

666#imentel 3r) vs) Ag(irre 3(ly 19 2000 #anganian 3)

4(estion5 Can the resident reduce the internal re'enue allotments IR;0 of Local

o'ernment nits)

Answer5 *es. The resident is authoried by the Local o'ernment Code of ,88,

to ma(e the necessary ad:ustments or reductions in the IR; shares of Local o'ernment

nits" but this power or authority of the resident must be in accordance with the

following re1uirementsD

a0 There exists an unmanageable public sector deficit on the part of thenational go'ernmentH

b0 It is upon the recommended of the +ec. of 5inance" +ec. of Interior and

Local o'ernment and +ecretary of Budget and =anagementH

c0 The resident shall consult with the presiding officers of both Aouses of

Congress and the presidents of the ligaH and





4(estion5 >hat two conditions must concur in order that capital gain or capital loss

to result)

Answer5 ,. There is a sale or exchangeH and

!. The thing sold or exchanged is a capital asset. 4omondon0

4(estion5 i'e the definitions of the following termsD

1) or%inary in'ome

2) or%inary loss

-) se'(rities

=) %ealer in se'(rities

) 'a,ital assets

Answer5 ,. r%inary in'ome – the term ordinary income includes any gain

from sale or exchange of property which is ?@T a capital asset.

!. r%inary loss – the term ordinary loss includes any loss from the

sale or exchange of property which is ?@T a capital asset.

&. Se'(rities – the term securities means shares of stoc( in a

corporation and rights to subscribe for or recei'e such shares. The term includes bonds"

debentures" notes" or certificates" or other e'idence or indebtedness" issued by any

corporation" including those issued by a go'ernment or political subdi'ision thereof" withinterest coupons or in registered form.

. %ealer in se'(rities – the term dealer in securities means a

merchant of stoc(s or securities" whether an indi'idual" partnership or corporation" withan established place of business" regularly engaged in the purchase of securities and their

resale to customersH that is" one who is a merchant buys securities and sells them tocustomers with a 'iew to the gains and profits that may be deri'ed therefrom.3

%. 'a,ital assets – the term capital assets means property held by thetaxpayer whether or not connected with his trade or business0" but does ?@T includeD

a0 stoc( in trade of the taxpayer

b0 other property of a (ind which would properly be included in the

in'entory if on hand at the close of the taxable year c0 property held primarily for sale to customers in the ordinary course

of his trade or businessd0 of a character which is sub:ect to the allowance for depreciation or e0 real property used in the trade or business. den0

4(estion5 The Tax Code pro'ides for limitation on capital losses. 2Losses fromsales or exchanges of capital assets shall be allowed only to extent of the capital gains

from such sales or exchanges.3 The limitation will not apply in case of domestic ban( or

trust company" a substantial part of whose business is the receipt of deposits" sells any





bond" debenture" note or certificate or 2ot8er evi%en'e of in%ete%ness issued by anycorporation including one issued by a go'ernment or political subdi'ision thereof0" with

interest 'o(,ons or in registere% form)

Is the contention of China Ban(ing correct that its e1uity in'estment in theAong(ong subsidiary 1ualifies as bad debt under the foregoing clause)

Answer5 ?o. BThe exclusionary clause found in the foregoing text of the law doesnot include all forms of securities but specifically co'ers only bonds" debentures" notes"

certificates or other e'idence of indebtedness" with interest coupons or in registered

form.3

These are instruments of credit normally dealt with in the usual lending operations

of a financial institution. <1uity holdings cannot come close to being within the pur'iew

of 2e'idence of indebtedness3 under the second sentence of the afore1uoted paragraph.

Eerily" it is for a li(e thesis that the loss of petitioner China Ban(ing in its e1uity

in'estment in the Aong(ong subsidiary cannot also be deductible as a bad debt. Theshares of stoc( in 1uestion does not constitute a loan extended by it to its subsidiary or a

debt sub:ect to obligatory repayment by the latter" essential elements to constitute a bad

debt" but a long term in'estment. Re'enue Report0

6664(estion5 >hat is the so-called T;J-5R<< <JCA;?<+)

Answer5 ;s a general rule" upon the sale or exchange of property" the entire amountof gain or loss" as the case may be" shall be recognied.

There may howe'er" be called a ta$free e'8anges. There are two instances

under the Tax Code.

The first in'ol'es a plan of merger or consolidation whereDa0 a corporation which is a party to a merger or consolidation exchanges

property solely for stoc( in a corporation which is" a party to the merger or

consolidation" b0 a shareholder exchanges stoc( in a corporation which is a party to the

merger or consolidation solely for the stoc( in another corporation also a

party to the merger or consolidation or

c0 a security holder of a corporation which is a party to the merger orconsolidation exchanges his securities in such corporation solely for

stoc(s in another corporation" a party to the merger or consolidation.

The second form occurs whenD

a0 if property is transferred to a corporation by a person in exchange for

stoc( in such corporation H b0 resulting of that exchange" said person" alone or together with others ?@T

exceeding four 0 persons" gains 'ontrol &1D of voting sto'7s+ of said

corporationH





c0 pro'ided that stoc(s issued for ser'ices shall not be considered as issued inreturn of property. den0

4(estion5 In tax-free exchanges solely in (ind" what is meant by boot) >hat about basis)

Answer5 Boot is the property exchanged for stoc(s or securities. 5or example" =r.Leon exchanges his parcel of land for shares of stoc( of =ic(ey" Inc. The boot is the

parcel of land. Basis is the 'alue assigned to the land or the shares of stoc(. 4omondon0

&,ls) See #rim(s , =$=9 for ill(stration+

666Cyanami% #8ili,,ines In') vs) CA 3an) 20 2000 4(is(ming 3)

4(estion5 >hat are improperly accumulated earnings)

Answer5 These are earnings or profits of a corporation which are permitted toaccumulate instead of being di'ided by a corporation to its shareholders for the purpose

of a'oiding the income tax with respect to its shareholders or the shareholders of another

corporation. If the income were di'ided and distributed" they would ha'e been taxed asdi'idends. 4omondon0

4(estion5 >hat is an improperly accumulated earnings tax I;<T0)

Answer5 In addition to other income taxes" there is imposed for each taxable year

on the improperly accumulated taxable income of each corporation" an improperly

accumulated earnings tax I;<T0 e1ual to ten percent of the improperly accumulated

taxable income. +ec.!8;00 4omondon0

4(estion5 >hat corporations are liable for the I;<T) >hat are not)

Answer5 <'ery corporation formed or a'ailed for the purpose of a'oiding income

tax with respect to its shareholders or the shareholders of another corporation" by permitting earnings and profits to accumulate instead of being di'idend or distributed.

