Tax Compilation Set 2.docx

TAXATION 2 CASE DIGEST 1 ATTY. JERRY CATAGUE

TAXATION 2 COMPILATION OF CASE DIGESTS

SUBMITTED BY: ALEJANDRINO, MICHELLE ANTALA, JEFF ARNAEZ, CLARISSE JOY CALATRAVA, KIM LORENZO DAMALERIO, GLEMARIE DELOS SANTOS, RIEMMAN DIAMANTE, ARDEEN ROY GUTIERREZ, MICHELE LOUISE JALA, CHARMAINE MANGADLAO, JESSA PAULINO, TRIZIA JANELLI PASTOR, JAN KRISTY ROMERO, REA KRISTINA UY, DEXTER JOB

SUBMITTED TO: ATTY. JERRY CATAGUE, CPA, REB, REA

RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE

TAXATION 2 CASE DIGEST 2 ATTY. JERRY CATAGUE

Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping the BIR action. Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of sale of services that are subject to VAT; that a toll fee is a users 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 nonimpairment clause of the constitution. The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law provides otherwise; that the Court should seek the meaning and intent of the law from the words 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 nonimpairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll rates cannot exempt tollway operators from VAT. In their reply, petitioners point out that tollway operators cannot be regarded as franchise grantees under the NIRC since they do not hold legislative franchises. Further, the BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an escrow account. But this would be illegal since only the Congress can modify VAT rates and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be implemented. ISSUE: May toll fees collected by tollway operators be subjected to value- added tax? HELD: YES. In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code clearly states that services of all other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions under Section 109 of the Code.

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If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on language in the law too plain to be mistaken. But as the law is written, no such exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it is found. Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. The Courts role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax statute. Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress. The Court has no discretion on the matter but simply applies the law. The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway operators. The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws. Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), Respondent.

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FACTS: Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with servicing a unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK receivables from card members situated in the Philippines and payment to service establishments in the Philippines. It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis Section 110B of the 1997 Tax Code, which held that “xxx Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.” In addition, respondent relied on VAT Ruling No. 080-89, which read, “In Reply, please be informed that, as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted inwardly to the Philippine and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, your service income is automatically zero rated xxx” Petitioner claimed, among others, that the claim for refund should be construed strictly against the claimant as they partake of the nature of tax exemption. CTA rendered a decision in favor of respondent, holding that its services are subject to zero-rate. CA affirmed this decision and further held that respondent’s services were “services other than the processing, manufacturing or repackaging of goods for persons doing business outside the Philippines” and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP. ISSUE: WON the service income of American Express is zero rated HELD: YES. Section 102 of the Tax Code provides for the VAT on sale of services and use or lease of properties. Section 102B particularly provides for the services or transactions subject to 0% rate: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; (2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered by hotels and other service establishments, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repackaging of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the R&R of BSP, are zero-rated. Respondent renders service falling under the category of zero rating. As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the

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country where they are consumed. Thus, exports are zero-rated, while imports are taxed. In the present case, the facilitation of the collection of receivables is different from the utilization of consumption of the outcome of such service. While the facilitation is done in the Philippines, the consumption is not. The services rendered by respondent are performed upon its sending to its foreign client the drafts and bulls it has gathered from service establishments here, and are therefore, services also consumed in the Philippines. Under the destination principle, such service is subject to 10% VAT. However, the law clearly provides for an exception to the destination principle; that is 0% VAT rate for services that are performed in the Philippines, “paid for in acceptable foreign currency and accounted for in accordance with the R&R of BSP.” The respondent meets the following requirements for exemption, and thus should be zero-rated: (1) Service be performed in the Philippines (2) The service fall under any of the categories in Section 102B of the Tax Code (3) It be paid in acceptable foreign currency accounted for in accordance with BSP R&R.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE MARDEN GROUP (HK) and NATIONAL DEVELOPMENT COMPANY, respondents.

