Tax Cases.docx

Estate Tax 1. CIR vs Pineda – the Government has two ways of collecting the estate tax. One, by going after all the heirs and collecting each of them the amount of the tax proportionate to the inheritance received. Two, by virtue of a lien, subjecting said property of the estate which is in the hands of an heir or transferee to the payment of tax due the estate. The BIR is correct in pursuing the second remedy although this will give rise to the right of the heir who pays to seek reimbursement from the other heirs. In no case, however, can the BIR enforce the tax liability in excess of the share of the widow in the inheritance. 2. CIR vs Prieto – The money paid by the heirs may be deducted from the value of the properties received by the heirs who paid for inheritance tax purposes. The cash payments made were for the purpose of making equal the shares of the 14 heirs instituted in the will. It cannot be disputed that the inheritance tax should be paid on the basis of the value of the properties inherited by an heir. In this case, such value of the properties allotted to them minus what they had paid to their co-heirs. 3. CIR vs CA – Notarial fees of the extrajudicial settlement and attorney’s fees for the guardianship proceeding are deductible. It was clear that the extrajudicial settlement was for the purpose of payment of taxes and the distribution of the estate. As for attorney’s fees for guardianship proceedings, the guardianship was necessary for the distribution of the property. Judicial expenses are expenses of administration which include all expenses “essential to the collection of assets, payment of debts, and distribution of property.” IOW, expenses must be essential to the proper settlement of the estate. Expenses for the individual benefit of the heirs, devisees, or legatees are not deductible. 4. Pablo Lorenzo vs Juan Posadas – The deduction for compensation paid to the trustee from the estate should not be allowed. The compensation of a trustee, earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devisees, does not come properly within the class or reason for exempting administration expenses. 5. Sison vs Teodoro – The premiums are not allowed as deductions from the estate. The filing of the bond was a qualification for the office as administration and it is far-fetched to conclude that the giving of a bond by an administrator is a necessary expense in the care, management, and settlement of the estate. 6. Marcos II vs CA – the BIR has the authority to collect by summary remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies without the cognition and authority of the court sitting in probate over the supposed will of the deceased. The approval of the court sitting in probate or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. 7. Dizon vs CRI – The actual claims of creditors may be fully allowed as deductions from the gross estate despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the estate with its creditors. Post-death developments are not material in determining the amount of the deduction. “Claims” required to be presented against a decedent’s estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime or liability contracted by the deceased before his death. Therefore, the claims existing at the time of death are significant to, and should be made the basis of the determination of allowable deductions. Donor’s Tax 8. Republic vs AFP Retirement and Separations Benefits System – The AFPRSBS did not acquire title over the land. The sales patent over the lot are null and void because the lot is of public domain. Even if AFP RSBS is an innocent purchaser for value, a spring cannot rise higher than its source. The donation of the lots covered by Proc 168 was void because granting there was animus donandi, it lacks the first two elements of a valid donation (reduction of patrimony of donor, increase in the patrimony of donee) 9. Republic vs Guzman – There is no valid donation. There was lacking animus donandi for the wife’s intention to perform an act of liberality in favor of her son was not sufficiently established. The language of the quitclaim is clear that she merely contemplated a waiver of her rights, title and interest over the lands in favor of his son, and not a donation. Likewise, it lacks the essential element of acceptance in the proper form required to make the donation valid. The SPA merely acknowledges that he owns the property and that he authorizes another to sell the name in his name. There is no intimation, expressly or implied, that he acquired the parcels of land by virtue of his mother’s possible donation to him. Moreover, if an acceptance is made in a separate public writing the notice of acceptance must be noted not only in the containing acceptance but also in the deed of donation. It is well-settled that if the notification and notation are not complied with, the donation is void. 10. Abello vs CIR – Contributions to political campaigns are considered donation. Donation has the following elements: (1) Reduction of patrimony of the donor, (2) Increase in the patrimony of done, (3) Intent to do an act of liberality or animus donandi. No doubt the first two are met in this case. Donative intent is a creature of the mind. It cannot be perceived except by the material and tangible acts which manifest its presence. This being the case, donative intent is presumed present when one gives a part of ones patrimony to another without consideration. The fact that their purpose for donating was to aid in the election does not negate the presence of donative intent. 11. Sumipat vs Banga – There is no valid donation. Title to immovable property does not pass from the donor to the done by virtue of a deed of donation until and unless it has been accepted in a public instrument and the donor duly notified thereof. In this case, the donee’s acceptance of the donation is not manifested either in the deed itself or in a separate document. Hence the deed as an instrument of donation is patently void. Moreover, upon the testimony of the wife, the SC makes out this case as total absence of consent. Hence the SC was resolute in striking down the deed especially as it appears on its face to be a patent nullity. 12. Gestopa vs CA – Acceptance is a mark that that the donation is inter vivos. Donation mortis causa, being in the form of a will, are not required to be accepted by the donee during the donor’s lifetime. The fact that there was execution of the deed demonstrates the real intent of the donor to transfer ownerships of the parcels of land. It is to be noted that prior to the execution of donation inter vivos, the Danlags already executed 3 donation mortis causa which means that they are already aware of the difference of the two types of donations. If they did not intend to donate inter vivos, they would not again donate the lots already donated mortis causa.