The I;<T shall not apply to ,0 publicly held corporation !0 ban(s and other

nonban( financial intermediariesH and &0 insurance companies. +ec. !8 B0!004omondon0

4(estion5 >hat facts may show the purpose of a'oiding tax upon shareholders)

Answer5 The fact that the earnings or profits of a corporation are permitted to

accumulate beyond the reasonable needs of the business shall be determinati'e of the purpose to a'oid the tax upon its members unless the corporation" by clear preponderance

of e'idence" shall pro'e the contrary. +ec. !8C0!00





4(estion5 >hat is meant by reasonable needs of business for I;<T purposes)

Answer5 Reasonable needs of the business includes the reasonably anticipated

immediate0 needs of the business. +ec. !8 <00

In order to determine whether profits are accumulated for the reasonable needs of

the business to a'oid the surtax upon shareholders" it must be shown that the controllingintention of the taxpayer is manifested at the time of the accumulation" not intentions

declared subse1uently" which are mere afterthoughts. 5urthermore" the accumulated

profits must be used within a reasonable time after the close of the taxable year.4omondon0

4(estion5 >hat are the tests to determine whether or not the accumulation of profits

is proper)

Answer5 The tests to determine whether accumulation is :ustified areD

,0 Imme%ia'y test – 2Reasonable needs of the business3 means the immediate

needs of the business" and it was generally held that if the corporation did not

pro'e an immediate need for the accumulation of the earnings and profits" theaccumulation was not for the reasonable needs of the business and the penalty

tax would apply. 4omondon0 Industry test G per decision0

!0 B2 to 1 .(le $ The ratio of current assets to current liabilities current ratio0and the adoption of industry standard. The ratio of current assets to current

liabilities is used to determine the sufficiency of wor(ing capital.

Ideally" the wor(ing capital should e1ual the current liabilities andthere must be ! units of current assets for e'ery unit of current liability" hence

the so-called 2!-,3 Rule. 4omondon0

&0 B"ar%a8l orm(la – ;llows the retention as wor(ing capital reser'e"

sufficient amounts to li1uid assets to carry the company through one operatingcycle. It applies to companies with short operating cycles.

The formula re1uires an examination of whether the taxpayer has

sufficient li1uid assets to pay all its current liabilities and any extraordinaryexpenses reasonably anticipated" plus enough to operate the business in one

operating cycle.

,erating 'y'le is the period of time it ta(es to con'ert cash into raw

materials" raw materials into in'entory" and in'entory into sales" including the

time to collect payment for the sales. 4omondon0




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 1- of -1

4(estion5 >hat is the >ol'on%a .(ling in relation to the application of I;<T)

Answer5 This is an ;merican case where the ?inth Circuit Court of ;ppeals ruled

that accumulated earnings tax would only apply to closely held corporations. This is therule followed under the ,88# ?IRC. den0

4(estion5 >hat are two usual defenses of taxpayers in I;<T cases)

Answer5 That ,0 it is a publicly held corporation and !0 it did not declare

di'idends in order to use the accumulated earnings as wor(ing capital reser'e to meetreasonable needs of the business. den0

4(estion5 Cyanamid raised the abo'e two defenses to refute the assessment of

surplus tax on it. Cyanamid stressed that it used the 2Bardahl formula3 in determiningthe re1uired wor(ing capital it should retained. nder the circumstances of the case" are

the defenses meritorious)

Answer5 ?o. The accumulation was still co'ered under the ,8## Tax Code where

publicly held corporations were not among those enumerated as exempt from the

co'erage of the 2surtax on accumulated earnings.3 The publicly held corporation is nowincluded under the list of I;<T exempt entities in the ,88# Tax Code.

Aence" the rule on Kexpress mention of one person" thing" act or conse1uence is

construed to exclude all others9 shall apply. In addition" taxation is the rule andexemption is the exception. Laws granting tax exemption are strictly construed against

taxpayer and liberally for the go'ernment.

The use of the Bardahl formula does not preclude the BIR from using the currentratio method.

The Barhdal formula allowed the retention" as wor(ing capital reser'e" sufficient

amounts of li1uid assets to carry the company through one operating cycle. The formula

was de'eloped to measure corporate li1uidity Bardahl 's. Commissioner +00

The formula" howe'er" has been routinely used by the court in a number of

different cases. Thus" it is safe to conclude that it is not a precise rule. +uch that when

the tax court below used the current ratio method which re'ealed that the current assets ofCyanamid is :ust more than enough of what was supposed to be retained" then such

application of the current ratio method should be gi'en credence. den0

Commissioner of C(stoms vs) CTA *ar'8 2@ 2000 *E!:;A 35

4(estion5 Certain imported articles were gi'en tax exemption based on themisrepresentation of J that he was connected with ;C@R. Relying on a tip" the

Collector of Customs seied the articles and" after hearing" ordered their forfeiture. The

importer raised the defense that the forfeiture proceedings were barred by the one-year




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 1= of -1

prescripti'e period under +ec. ,6/& of the Tariff and Customs Code. Is the one year period applicable to the case at bar) <xplain.

Answer5 ?o. The one year prescripti'e period in forfeiture proceedings does notapply when there is fraud.

J9s misrepresentation that he was connected with ;C@R leading to the releaseof the imported articles without any taxes constituted fraud. The essence of fraud is the

intentional and willful employment of deceit deliberately done or resorted to in order to

induce another to gi'e up some right. Co ntian0

4(estion5 Is the importation of ele'ators" hea'y e1uipment and auto parts by a

;C@R concessionaire hilippine Casino @perators Corp0 exempted from customs

duties" taxes and other imposts on importations)

Answer5 ?o. The importation of C@C of ele'ators" hea'y e1uipment and auto

parts are not exempted from customs duties because under +ec. ,0 of the ;C@RLaw" B Blg. ,/6#-B as amended by 4 ?o. ,&88 pertains only to importations of ferry

boats" 'essels andFor accessories. Clearly" the ele'ators" hea'y e1uipment and auto parts

are not among those exempted.