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FACTS: Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC shares and five (5) of its ships. The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels." On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the vessels for P168,000,000.00. In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14 December 1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited the fact that NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal VAT registered activity of leasing out personal property including sale of its own assets that are movable, tangible objects which are appropriable or transferable are subject to the 10% [VAT]." Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No. 395-88 (dated 18 August 1988), which made a similar ruling on the sale of the same vessels in response to an inquiry from the Chairman of the Senate Blue Ribbon Committee. Their motion was denied when the BIR issued VAT Ruling Nos. 007-89 dated 24 February 1989, reiterating the earlier VAT rulings. At this point, NDC drew on the Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 1989. On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by a Supplemental Petition for Review on 14 July 1989. ISSUE: WON the sale by the National Development Company (NDC) of five (5) of its vessels to the private respondents is subject to value-added tax (VAT) HELD: NO. A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage. It is the end user of consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the providers of these goods or services who in turn may credit their own VAT liability (or input VAT) from the VAT payments they receive from the final consumer (or output VAT). The final purchase by the end consumer represents the final link in a production chain that itself involves several transactions and several acts of consumption. The VAT system assures fiscal adequacy through the collection of taxes on every level of consumption, yet assuages the manufacturers or providers of goods and services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax liability. Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or

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services by persons who engage in such activities, in the course of trade or business. These transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of trade or business. That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both the CTA and the Court of Appeals, the latter doing so even in its first decision which it eventually reconsidered. This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property. The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute before this Court, should have definitively settled the matter. Any sale, barter or exchange of goods or services not in the course of trade or business is not subject to VAT.

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners, vs.HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.

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FACTS: These four (4) petitions, which have been consolidated because of the similarity of the main issues involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution. The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to show justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2) an interest, personal and substantial, of the party raising the constitutional questions; (3) the constitutional question should be raised at the earliest opportunity; and (4) the question of constitutionality is directly and necessarily involved in a justiciable controversy and its resolution is essential to the protection of the rights of the parties. According to the Solicitor General, only the third requisite — that the constitutional question should be raised at the earliest opportunity — has been complied with. He also questions the legal standing of the petitioners who, he contends, are merely asking for an advisory opinion from the Court, there being no justiciable controversy for resolution. ISSUE: WON the imposition of VAT is unconstitutional. HELD: NO First, the Court held that the President had authority to issue EO 273 as it was provided in the Provisional constitution that the President shall have legislative powers. Second, petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. Lastly, petitioners also failed to prove that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the equal protection clause. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%. The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.

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The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic commodities and services, as well as mass actions and demonstrations against the VAT should by now be evident. The fact that nothing of the sort has happened shows that the fears and apprehensions of the petitioners appear to be more imagined than real. It would seem that the VAT is not as bad as we are made to believe. In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and relief from the political branches of the government. The Court, following the time-honored doctrine of separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273 was enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued implementation.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION and COURT OF TAX APPEALS, respondents.

FACTS:

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Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC) is a domestic corporation which owns and operates a mining concession at Toledo City, Cebu, the products of which are exported to Japan and other foreign countries. On April 9, 1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting on the basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the service of an assessment notice and demand for payment of the amount of P12,391,070.51 representing deficiency ad valorem percentage and fixed taxes, including increments, for the taxable year 1975 against ACMDC. Likewise, on the basis. of the BIR examiner's report in another investigation separately conducted, the Commissioner had another assessment notice, with a demand for payment of the amount of P13,531,466.80 representing the 1976 deficiency ad valorem and business taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980. ACMDC protested both assessments but the same were denied, hence it filed two separate petitions for review in the Court of Tax Appeals. The CTA rendered a consolidated decision holding, inter alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and silver for 1975 and 1976 thereby effectively sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral, the refining and smelting charges should be deducted, in addition to freight and insurance charges.

However, the tax court held ACMDC liable for the amount consisting of 25% surcharge for late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's sales tax and such contractor's tax for leasing out of its personal properties. ACDMC elevated the matter to the Supreme Court claiming that the leasing out was a mere isolated transaction, hence should not be subjected to contractor's tax. ISSUE:

WON

ACDMC

should

be

held

liable

for

contractor’s

tax

RULING: YES. It is being held that ACMDC was not a manufacturer subject to the percentage tax imposed by Section 186 of the tax code. However such conclusion cannot be made with respect to the contractor's tax being imposed on ACMDC. It cannot validly claim that the leasing out of its personal properties was merely an isolated transaction. Its book of accounts shows that several distinct payments were made for the use of its personal properties such as its plane, motor boat and dump truck. The series of transactions engaged in by ACMDC for the lease of its aforesaid properties could also be deduced from the fact that during the period there were profits earned and reported therefor. The allegation of ACMDC that it did not realize any profit from the leasing out of its said personal properties, since its income therefrom covered only the costs of operation such as salaries and fuel, is not supported by any documentary or substantial evidence.

Assessments are prima facie presumed correct and made in good faith. Contrary to the theory of ACMDC, it is the taxpayer and not the BIR who has the duty of

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proving otherwise. It is an elementary rule that in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. All presumptions are in favor of tax assessments. Verily, failure to present proof of error in assessments will justify judicial affirmance of said assessment.