13. Tayoto vs Heirs of Cabalo Kusop – Granting there is animus donandi, it is submitted still that the donation lacks the first two elements (reduction of patrimony of the donor and increase in the patrimony of the donee). A donor cannot lawfully convey what is not his property. A donation of a parcel of land the dominical rights of which do not belong to the donor at the time of donation, is void. 14. PSALM vs CIR - If the sale is not conducted in pursuit of any commercial or profitable activity, including transactions incidental thereto, the same will be considered an isolated transaction, which will therefore not be subject to VAT. In this case, the sale/transaction, not in pursuit of a commercial or economic activity, but done in the exercise of a governmental function mandated by law and in accordance with the guidelines imposed by the said law, is an isolated transaction that is not subject to VAT. 15. Medicard vs CIR – The amounts that Medicard earmarked and eventually paid to the medical service providers do not form part of its gross receipts for vat purposes. The VAT is a tax on the value added by the performance of the service by the taxpayer. It is, thus, this service and the value charged thereof by the taxpayer that is taxable under the NIRC. The definition of gross receipts under RR in relation with NIRC for purposes of determining its value added tax liability is hereby declared to exclude the eighty percent (80%) of the amount of the contract price earmarked as fiduciary funds for the medical utilization of its members. Since an HMO like Medicard is primarily engaged in arranging for coverage or designated managed care services that are needed by plan holders/members for fixed prepaid membership fees and for a specified period of time, then Medicard is principally engaged in the sale of services. Thus, HMO’s gross receipts shall be the total amount of money or its equivalent representing the service fee, actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding the value-added tax. The compensation for their services representing their service fee is presumed to be the total amount received as enrollment fee from their members plus other charges received. As a mere presumption, an HMO is, thus, allowed to establish that a portion of the amount it received as membership does not actually compensate it but some other person, which in this case are the medical service providers themselves. Based on industry practice, Medicard informs its would-be member beforehand that 80% of the amount would be earmarked for medical utilization and only the remaining 20% comprises its service fee. In the latter case, the medicard’s sale of it services is exempt from vat under sec 109 (g). 16. Renato vs Diaz – Toll fees may be subjected to vat. Toll operators are engaged in the sale of services. Vat is imposed on all kinds of services. The listing of specific services are intended to illustrate how pervasive and broad is the vat’s reach rather than establish concrete limits to its application. Toll fees are not taxes. Indeed they are not assess and collected by the BIR and do not go to the general coffers of the government. Even if toll way fees are taxes, the vat on toll way fees is not tax on tax because it is the motorists who pay the toll way fees but it is the toll way operator who is to pay the vat although the latter may shift it upon the former. All be told, toll way fees are sale of services subjected to vat. 17. Kepco Phils vs CIR – The claim should not be granted. For the effective zero-rating services, the VAT registered taxpayer must comply with the invoicing requirements. The requirement that the word “zero rated” is imprinted on the invoices or receipts is mandatory. It is necessary to distinguish sales subject to 12% vat, subject to 0% and exempt sales to enable the BIR to properly implement and enforce other provisions of the NIRC. This is also in accord with the rule that tax refunds, which are in the nature of tax exemptions, are construed strictissimi juris against the taxpayer. 18. Panasonic Communications vs CIR – Failure to print “zero rated” on its official receipt follows that claim should not be granted. For the effective zerorating of transactions, the taxpayer has to be vat-registered and must comply with the invoicing requirements. Statutes that grant exemptions are construed strictisimmi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the vat are in the nature f such exemptions. The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. 19. CIR vs Cebu Toyo Corp – if it chooses the first option, it will be engaged in taxable transactions, whether at 12% or 0% and it is entitled to tax credit for the vat paid on purchases and leases of goods, properties or services. If it chooses the second option, it will be engaged in exempt transactions where it will not be subject to output vat nor can it claim for any tax credit previously paid. Since the corporation availed of the income tax holiday and had zero rated sales, it is entitled therefore to claim input vat. 20. Contex Corp vs CIR – Under Vat, transactions can have preferential treatment in two ways. They may either be zero-rated sales or vat-exempt. In the former, the sales are subjected to 0% vat and the input tax related to such sale shall be available as tax credit/refund. In the latter, the sale is not subject to output tax but the related input tax cannot also be availed of as a tax credit. In the former, all vat is removed while in the latter, the vat is removed only at the exempt stage. The latter will actually increase, rather than reduce the total taxes paid by the exempt’s firm business or non-retail customers. In the case at bar, the corporation is exempt from all taxes local and national. It even registered as non vat corporation. Hence it cannot claim for the vat it paid.