The rule therefore that exemptions shall be strictly construed against those

claiming to be 1ualified thereto is applicable. den0

"(rea( of C(stoms vs) !elson gario an% *ar7 *onteliano &2000+

4(estion5 The forfeiture proceedings in'ol'ed !%"/// bags of rice on board =FE

;lberto that were seied by Customs @fficials based on the report by the <IIB that thesame had been smuggled into alawan. The consignee and his buyer filed a complaint

before the RTC for in:unction and upon posting of a bond" the court ordered the releaseof the goods. 4oes the RTC ha'e :urisdiction of the instant case)

Answer5 ?o. The RTC is de'oid of any competence to pass upon the 'alidity orregularity of seiure and forfeiture proceedings conducted by the Collector of Customs

and to en:oin or otherwise interfere with the proceedings.

The Collector of Customs sitting in seiure and forefeiture proceedings hasexclusi'e :urisdiction to hear and determine all 1uestions touching on the seiure and

forfeiture of dutiable goods. The Tariff and Customs Code pro'ides the proper remedyof aggrie'ed importers" that is" to appeal the actions of the Collector of Customs to theCommissioner of Customs whose decision" in turn" is sub:ect to the exclusi'e appellate

:urisdiction of the CT; and from there to the C; and +C. Co ntian0





4(estion5 4o customs authorities need to secure search warrant from the court on

articles on board a 'essel suspected of being imported or intended to be shipped

abroad before they exercise the power to effect customs searches and seiures)

Answer5 ?o. The customs authorities do not ha'e to pro'e to the satisfaction of the

court that the articles on board a 'essel were imported from abroad or are intended to beshipped abroad before they may exercise the power to effect customs searches" seiures"

or arrest pro'ided by law and continue with the administrati'e hearings.

CI. vs) 3osefina #aonar *ar'8 22 2000 >onFaga$.eyes 3)

4(estion5 J was a member of the hilippine +cout" Bataan Contingent who too( part

in the infamous death march" resulting into his insanity. Ais sister became the guardianof his person while his property was placed under guardianship of the ban(. >hen J

died" his sister became the administratrix of his estate. ;mong the deductions claimed in

his gross estate are the attorney9s fees in the guardianship proceedings and notarial fee forthe extra:udicial settlement.

BIR denied deduction of the notarial fee as such amount of 6/"#%& is 1uite

extraordinary for a mere notarial fee. In addition" BIR maintains that only :udicialexpenses of the testamentary proceedings are allowed as deduction to the gross estate.

;re these two items deductible from gross estate)

Answer5 *es. 7udicial expenses are expenses of administration. ;dministrationexpenses" as allowable deductions" include all expenses essential to the collection of the

assets" payment of debts or the distribution of the property to the persons entitled to it.

The ser'ices for which the fees are charged must relate to the proper settlement ofthe estate. In this case" the guardianship proceeding was necessary for the distribution of

the property of the deceased to his rightful heirs.

In other words" the expenses must be essential to the proper settlement of the

estate. <xpenditures incurred for the indi'idual benefit of the heirs" de'isees or legateesare not deductible. Co ntian0

"#I$amily Savings "an7 In') vs) Co(rt of A,,eals &2000+

4(estionD The ,8$8 5inal Income Tax Return of the taxpayer reflected an excess of

the withholding income tax and so it opted to claim the same as a tax credit for the nexttaxable year. Aowe'er" the ,88/ taxable year turned out to be a loss.

The taxpayer then filed a claim for refund on the excess withholding tax. >ithout

waiting for the CIR to decide" the taxpayer filed its claim with the CT;" the latter

denying the claim on the ground that it was presumed to ha'e already been claimed as atax credit.

The taxpayer filed a motion for reconsideration =FR0 with an attached ,88/ ITR

showing the loss for that year. +till" the CT; denied the motion. Is the CT; correct)




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 1< of -1

Answer5 ?o. The law creating the CT; specifically pro'ides that proceedings

before it 2shall not be go'erned strictly by technical rules of e'idence.3 It is undisputed

that the taxpayer incurred a loss in ,88/ and so it was impossible to apply the excesswithholding tax as a tax credit for that year.

Technicalities and legalisms" howe'er exalted" should not be misused by thego'ernment to (eep money not belonging to it and thereby enrich itself at the expense of

its law abiding citiens. If the state expects its taxpayers to obser'e fairness and honesty

in paying their taxes" so must it apply the same standard against itself in refunding excess payments of taxes. Co ntian0

CI. vs) CA an% C*A.SEC *ar'8 -0 2000 #ar%o 3) &GAT – e'l(%e%+

4(estion5 C@=;R+<C@ is an affiliate of hilamlife pro'iding the latter with

technical" research" management and technical assistance i.e" collection" consultati'e and

other technical ser'ices including functioning as internal auditor0. C@=;R+<C@declared net loss for the year ,8$$ but the BIR assessed it deficiency E;T based on gross

receipts. C@=;R+<C@ contends that it should not be sub:ect to E;T as the ser'ices it

performed were not conducted for profit. C@=;R+<C@ insisted that the term 2in thecourse of trade or business3 re1uires that business is carried on with a 'iew to profit or

li'elihood. Its articles of incorporation showed that it is operating 2only on

reim(rsement of 'ost asis wit8o(t any ,rofit) Is C@=;R+<C@ exempt from the

payment of E;T)

Answer5 ?o. +ection ,/$ of the ,88# ?IRC defines the phrase 2sale of ser'ices3 as

the performance of ;LL (inds of ser'ices for others for a fee" remuneration or

consideration. It includes the supply of technical ad'ice" assistance or ser'ices renderedin connection with technical management or administration of any scientific" industrial or

commercial underta(ing or pro:ect.

The Court ruled citing BIR Ruling ?o. /,/-8$ re1uest by Tipco-Bataan roup

Inc.0 where it emphasied that a domestic corporation that pro'ided technical" research"management and technical assistance to its ;55ILI;T<+ @? ; R<I=BR+<=<?T

@? C@+T B;+I+ @?L*" without realiing profit" was sub:ect to E;T on ser'ices

rendered.

In fact" e'en if such corporation was organied without any intention of realiing

profit" any income or profit generated by the entity in the conduct of its acti'ity wassub:ect to income tax.

Aence" it is immaterial whether the primary purpose of a corporation indicates

that it recei'es payment for ser'ices rendered to its affiliates on a reimbursement on cost basis only without realiing profit" for purposes of determining liability for E;T ser'ices

rendered.