G.R. No. 125355. March 30, 2000 COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION FACTS:

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Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly organized and existing under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the letter to perform collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other affiliates. In 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988. Then, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT. The Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment of the deficiency VAT which was contested by the latter. It averred that it was not engaged in the business of providing services to Philamlife and its affiliates. COMASERCO contends that the term "in the course of trade or business" requires that the "business" is carried on with a view to profit or livelihood. It avers that the activities of the entity must be profit- oriented. In 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner of Internal Revenue. Respondent filed a petition for review with the Court of Appeals. In 1996, the Court of Appeals rendered decision reversing that of the Court of Tax Appeals. Hence, this petition. ISSUE: Whether or not COMASERCO was engaged in the sale of services, and thus liable to pay VAT. HELD: YES. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. The definition of the term "in the course of trade or business" incorporated in the present law applies to all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services. Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. _____________________________________________________________ G.R. No. 168056

September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO vs. THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY

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OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR. FACTS: Petitioners ABAKADA GURO Party List challenged the constitutionality of R.A. No. 9337 particularly Sections 4, 5 and 6, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). 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 argue that VAT is a tax levied on the sale or exchange of goods and services and cannot be included within the purview of tariffs under the exemption delegation since this refers to customs duties, tolls or tribute payable upon merchandise to the government and usually imposed on imported/exported goods. They also said that the President has powers to cause, influence or create the conditions provided by law to bring about the conditions precedent. Moreover, they allege that no guiding standards are made by law as to how the Secretary of Finance will make the recommendation. They claim, nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether to impose the increased tax rate or not. ISSUES: Whether or not R.A. No. 9337 has violated the provisions in Article VI, Section 24, and Article VI, Section 26 (2) of the Constitution. Whether or not there was an undue delegation of legislative power in violation of Article VI Sec 28 Par 1 and 2 of the Constitution. Whether or not there was a violation of the due process and equal protection under Article III Sec. 1 of the Constitution. HELD: No, the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes. No, there is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. 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; in our complex economy that is frequently the only way in which the legislative process can go forward. In this case, it is not a delegation of legislative power but a delegation of ascertainment of facts upon which enforcement and administration of the increased rate under the law is contingent. No, the power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will not interfere with

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such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.

G.R. No. 178697

November 17, 2010

COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC. FACTS:

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In November 1998, the Commissioner of Internal Revenue issued a Letter of Authority numbered 19734 (LOA 19734) which authorized certain revenue examiners to examine Sony Philippines’ books of accounts regarding revenue taxes for “the period 1997 and unverified prior years.” After the examination of said books, the CIR found out, among others, that Sony Philippines is liable for deficiency taxes and penalties for value added tax amounting to P11,141,014.41. Sony Philippines contested such finding as it argued that the basis used by the CIR to assess said deficiency were the records covering the period of January 1998 through March 1998 which was a period not covered by the letter of authority so issued. The CIR countered that the LOA phrase “the period 1997 and unverified prior years” should be understood to mean the fiscal year ending on March 31, 1998. Eventually the case reached the Court of Tax Appeals and the CTA agreed with Sony Philippines on this one. So did the CTA en banc. ISSUE: Whether or not Sony Phil., Inc. is liable for deficiency Value Added Tax? HELD: NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it paid for certain advertising costs. This is sufficient to accord it the benefit of input VAT credits and where the money came from to satisfy said advertising billings is another matter but does not alter the VAT effect. In the same way, Sony Philippines can not be deemed to have received the reimbursable as a fee for a VAT-taxable activity. The reimbursable was couched as an aid for Sony Philippines by SIS in view of the company’s “dire or adverse economic conditions”. More importantly, the absence of a sale, barter or exchange of goods or properties supports the non-VAT nature of the reimbursement. This was distinguished from the COMASERCO case where even if there was similarly a reimbursement-on-cost arrangement between affiliates, there was in fact an underlying service. Here, the advertising services were rendered in favor of Sony Philippines not SIS.

524 SCRA 73, 103 GR Nos. 141104 & 148763

June 8, 2007

ATLAS CONSOLIDATED MINING DEVELOPMENT CORPORATION vs. COMMISSIONER OF IINTERNAL REVENUE

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FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992. BIR did not immediately act on the matter prompting the petitioner to file a petition for review before the CTA. The latter denied the claims on the grounds that for zero-rating to apply, 70% of the company's sales must consists of exports, that the same were not filed within the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed only on April 20, 1994), and that petitioner failed to submit substantial evidence to support its claim for refund/credit. The petitioner, on the other hand, contends that CTA failed to consider the following: sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment return which was April 15, 1993, and not on every end of the applicable quarters; and that the certification of the independent CPA attesting to the correctness of the contents of the summary of suppliers’ invoices or receipts examined, evaluated and audited by said CPA should substantiate its claims. ISSUE: Whether or not petitioner corporation should be granted refund/credit of input VAT. HELD: NO. Although the Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA are taxed as exports because these export processing zones are to be managed as a separate customs territory from the rest of the Philippines, and thus, for tax purposes, are effectively considered as foreign territory, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during the period claimed for not being established and substantiated by appropriate and sufficient evidence. Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on vague implications.

G.R. No. 149671

July 21, 2006

COMMISSIONER OF INTERNAL REVENUE vs. SEKISUI JUSHI PHILIPPINES, INC.

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FACTS: Sekisui Jushi Philippines, Inc. (Sekisui) is a domestic corporation principally engaged in the business of manufacturing, importing, exporting, buying, selling, or otherwise dealing in, at wholesale goods such as strapping bands and other packaging materials and good of similar nature, and any and all equipment, materials, supplies used or employed in or related to the manufacture of such finished goods. Having registered with the BIR as a value-added (VAT) taxpayer, Sekisui filed its quarterly returns with the BIR, for the period January 1 to June 30 1997, reflecting therein input taxes in the amount of P4,631,132.70 paid by it in connection with its domestic purchase of capital goods and services. Said input taxes remained unutilized since Sekisui has not engaged in any business activity or transaction for which it may be liable for output tax and for which said input tax may be credited. Sekisui filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the department of Finance (CENTER-DOF) two separate applications for tax credit/refund of vat input taxes paid for the period January to March 31, 1997 and April 1 to June 30, 1997, respectively. There being no action on its application, Sekisui filed, within the two year prescriptive period, a petition for review with the Court of Tax Appeals which ruled in their favor. The Court of Appeals affirmed the decision of the CTA. Hence, this petition. ISSUE: Whether or not Sekisui is entitled to the refund or issuance of tax credit as alleged unutilized input taxes paid on domestic purchase of capital goods and services. HELD: YES. An entity registered with the PEZA as an ecozone may be covered by the VAT system. Section 23 of RA 7916 gives a PEZA-registered enterprise the option to choose between the two fiscal incentives: (a) five percent preferential tax rate on its gross income under the said law; or (b) an income tax holiday provided under EO No. 226 or the Omnibus Investment Code of 1987. If the entity avails itself of the five percent preferential tax rate under the first scheme, it is exempt from all taxes, including the VAT; under the second, and it is exempt from income taxes for a number of years, nut not from other national internal revenue taxes like the VAT. Sekisui availed itself of the 2nd scheme which is fiscal incentive of an income tax holiday under EO No. 226. By availing itself of the income tax holiday, Sekisui became subject of VAT, because its transactions were not VAT-exempt. Notable, while an ecozone is geographically within the Philippines, it is deemed a separate customs territory and is regarded in law as foreign soil. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. These sales are zero-rated or subject to a tax rate of zero percent.

TAXATION 2 CASE DIGEST 18 ATTY. JERRY CATAGUE

Sekisui paid input taxes in the amount of P4, 377,102.26. On the other hand, 100 percent of the products of Sekisui are exported which means that all its transactions are deemed export sales and are thus VAT zero-rated. Since Sekisui has no output tax which it could offset its input tax, as shown by the fact that the said input tax it paid for its domestic purchases of capital goods and services remained unutilized, it can claim a refund for the input VAT previously charged by its suppliers.

CELESTINO CO vs. CIR, G.R. No L-8506, August 31, 1956 FACTS:

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Celestino Co doing business under the name of “Oriental Sash Factory”. From 1956-1951 it paid percentage tax of 7% (National Revenue Code sec. 186) on the gross receipts of its sash, door, and window factory. However on 1952 it began to claim liability only to contractor’s 3% tax (Instead of 7%) under sec. 191. Celestino claims that they do not manufacture ready-made doors, sash, and windows for the public. He claims that they only do Special Orders for customers, thus, contending they are not manufacturers; hence it is a contractor within the purview of section 191 of the NIRC. This argument did not convince the BIR and the Court of Tax Appeals. CTA said that their tradename gives an impression they do engage in manufacturing and their records suggest that their huge earnings (P188, 754.69) cannot be from special orders from their few customers, but because it was from ready made products. They also offered themselves as a “factory” to the public. ISSUE: Whether or not Celestino Co is a manufacturer and should therefore be taxed on its sale of its manufactured products. HELD: YES The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles. Additionally, the business enterprise of Celestino does not fall under the enumeration providing for the list of contractors in the NIRC. It would require a stretch of the law and much effort to make the business of manufacturing sash, doors and windows upon special order of customers fall under the category of road, building, navigation, artesian well, water works and other construction work for contractors.