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 1@ of -1

;s long as the entity pro'ides ser'ice for a fee" remuneration or consideration"then the ser'ice is sub:ect to E;T. den0

666#rote'tor?s Servi'es In') vs) CI. &2000+

4(estionD @n 4ecember ,/" ,8$#" taxpayer recei'ed CIR9s assessment notices

co'ering the taxable years ,8$& and ,8$. @n 7anuary ,!" ,8$$" it protested the saidassessments and re1uested for a rein'estigation. Is the protest filed on time)

Answer5 ?o. The taxpayer may no longer dispute the correctness of theassessments. It only has thirty &/0 days from receipt thereof within which to protest an

assessment. 5rom 4ecember ,/" ,8$# to 7anuary ,!" ,8$$" thirty-three &&0 days ha'e

already lapsed. Co ntian0

4(estion5 4oes the act of the taxpayer in filing a petition before the CT; to pre'ent

the collection of the assessed deficiency tax and in ele'ating the case to the +C for re'iew

suspend the running of the +tatute of Limitation)

Answer5 *es. The running of the prescripti'e period to collect deficiency taxes

shall be suspended for the period during which the CIR is prohibited from beginning adistraint and le'y or instituting a proceeding in court" and for sixty 6/0 days thereafter.

To assert that the pendency of the appeal did not stop the running of the period

because the CT; did not ha'e :urisdiction o'er the case would encourage taxpayers todelay the payment of taxes in the hope of ultimately a'oiding the same. Co ntian0

"anas 3r) vs) CA e) 10 2000

4(estion5 ; seller sold on installment his land to the buyer who executed promissory

notes to co'er the installments. @n the same day of the sale" the seller discounted thesaid notes form the buyer himself and got the proceeds thereof. Is the seller allowed to

report his income under the installment method)

Answer5 ?o. ;s a rule" the sale of real property may be reported by installment

pro'ided the initial payment does not exceed !% of the selling price. Initial payment

co'ers all payments recei'ed in the year of sale. In the case at bar" although the proceeds

of the discounted promissory notes are not considered initial payment" still it must beincluded as taxable income on the year it was con'erted into cash. Co ntian0

By 'irtue of the discounting" made on the same date as the sale" the seller lost hisentitlement to report the sale as a sale on installment since taxable disposition resulted

therefrom.





Commissioner of Internal .even(e vs) Ans'or 3an) 20 1999 *artineF 3)5

4(estionD Is the issuance of stoc( di'idend taxable)

AnswerD ?o. +toc( di'idends represent capital and do not constitute income to its

recipient. They are considered as unrealied gain and hence" no income is yet realied

upon the issuance.

4(estionD Is the subse1uent redemption of stoc( di'idends by the corporation a

taxable transaction)

AnswerD ?o" with respect to shares redeemed that come from initial capital

in'estment and the redemption price is the concurrent 'alue of ac1uisition that no gain is

deri'ed hence" not taxable. But with respect to redeemed shares that are from stoc(di'idend declarations other than initial capital in'estment" the proceeds thereof is

additional wealth and therefore" taxable.

There is no hard and fast rule in determining its taxability. But the normalapplication of the 2net effect test3 is usually resorted to" meaning" that depending on the

time and manner surrounding the redemption" if profit is realied then it is taxable. Co

ntian0

Anot8er answerD *es" redemption of stoc( di'idends may gi'e rise to a taxable

income.

; stoc( di'idend representing the transfer of surplus to capital account shall not be sub:ect to tax. Aowe'er" if a corporation cancels or redeems stoc( issued as a

di'idend at such time and in such manner as to ma(e the distribution and cancellation or

redemption" in whole or in part" essentially e1ui'alent to the distribution of a taxable

di'idend" the amounts so distributed in redemption or cancellation of the stoc( shall beconsidered a taxable income to the extent that it represents a distribution of earnings or

profits. ;bella0

4(estionD 4oes taxable income result from the mere exchange of common shares

into preferred shares as a result of reclassification of the shares by the corporation)

AnswerD ?o" pro'ided it does not alter the amount of interest of the stoc(holder.

Changes that would result" li(e the preference of preferred stoc( o'er di'idends and

assets of the corporation" do not produce income to the stoc(holders. Co ntian0

#8ili,,ine Home Ass(ran'e Cor,oration vs) Co(rt of A,,eals 3an) 21 1999*E!:;A 3) 4+T is excluded from the co'erage0

4(estionD 4oes liability to 4+T attach to an insurance contract which had not ta(en

effect due to non-payment of premium)

AnswerD *es. The +C ruled that the 4ocumentary +tamp Tax 4+T0 accrues upon

issuance of the policy of insurance as mandated by +ections ,$& and ,$" of the ?IRC.





The payment or nonpayment of premium by the insured is immaterial since a 4+T is inthe nature of an excise tax upon a facility used in the transaction of a business which is

separate and distinct from the business itself. ;bella0

666CI. vs) "#I an% CA 3an) 21 1999 *E!:;A 3)

4(estionD @n ;pril !" ,8$6" aramount filed its corporate annual income tax returnfor the calendar year ending 4ecember &," ,8$%. ;ll in all" aramount paid the total

amount of ,"!,$"8/ thereby showing a refundable amount of 6%"!%8.

@n ;pril ," ,8$$" BI" as li1uidator of aramount" filed with the CT; a letterdated ;pril ,!" ,8$$ reiterating its claim for the refund of 6%"!%8 as o'erpaid income

for the calendar year ,8$%. @n ;pril ,%" ,8$$" the aramount representati'e" filed with

the CT; a petition to toll the running of the prescripti'e period for filing a claim for

refund of o'erpaid income taxes. The CT; ruled that the two-year prescripti'e periodcommenced to run ;pril ,%" ,8$6" the last day for filing the corporate income tax return

and granted the refund. >as the grant of the refund proper)

AnswerD ?o. The two-year prescripti'e period for actions for refund of corporate

income tax should be computed from the time of a't(al filing of the 5inal ;d:ustment

Return or ;nnual Income Tax Return. The reason being" that at that point" it can already be determined whether there has been an o'erpayment made by the taxpayer. =oreo'er"

payment is made at the time the return is filed.

+ince aramount filed its corporate annual income tax return on ;pril !",8$6" it had only two-years from the date within which to file its written claim for refund.

>hen it filed a written claim for refund on ;pril ," ,8$$" and a petition for refund only

on ;pril ,%" ,8$$" both claim and action for refund were thus barred by prescription.

4omondon0

Anot8er answerD ?o. The refund was not proper.