INCHAUSTI vs. CROMWELL, G.R. No. L-6584, October 16, 1911 FACTS:

TAXATION 2 CASE DIGEST 20 ATTY. JERRY CATAGUE

Inchausti is engaged in the business of buying and selling wholesale hemp on commission. It is customary to sell hemp in bales which are made by compressing the loose fiber by means of presses, covering two sides of the bale with matting, and fastening it by means of strips of rattan; that the operation of bailing hemp is designated among merchants by the word “prensaje.” In all sales of hemp by Inchausti, the price is quoted to the buyer at so much per picul, no mention being made of bailing. It is with the tacit understanding that the hemp will be delivered in bales. The amount depends under the denomination of “prensaje” or the baled hemp. CIR made demand in writing upon Inchausti for the payment of the sum of P1,370.68 as a tax of one third of one per cent on the sums of money mentioned as aggregate sum collected as prensaje or the baled hemp. Inchausti paid upon protest, contending that the collected amount is illegal upon the ground that the said charge does not constitute a part of the selling price of the hemp, but is a charge made for the service of baling the hemp. ISSUE: Whether or not the CIR is correct in its demand upon Inchausti to pay said tax liability. HELD: YES It is clear to our minds that in the case at bar the baling was performed for the general market and was not something done by plaintiff which was a result of any peculiar wording of the particular contract between him and his vendee. It is undoubted that the plaintiff prepared his hemp for the general market. This would be necessary. One who exposes goods for sale in the market must have them in marketable form. The hemp in question would not have been in that condition if it had not been baled. The baling, therefore, was nothing peculiar to the contract between the plaintiff and his vendee. It was precisely the same contract that was made by every other seller of hemp, engaged as was the plaintiff, and resulted simply in the transfer of title to goods already prepared for the general market. The method of bookkeeping and form of the account rendered is not controlling as to the nature of the contract made. It is conceded in the case that a separate entry and charge would have been made for the baling even if the plaintiff had not been the one who baled the hemp but, instead, had received it already baled from his vendor. This indicates of necessity that the mere fact of entering a separate item for the baling of the hemp is formal rather than essential and in no sense indicates in this case the real transaction between the parties. It is undisputable that, if the plaintiff had brought the hemp in question already baled, and that was the hemp the sale which formed the subject of this controversy, then the plaintiff would have performed no service for his vendee and could not, therefore, lawfully charge for the rendition of such service. It is, nevertheless, admitted that in spite of that fact he would still have made the double entry in his invoice of sale to such vendee. This demonstrates the nature of the transaction and discloses, as we have already said, that the entry of a separate charge for baling does not accurately describe the transaction between the parties.

CHU HOI HORN vs CTA, G.R. No. L-22046, October 29, 1968 FACTS:

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The Collector of Internal Revenue held Chu Hoi Horn liable for the payment of the sum of P21,622.91, representing deficiency percentage tax on his sales of neon signs from 1951 to the second quarter of 1953, the above amount including surcharge and compromise, an appeal was taken to the respondent Court of Tax Appeals. The records show that on June 29, 1953, petitioner filed a written claim for refund of the sum of P1,696.95 with the Bureau of Internal Revenue alleging that for engaging in the business of leasing neon signs he was not liable for the fixed and percentage taxes as a contractor under Sections 182 and 191 of the National Internal Revenue Code and that he was merely a business agent subject to a fixed annual tax of P60.00 * * *. After investigation of the business operations of the petitioner, respondent found that petitioner was not actually leasing neon signs but was selling the same; hence, he assessed the deficiency sales tax mentioned above after deducting the amount of the percentage tax previously paid by petitioner as contractor under Section 191 of the Revenue Code. The liability of petitioner was made to rest on facts given due weight in such report which on its face carried then, and carries now, conviction. "While the taxpayer submitted certificates of the various customers wherein they stated that, they were lessees of the neon signs installed by the taxpayer as their place of business, nonetheless, upon investigation conducted by an agent of this Office these customers stated that the neon signs were sold to them and that upon payment of the last installment, the said neon signs become their property. ISSUE: Whether or not Chu Hoi Horn is liable for the payment of deficiency percentage taxes on the neon signs it sold. HELD: YES The CTA entertained "no doubt in [its mind] that the neon signs made or constructed by petitioner for his customers were sold and not merely leased. This is further strengthened by the fact that a neon sign made especially for a customer is useless to any other person. The 'advance rental' paid upon signing of the agreement represents a substantial portion of the cost of the construction and installation which signifies that it represents advance payment on the cost of the neon sign. Furthermore, the total of all the payments during the term of the lease covers exactly the entire cost of construction and installation of the neon sign. If these 'rentals' are not for the account of the cost of the neon sign the contract would be scandalously immoral for being usurious and oppressive. These payments are evidently to cover the cost of the neon sign. It is obvious from these contracts that the intent of the parties was to have the total of the payments equal the construction and installation cost of the neon sign which is a strong indication that the real intent [was for] the neon sign to [go to] the 'lessee' upon the termination of the term of the alleged 'lease'. Given the foregoing, Chu Hoi Horn is liable for the payment of the deficiency percentage taxes on the sale of neon lights. The error alleged by Chu Hoi Horn to the CTA in not refunding petitioner with the sum of P1,696.95 which it claims as overpayment and holding him liable for P21,322.91 would be equally devoid of substance. AMERICAN RUBBER COMPANY vs. CIR