The +C ruled that the context of +ection !&/ of the ?IRC" which pro'ides

for a two-year period of prescription counted from the date of payment of the tax foraction for refund of Corporate Income Tax" the said period should be counted from the

time of ;CT;L filing of the ;d:ustment Return or ;nnual Income Tax Return. This is

in consonance with the pay-as-you file system mandated under +ection 8 now %60

where at the point of filing it can already be determined whether there has been ano'erpayment by the taxpayer. ;bella0

Transgloe International In') vs) CA 3an(ary 2 1999 "ellosillo 3)

4(estionD Can redemption of seied articles by the Bureau of Customs be allowed ifD

,. The articles were declared as hand tools when as a matter of fact they weretextile fabricsH

!. ;ll the $ consignees were fictitiousH and





&. Customs rules specifically state that the shipment to fictitious consignees thatis seied shall not be sub:ect to redemption)

Answer5 *es. The articles may be redeemed upon payment of their domestic

mar(et 'alue since the articles are not among those which are absolutely prohibited underthe Tariff and Customs Code.

Redemption is not allowed only in any of the following casesD,0 when there is fraudH

!0 when the importation is absolutely prohibitedH @R

&0 when the release would be contrary to law.

5raud" as alleged by the Commissioner" must be actual and not merely

constructi'e. It must be intentional and deliberate. =isdeclaration in the manifest and

rider that the goods were hand tools and not textile fabrics cannot be imputed on theconsignee who did not prepare them. If at all" the falsity of the documents can only be

attributed to the foreign suppliers. Co ntian0

Anot8er AnswerD Redemption of forfeited property is una'ailing in three &0

instances" namely ,0 when there is fraud" !0 where the importation is absolutely

prohibited @R &0 where the release of the property would be contrary to law.

The +C stressed that any ruling against redemption based on fraud" the fraud

contemplated by law must be actual and not constructi'e. It must be intentional"

consisting of deception willfully and deliberately done or resorted to in order to induceanother to gi'e up some right.

>hile the shipment was misdeclared in the rider and the manifest it appearing

that what was contained in shipment were textiles and not hand tools0" the consignee isinnocent of the facts therein stated as it had no hand in their preparation or issuance.

Aence" the consignee should be allowed to redeem the articles forfeited upon payment oftheir domestic mar(et 'alue. ;bella0

Afis'o Ins(ran'e Cor,oration vs) Co(rt of A,,eals 3an) 2 1999 #anganian 3)

4(estionD , non-life insurance corporations organied and existing under the laws

of the hilippines organied a pool of machinery insurers for the purpose of entering into

a reinsurance treaty Muota +hare Reinsurance Treaty and a +urplus Reinsurance Treaty0with a erman firm based in =unich" a non-resident foreign insurance corporation.

@n ;pril ," ,8#6 the pool submitted a financial statement and filed aninformation return as an organiation exempt from income tax for the year ending ,8#%.The BIR assessed the pool deficiency corporate income tax of ,.$ million and

withholding tax of ,.# million on pool di'idends paid to the erman firm and $8

thousand on pool di'idends paid to members.The insurance pool raises the following defenses why no deficiency taxes be

imposed on themD





,0 the pool is not formed as an unregistered partnership ma(ing it taxable as acorporationH

!0 double taxation

&0 prescription on the right of go'ernment to collectRule on the issues.

Answer5

,. The pool is an association taxable li(e a corporation pursuant to +ection

! now +ec. !B0 of the ?IRC of ,88#0. The Tax Code has included under the termKcorporation9 partnerships" no matter how created or organied" :oint-stoc( companies"

:oint accounts cuentas en participacion0" association or insurance companies.

The term partnership includes a syndicate" group" pool" :oint 'enture or otherunincorporated organiation" through or by means of which any business" financial

operation" or 'enture is carried on. <'angelista 's. Collector0

The pool entered into by the insurers is an association considered under the Tax

Code as a partnership or association treated li(e a corporation as it handles all the

insurance businesses co'ered under the reinsurance treaty with the erman firm.4omondon0

Anot8er answerD ;rticle ,#6# of the Ci'il Code recognies the creation of a contract

of partnership when 2two or more persons bind themsel'es to contribute money" propertyor industry to a common fund" with the intention of di'iding profits among themsel'es.

In the instant case the pool has a common fund that pays for its administration and

operating expenses. It also functions through an executi'e board composed ofrepresentati'es from each insurance ceding0 companies. ;nd while the pool is not a

reinsurance company and does not issue insurance policies" its wor( is indispensable" beneficial and useful to the business of the ceding companies. These are clear indicia of

its nature as a taxable partnership. ;bellaF;ban0

!. There is no double taxation which means taxing the same property twice

when it should be taxed only once. The pool is a taxable entity separate and distinct from

the indi'idual corporate entities of the pool. The tax on its income is ob'iously different

from the tax on the di'idends recei'ed by said companies. Clearly" there is no doubletaxation here.

&. The prescripti'e period was not suspended because it may be suspendedonly Kif taxpayer informs the Commissioner of any change in the address.9 The fact that

the pool9s information return filed in ,8$/ indicated therein its Kpresent address9 is not

sufficient compliance with the legal re1uirement. 4omondon0a#0




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 2- of -1

#8ili,,ine "an7 of Comm(ni'ations vs) CI. 3an) 2 1999 & pls see rimus p.!#0

4(estionD Can the CIR issue a Re'enue =emorandum Circular R=C #-$%0 thatchanges the prescripti'e period of filing claims for refund of tax credit from two !0 years

as pro'ided in the Tax Code into ten ,/0 years)

AnswerD ?o. The courts will not countenance administrati'e issuances that would

o'erride" instead of being consistent and in harmony with" the law they see( to apply and

implement. In ma(ing the change" the CIR did not simply interest the lawH rather" itlegislated guidelines contrary to the statute passed by Congress. Co ntian0

4(estionD By the aforementioned change in the prescripti'e period" is the CIR

estopped from denying the claim for refund made by the taxpayer who relied on the itsR=C)

Answer5 ?o. <stoppel does not lie. ?ot only because the go'ernment is notestopped by the errors of its agents but also because in the instant case" it was the CT;"

not the CIR" who denied the claim for refund" and correctly so. Co ntian0

Anot8er answerD ?o. +uch circular changing the prescripti'e period of ! years as

pro'ided under +ection !&/ of the ?IRC to ,/ years is a clear inconsistency in the

interpretation of the law for it legislated guidelines contrary to the statute passed by

Congress.

Being so" reliance thereto cannot be granted to allow a claim for tax refund if filed

beyond the !-year prescripti'e period pro'ided by law. +uch administrati'e rulings

issued by heads of executi'e offices of go'ernment although gi'en respect in the courtsmay" ne'ertheless" be ignored if found :udicially erroneous. The state cannot be put in

estoppel by the mista(es and errors of its officials. ;bella0

CI. vs) C:C# an% CA er(ary 1 1999 *artineF 3)

4(estionD +hould the !% refund on specific taxes of mining concessionaires be

based on the rates of specific tax under the ,8&8 Tax Code as amended by R; ,&% or

should it be based on the higher rates under the ,8## Tax Code as amended by 4 ,6#!

and <@ 6#!)

AnswerD The refund pro'ided under +ection 6 of R; ,&% is in the nature ofexemption" and therefore" must be construed in strictissimi :uris against the grantee.There is nothing in +ection % of R; ,&% which authories the tax refund based on the

higher rates under +ections ,%& and ,%6 of the ,8## Tax Code. It should be noted that

+ec. , and ! of R;,&% simply amended +ec.,, and ,% of the Tax Code. +ec. % wasnot incorporated in the Tax Code. It is no different when +ec. , of 4 ,6#! amended the

renumbered +ec. ,%& of the Tax Code. ;+ such" the !% refund as granted by the CT;




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 2= of -1

based on the rates of the specific tax under the ,8&8 Tax Code is restated that the C;decision on the refund based on the higher rates is re'ersed. ;bella0

CI. vs) Central Gegetale *fg) Co) an% CA e) 2- 1999 #(risima 3)

4(estionD Taxes on sales" millers and excise on raw materials and supplies used in

the milling process are disallowance as tax credit against the millers tax. 4oes thedisallowance extend to taxes paid on containers and pac(aging materials)

AnswerD ?o. The +C ruled that since containers and pac(aging materials can not be classified as either raw materials or supplies" the taxes thereon are allowed as credits

against the millers tax. ;bella0

666CI. vs) Carnation #8ili,,ines an% CA e) 2 1999 #(risima 3)

4(estionD J Corporation filed its income tax returns in 7anuary ,88% for its income

for the year ,88. In @ct. ,88#" =arch ,88$ and =ay ,88$" J Corporation through itsauthoried representati'e signed three &0 separate wai'ers of 2statute of limitations

under the ?IRC.3 The wai'ers were not signed by the BIR Commissioner or his agents.

In ,888 years after ;pril ,%" ,88%0" the BIR issued letters of demand"accompanied by assessment notices as(ing the corporation to pay the deficiency internal

re'enue taxes for its income for the year ,88. 2J3 disputed the assessment and

re1uested a rein'estigation. The BIR Commissioner denied the protest. 2J3 appealed to

the CT;" on the ground of prescription. 4ecide.

AnswerD The BIR9s authority to assess already prescribed. The three &0 wai'ers

did not suspend the running of the prescripti'e period.

The only agreement that could suspend the running of the prescripti'e period for

the collection of the tax in 1uestion is a written agreement between J Corporation andthe BIR entered into before the expiration of the three &0 year prescripti'e period"

extending the said period.

+ince" what is re1uired is the signatures of both the Commissioner and the

taxpayer" a unilateral wai'er on the part of the taxpayer does not suspend the prescripti'e

period. 4omondon0

Anot8er AnswerD The binding effect of a wai'er executed by the taxpayer can only

be had if the CIR accepted the same. The +C declared these wai'ers to be in'alid andwithout any binding effect if there is not consent gi'en by the CIR. This is so becausethe law spea(s of an agreement in writing as the one which can suspend the running of

the prescripti'e period.;bella0





CI. vs) Emroi%ery an% >arments In%(stries &#8ils+ *ar'8 22 1999 #ar%o 3)

4(estionD >hat should be the basis of an assessment)

AnswerD The +C once again reiterated the time honored doctrine that assessments

to be 'alid must be based on ;CT;L facts and pro'ed by competent e'idence" not

imposed based on un'erified information supplied by an informant" or disputed presumptions. ;bella0

ig(erres vs) Co(rt of A,,eals *ar'8 2 1999 *E!:;A 3)

4(estionD Can the presumption of 'alidity of a tax ordinance be o'ercome by bare

assertions of procedural defects on its enactment)

AnswerD ?o. The +C recognied the petitioner9s claim that public hearings are

re1uired to be conducted prior to the enactment of an ordinance imposing real property

taxes. >hen there are conflicting claims between the taxpayer and the go'ernmentregarding the obser'ance of public hearings" but both were not able to present e'idence to

establish their respecti'e allegations" the 4@BT shall be resol'ed in 5;E@R of the

go'ernment.

The tax ordinance shall be presumed to be 'alid" hence their constitutionality or

legality should be upheld in the absence of e'idence showing that the procedure

prescribed by law was not obser'ed in their enactment. ;bella0

4(estionD >hat are the remedies a'ailable to a real property owner who 1uestions

the 'alidity of tax ordinance)

AnswerD The taxpayer files appeal to the +ecretary of 7ustice" within &/ days from

effecti'ity thereof. In case the +ecretary decides the appeal" a period of &/ days isallowed for an aggrie'ed party to go to court. But if the +ecretary does not act thereon"

after the lapse of 6/ days" the party could see( relief in court.

These three separate periods are clearly gi'en for compliance as a prere1uisite

before see(ing redress in a competent court. +uch statutory periods are set to pre'ent

delays as well as enhance the orderly and speedy discharge of :udicial functions. 5or this

reason the courts construe these pro'isions of statutes as mandatory. .eyes vs) CA

:e'emer 10 1999+ 4omondon0

4(estionD >hen factual issues are in'ol'ed" can the +ecretary of 7ustice ta(ecogniance of the case in'ol'ing the constitutionality of tax ordinances)

AnswerD *es" the +ecretary of 7ustice can ta(e cogniance of a case in'ol'ing theconstitutionality or legality of tax ordinances where there are factual issues in'ol'ed.