TAXATION 2 CASE DIGEST 22 ATTY. JERRY CATAGUE

G.R. No. L-25965 June 30, 1975 FACTS:  Petitioner American Rubber Company (ARCO) is a domestic corporation engaged in the business of producing logs and lumber for sale. It acquired its logs from its forest concession in Basilan City, duly licensed by the Bureau of Forestry. 

It likewise cut timber in the forest covered by the UP Land Grant which was operated by the Santa Clara Lumber Co., Inc.(SCLCO), under Timber License Agreement No. 1 executed between the UP and SCLCO wherein the latter had an "exclusive license to cut, collect and remove timber of all groups from the Grant, subject to certain conditions, including payment by SCLCO to the UP of the corresponding forest charges on all timber cut and removed from the area…”



ARCO was allowed to cut timber and operated a portion of the southwestern corner of SCLCO's concession in Basilan



The operation of the aforesaid areas was embodied in a "Letter Agreement" executed between ARCO and SCLCO on January 13, 1948.



From May, 1949, through February, 1952, Mr. Denoga, Administrator of the UP Land Grant, prepared monthly reports of timber cut by ARCO from the UP Land Grant, wherein UP would bill forest charges against the SCLCO which paid the bills, and later reimbursed by ARCO.



The lumber pieces belonging to ARCO which were deposited at their dock in Basilan, were sold thru contracts executed by SCLCO with different buyers in Manila, and the contracts recited that said lumber was "the timber of American Rubber Company".



SCLCO would issue in behalf of ARCO sales invoices to said buyers. ARCO would reimburse SCLCO for transportation, handling and other expenses advanced by the latter. After SCLCO had shipped to Manila buyers the lumber marked "ARCO", bills of lading were issued in favor of either SCLCO or ARCO as shipper and consignee.



SCLCO insured the lumber against marine risks of loss or damage occurring while in transit from petitioner's dock at Basilan to Manila. The premiums were paid by it, but were reimbursed by ARCO.



After delivery of the lumber sold by SCLCO in behalf of petitioner, SCLCO sent to petitioner's Manila office liquidation statements of said lumber shipped to Manila which papers consisted of statements of lumber costs, bank deposit slips, bills of lading and lumber sales contracts.



SCLCO in making the sales, charged and collected a 5% commission which was deducted from the gross sales. Likewise it deducted freight, unloading and trucking charges from the proceeds of sale and the balance was deposited by SCLCO with petitioner's bank account — at the National City

TAXATION 2 CASE DIGEST 23 ATTY. JERRY CATAGUE

Bank of New York. SCLCO provided itself with the privilege tax receipt and paid percentage taxes as commercial brokers during the period in question. 

On or about August 27, 1953, General Enterprises, Inc. (GEI), a local business firm with offices at Basilan City, entered into a contract with ARCO wherein it appears that GEI agreed to ship to Japan apitong logs for which GEI paid the sum of P32,000.00 to ARCO. The latter did not declare this sale nor did it pay the sales tax therefor.



Jose Cabrera, agent of the BIR, conducted the investigation on ARCO's business transactions for the years 1949 to 1953, and as a result of this investigation, ARCO was assessed for alleged deficiency sales tax and surcharge in the sum of P66,022.77.



On July 25, 1955, petitioner filed a petition for review of the assessment with the Court of Tax Appeals.