4omondon0




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 2< of -1

City >overnment of San #alo Lag(na vs) Hon) .eyes *ar'8 2 1999 >onFaga$

.eyes 3)

4(estionD Between a pro'ision in the franchise of =<R;LC@ that grants anexemption from local taxes and the express pro'ision of the Local o'ernment Code

which withdrew all exemptions that are en:oyed pre'iously but are now inconsistent to

the taxes that are imposed under the LC" which shall pre'ail)

AnswerD The LC pre'ails o'er the exemption granted in =<R;LC@9s franchise

because the former9s legislati'e intent is clear that prior exemptions en:oyed by taxpayersare expressly withdrawn by the enactment of the Code. Co ntian0

4(estionD 4oes the withdrawal of tax exemption pri'ilege granted in a special

franchise 'iolate the non-impairment clause of the Constitution)

AnswerD ?o. Tax exemptions contained in special franchises are not strictly

contractual in nature. Contractual tax exemptions" in the real sense and which is the proper sub:ect of the non-impairment clause" are those which are agreed upon by the

taxing authority in contracts" such as those in go'ernment bonds and debentures wherein

the state9s immunity from suit is wai'ed. ; franchise is in the nature of a grant so thenon-impairment clause does not apply. Co ntian0

Anot8er answerD The +C ruled that the franchise of =eralco containing the 2in lieu

of all taxes pro'ision3 ma(ing it exempt from any tax payment of any (ind of tax" is nolonger applicable upon the effecti'ity of the Local o'ernment Code in 'iew of the

withdrawal of the tax exemption pri'ileges as pro'ided in +ection ,8& and !& thereof.

The explicit language embodied in the LC which authories the pro'ince toimpose franchise tax notwithstanding any exemption granted by any law or other special

law is all-encompassing and clear.The non-impairment clause of the Constitution cannot be in'o(ed to uphold

=eralco9s exemption from local tax because all franchises are sub:ect to the right of

Congress to amend" alter or repeal when the public interest so re1uires. ;bella0

#8ile *ining Cor,oration vs) CI. A,ril 21 1999 4(is(ming 3)

4(estionD >hat is the basis of refund of specific taxes paid by mines and forestconcessionaires under R; ?o. ,&%)

AnswerD In a long line of decisions" the +C repeatedly held that the tax refundunder R; ?o. ,&% is computed on the basis of specific tax deemed paid under +ections

, and ! thereof" and not on the increased rates actually paid under the ,8## ?IRC. +ince

the partial refund of !% authoried under the law is in the nature of tax exemption. Itmust be construed in strictissimi :uris against the grantee. Aence" petitioner9s claim of

refund on the basis of the specific taxes it actually paid must expressly be granted in a

statute stated in a language too clear to be mista(en. ;bella0




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age 2@ of -1

4(estionD +hould interest be paid where a tax is refunded by the o'ernment to a

taxpayer)

AnswerD The rule is that no interest on refund of tax can be awarded unless

authoried by law or the collection of the tax was attended by arbitrariness. ;n action is

not arbitrary when exercised honestly and upon due consideration where there is room fortwo opinions" howe'er much it may be belie'ed that an erroneous conclusion was

reached. ;rbitrariness presupposes inexcusable or obstinate disregard of legal

pro'isions. 4omondon0

Commissioner of Internal .even(e vs) S)C) 3o8nson Son In') 3(ne 1999

>onFaga$.eyes 3) pls. +ee rimus p. ,/0

4(estionD 4iscuss the applicability of the ,/ withholding tax on royalties imposed

under the R->est ermany Tax Treaty under the 2most favore% nation 'la(se3

pro'ided in the R-+ Tax Treaty.

AnswerD The ,/ withholding tax rate under the R->est ermany Tax Treaty

will ?@T apply to payments of royalties to +-Based corporations under the mostfa'ored nation clause of the R-+ Tax Treaty on the ground that there is ?@

=;TCAI? T;J CR<4IT pro'ision pro'ided therein as that in the R->est ermany

Tax Treaty.

Aence" the circumstances as to the tax payments are not similar which is a

condition for most fa'ored nation clause to apply. In fine" the phrase 2paid under similar

circumstances3 refers to the payment of the tax and not on the payment of royalties.

;bella0

Anot8er answerD The entitlement of the ,// rate by the .+. 5irms despite theabsence of a matching credit !/ for royalties0 would derogate from the design behind

the most fa'ored nation clause to grant e1uality of international treatment since the tax

burden laid upon the income of the in'estor is not the same in the two countries. Thesimilarity in the circumstances of payment of taxes is a condition for the en:oyment of the

most fa'ored nation treatment precisely to underscore the need for e1uality of treatment.

4omondon0

4(estionD >hat is the philosophy behind the adoption of the most fa'ored nation

=5?0 clause)

AnswerD The intention should be considered in the light of the purpose behind the

=5? clause which is to grant to the contracting party treatment not less fa'orable than

which has been or may be granted to the Kmost fa'ored9 among other countries.





The =5? is intended to establish the principle of e1uality of internationaltreatment by pro'iding that the citiens or sub:ects of the contracting nations may en:oy

pri'ileges accorded by either party to those of the most fa'ored nation.

The essence of the principle is to allow the taxpayer in one state to a'ail of more

liberal pro'isions granted in another tax treaty to which the country of residence of such

taxpayer is also a party pro'ided that the sub:ect matter of taxation is the same as that inthe tax treaty under which the taxpayer is liable. 4omondon0

Commissioner of Internal .even(e vs) #as'or .ealty an% :evelo,ment Cor,) 3(ne

29 1999 #anganian 3)

4(estionD >hat constitutes an assessment) Is an assessment needed before the filing

of a tax fraud case against a taxpayer)

AnswerD ;n assessment is a formal notice to the taxpayer stating that the amount

thereon is due as a tax and containing a demand for the payment thereof. ;n assessmentcontains not only a computation of tax liabilities" but also demand for payment within the

prescribed period.

;n affida'it which was executed by re'enue officers stating the tax liabilities of a

taxpayer and attached to a criminal complaint for tax e'asion" can not be deemed an

assessment that can be 1uestioned before the CT;.

In a tax e'asion case" the issuance of an assessment" is not a condition precedent

before a criminal charge can be filed. ;bella0

CI. vs) Co(rt of A,,eals &ort(ne Toa''o Case+ 3(ne = 199<

4(estion5 nder the facts in this peculiar case" is an assessment a prior condition before a criminal case for tax e'asion can be filed against the officers of 5ortune

Tobacco)

AnswerD *es. There can be no criminal charges without first determining what is

the correct taxes due from 5ortune. This is because 5ortune submitted documents daily

manufacturer9s sworn statements0 containing the registered wholesale prices of the

goods" and these documents were appro'ed by the BIR.