The CTA affirmed the assessment of the CIR (with modifications), ruling that SCLCO was an agent of ARCO in the questioned sales of lumber;



It is the contention of ARCO that after delivery of its logs at Isabela, Basilan, ownership passed to SCLCO and "there ends their business with the lumber."

ISSUES: 1. Whether or not ARCO is liable for the deficiency taxes and surcharges. YES 2. Whether ARCO should be taxed at 33 1/3% of the gross cost of logs purchased under the 2nd par. of Sec. 186, or at 7% of the gross sales under the 1st par. of the same. - 7%

RULING: 1. It is the contention of ARCO that based on the "Letter Agreement" executed between them and SCLCO, it is clear and evident that there existed no contract of agency but rather a contract of purchase and sale or a contract for a piece of work. The SC believes otherwise and sustains the CTA’s theory of agency as the controlling relationship between ARCO and SCLCO. A careful review of the records of the CTA reveals these facts: (a) That after the delivery of the logs of ARCO at Basilan, SCLCO undertook the transportation of lumber from Basilan to Manila and paid the freight charges, but these were reimbursed by ARCO. The buyers in turn reimbursed ARCO for the transportation, handling and other expenses. The bills of lading covering the shipments were either consigned to ARCO or to SCLCO. Said bills of lading show that the purchase price includes not only the cost but also the freight, trucking, unloading and other expenses.

TAXATION 2 CASE DIGEST 24 ATTY. JERRY CATAGUE

These facts disproved the contention of ARCO that after delivery of its logs at Basilan, ownership passed to SCLCO and "there ends their business with the lumber." (b) That after selling ARCO’s lumber, SCLCO collected payment of the same and remitted the proceeds of the sale to ARCO by depositing said proceeds with ARCO's bank. (c) That in compensation for its services, SCLCO charged 5% commission on its sales of ARCO's lumber for which it provided itself with the privilege tax receipt and paid percentage tax as commercial broker. (d) SCLCO billed 5% sales tax as a separate item in the invoice issued by it to the Manila buyers. If as alleged, the lumber was sold by ARCO to SCLCO, the resale of said lumber by the SCLCO to the Manila buyers should not have been subject to sales tax as it was not an original sale. The fact that the invoice shows that the sales tax was billed to the buyer conclusively shows that the sale was made by SCLCO for ARCO and not for its own account. Moreover, ARCO's contention that the cost in acquiring title to the logs cut by it from the UP Land Grant and the SCLCO Timber Concession should have been deducted pursuant to Section 186 of the NIRC, is untenable. Apart from the forest charges which UP billed against SCLCO, which were then reimbursed by ARCO, there is no showing that the logs were previously subjected to sales tax paid by UP or SCLCO. Forest charges are different from sales tax as provided for in the Tax Code.

2. ARCO contends that the deficiency sales tax for the years 1950-1952 should have been assessed on the basis of the 2 nd paragraph of Section 186, which provides for a special treatment of operators or proprietors of sawmills whose sales tax liability is computed on a 33-1/3% of the gross cost of logs purchased during any given month intended for manufacture into lumber, instead of under the first paragraph thereof. This theory is tenable if he were a mere sawmill operator. Record shows, however, that ARCO not only logged areas controlled by SCLCO during 1950-1953, but it likewise logged from its own concession. As was stated earlier, ARCO was in the business of producing logs and lumber for sale, which logs he acquired from the concession of SCLCO and also from its own forest concession duly licensed by the Bureau of Forestry. ARCO therefore, being a forest concessionaire as well as a sawmill operator clearly falls under, and is subject to, the first paragraph of Section 186 which provides: A sawmill operator who is at the same time a holder of an ordinary timber license is subject to the 7% sales tax on his gross sales of his lumber produced by his sawmill.

TAXATION 2 CASE DIGEST 25 ATTY. JERRY CATAGUE

It is also noteworthy that the 2nd paragraph of Section 186 which provides for a lesser tax was subsequently deleted by R.A. 6110 made effective in September 1969. By virtue of the deletion, the sales tax payable by this class of taxpayers shall now be computed as provided for in the first and only remaining paragraph of the section.

Lastly, since the freight charges, unloading, trucking and other incidental expenses formed part of the selling price of the lumber sold by SCLCO on behalf of ARCO, the latter is liable for the payment of the deficiency sales tax. The sales tax is based on the gross and not on the selling price. Such being the case, the sales tax necessarily reaches the cost of manufacture and overhead expenses of the taxpayer, because in determining his gross selling price the taxpayer takes into account these items.