The registered wholesale price of the goods" appro'ed by the BIR is presumed to be the actual wholesale price" therefore" not fraudulent and unless and until the BIR hasmade a final determination of what is supposed to be the correct taxes" the taxpayer

should not be placed in the crucible of criminal prosecution.





Unga vs) C(si 9@ SC.A &190+

4(estionD Is precise computation of the tax due assessment0 a prior condition before

any criminal prosecution may be commenced against a taxpayer)

AnswerD ?o. ; criminal prosecution for 'iolations of the ?IRC is within the

cogniance of the RTC. >hile there can be no ci'il action to enforce collection beforethe assessment procedures are followed" there is no re1uirement for the precise

computation of the tax before there can be a criminal prosecution under the code. The

crime is complete when the 'iolator has (nowingly and willfully filed fraudulent returnswith the intent to e'ade part of the tax. It is grounded upon the taxpayers (nowledge that

he has made an inaccurate return" and the +tate9s failure to disco'er such and promptly to

assess is of no rele'ance. Tax II Re'iewer by ;-880

ili,inas Synt8eti' ier Cor,oration vs) CA 'toer 12 1999 #(risima 3)

4(estionD >hen is the proper time of withholding of a tax on income reported by theearner on the accrual basis)

AnswerD The tax shall be withheld at the time when the income is reported by the payee because it is at this time where all the e'ents ha'e occurred that fix the taxpayers

right to recei'e the income" and the amount thereof at this precise moment can be

determined with reasonable certainty. Thus" it is the right to recei'e income" and not the

actual receipt" that determines when to include the amount in gross income. It is at thistime that the withholding of taxes at sources shall be made by the payor. ;bella0

4(estion5 >hat is meant by the accrual method of accounting)

Answer5 Income is reportable when all the e'ents ha'e occurred that fix the

taxpayer9s right to recei'e the income" and the amount can be determined with reasonableaccuracy. Thus" it is the right to recei'e income" and not the actual receipt" that

determines when to include the amount in gross income.

Conse1uently" the following are the re1uisitesD,0 that the right to recei'e the income must be 'alid" unconditional and

enforceable" i.e." not contingent upon future timeH

!0 the amount must be reasonably susceptible of accurate estimateH and

&0 there must be a reasonable expectation that the amount will be paid in duecourse. 4omondon0

Atlas Consoli%ate% *ining an% :evelo,ment Cor,oration vs) CI. !ov) 1@ 1999

#anganian 3)

4(estionD Can tax liability of a taxpayer be based on a wrong stipulation of factgi'en by said taxpayer through palpable mista(e)




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age -0 of -1

AnswerD ?o. The +C stressed that as a rule" :udicial admission is binding on thedeclarant. Aowe'er" the rule will not apply if the admission was made through a palpable

mista(e as when it was admitted that the taxpayer was E;T-registered only on ;ugust

,%" ,88/ when in fact it is E;T-registered as early as 7anuary ," ,8$$ when the E;Tfirst too( effect

;ccordingly" ;tlas should be taxed only for such amount and under suchcircumstances as are true" fair and e1uitable. Litigation is neither a game of technicalities

nor a battle of wits and legalisms. Rather" it is an abiding search for truth" fairness and

:ustice.

666.e,(li' of t8e #8ili,,ines vs) Sal(% HiFon :e'emer 1- 1999 *E!:;A 3)

4(estionD Can the power of the Commissioner to appro'e the filing of ci'il andcriminal actions be delegated)

AnswerD *es. The +C ruled that this power can be 'alidly delegated. The highesttribunal has 'alidly recognied Re'enue ;dministrati'e @rder ?o. ,/-8% specifically

delegating the power to the Regional 4irector and therefore" any complaint 'erified by

the said Re'enue @fficial is in compliance with the law. This rule became more manifestwith the passage of the Tax Code of ,88# wherein the non-delegable powers are clearly

enumerated. nder +ection # thereof" such is not among the non-delegable powers.

irst #8ili,,ine In%(strial Cor,) vs) CTA :e'emer 29 199

4(estion5 J ipeline is a grantee of a pipeline concession to contract" install and

operate oil pipelines. @n 7an. ,88%" when it applied for mayor9s permit" the local

treasurer re1uired J ipeline to pay a local tax LBT0 on its gross receipts in ,88&stressing that it is engaged in the business of transporting petroleum 'ia pipelines. J

ipeline contends that it is exempt from LBT pursuant to +ec. ,&&:0 of the LCexempting from LBT transportation contractor. Is the contention correct)

Answer5 *es. ; common carrier may be defined broadly as one who holds himselfout to the public as engaged in the business of transporting persons or property from

place to place" for compensation" offering ser'ices to the public generally.

Based on the definition of a common carrier under ;rticle ,#&! of the Ci'il Code"there is no doubt that J ipeline is a common carrier engaged in the transportation of

petroleum. It is therefore exempt from the payment of LBT.

CI. vs) Ateneo %e *anila University &199@+

4(estion5 Is it proper for the CIR to apply the principle on tax exemption thatexemptions are strictly construed against the taxpayer0 before resol'ing whether or not

the tax statute applies to the taxpayer)




"ar #S 2002 – Series 19 $ %en &'o(rtesy of atty) *as'ar%o+ ,age -1 of -1

Answer5 ?o. It is error for the CIR to do so. In accordance with the 2hornboo(doctrine3 in the interpretation of tax laws" a statute will not be construed as imposing a

tax unless it does so clearly" expressly and unambiguously. @nly when this is done can a

tax exemption be construed strictly against the taxpayer. Co ntian0

CI. vs) J*CA &199+

4(estion5 ;re the rentals recei'ed by *=C; from the lease of its properties to small

shop operators such as restaurants and canteens0 and par(ing fees collected by

nonmembers on its 'acant lot sub:ect to income tax)

Answer5 *es. The rentals and par(ing fees are sub:ect to income tax. +ec. &/ of

the Tax Code mandates that 2the income of exempt organiations from any of their

properties" real or personal" or from any of their activities conducted for profit "regardless of the disposition made of such income" shall be taxable.3

The phrase 2from any of their acti'ities conducted for profit3 does not 1ualify theword 2properties.3 Therefore" any income from real or personal properties" whether

conducted for profit or for lofty purposes shall be sub:ect to income tax. Co ntian0

taxation} case survey (mostly 99-2001)} made 2003} by su law (daki courtesy of atty mascardo)} 31

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