17. CASE NOT FOUND

TAXATION 2 CASE DIGEST 26 ATTY. JERRY CATAGUE

Luzon Brokerage v. Juan Posadas (CIR) G.R. No. 27822 December 24, 1927 FACTS:  Boxes of playing cards, owned by Luzon Brokerage, arrived in the port of Manila on November 20, 1925, at 8:00 in the morning, but were not declared for payment of internal-revenue tax until December 1. 

Neither was the amount of the estimated tax deposited, nor was permission requested to withdraw said boxes from the customhouse, except on December 2, 1925.



The law in force for the payment of internal-revenue taxes on imported merchandise at the time of the arrival of the playing cards in question, was section 7, Act No. 2835 (amending section 1498 of the Administrative Code); while the one in force on the date upon which the declaration for the payment of the internal-revenue tax on said imported merchandise was made, was Act No. 3246, which became effective December 1, 1925.



Thus, the CIR imposed and collected an internal-revenue tax on such playing cards of Luzon Brokerage, under the provisions of Act 3246.

ISSUE: What tax rate is applicable to the imported playing cards in question: the one in force at the date of the arrival of the importing vessel, or the one in force at the time payment was made? LATTER. RULING: The theory of the law, with reference to the internal-revenue tax upon such merchandise, seems to be that the tax is not due and payable until it is about to be put into the commerce or trade of the country. The condition of the market at a particular time, or the situation in business generally, might cause the producer to withhold his merchandise and not allow it to be removed from the place of production for months, or even years; so could he be required to pay the internal-revenue taxes until he saw fit to place his product upon the market? While the law permits the producer of taxable merchandise to delay the payment of the internal-revenue tax until ’immediately before removal of the same from the place of production,’ the importer of taxable merchandise must deposit the same in a bonded warehouse and may delay the payment of internal-revenue tax until the same is about to be removed therefrom. Consequently, merchandise imported to these Islands from foreign countries is subject to two taxes, namely: Customs and internal revenue. In accordance with Section 1251 of the Administrative Code, duties shall accrue upon the arrival of the importing vessel within the jurisdictional waters of the Philippine Islands with intent to unlade; and, in accordance

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with section 1248 of the same Code the importation of said merchandise is not completed until the duty to which it is subject has been paid, or, until it has legally left the jurisdiction of the customhouse in case it is exempt from the payment of duties. According to section 1480, internal-revenue taxes on imported articles must be satisfied before the release of such articles from the customhouse. Now then; from what time is the importer or owner of the imported merchandise obliged to pay the internal-revenue tax? When the importation is completed by the payment of the customs duties? or, when the importer or owner withdraws it from the customhouse and places it on the market? According to the doctrine above cited, imported merchandise is not subject to the payment of internal-revenue tax except just before it is withdrawn from the customhouse for the purpose of placing it on the market, being on the same footing with merchandise manufactured or produced in the country for its sale and consumption therein, which is not subject to the payment of internalrevenue tax, except just before its transfer from the place of production, in accordance with section 1479 of the Administrative Code, which reads as follows: SEC. 1479. Payment of specific tax on domestic products. — Specific taxes on domestic products shall be paid by the manufacturer, producer, owner, or person having possession of the same; and except as otherwise especially allowed such taxes shall be paid immediately before removal from the place of production. The time, then, that the imported merchandise becomes subject to the payment of the internal-revenue tax, depends upon the will of the importer or owner of said merchandise; because, while he has not decided to withdraw it from the customhouse and place it on the market, and has not requested permission to do so, he is not bound to pay said tax. Briefly, then, the time for the payment of the internal-revenue tax on merchandise, from the date of arrival in port until just before it is withdrawn from the customhouse, depending upon the will of the importer or owner, the law in force at the time the payment is made must prevail; because, voluntary human acts are governed by the laws in force at the time they are done, unless there is a legal provision to the contrary. The importer or owner of the imported merchandise may select the time in which he should pay the amount of the internal-revenue tax from the time it arrives in the port of Manila until it is withdrawn from the customhouse. But here, Luzon Brokerage did not take advantage of the favorable provisions of Act No. 2835, and did not pay the internal-revenue tax while said section was in force. Instead, it paid only after the new law, Act No. 3246, went into effect. Thus, it cannot now make claim for the recovery of the internal-revenue tax paid under the law in force at the time payment was made.

TAXATION 2 CASE DIGEST 28 ATTY. JERRY CATAGUE

CIR v. SM Prime Holdings and First Asia Realty G.R. No. 183505 February 26, 2010 FACTS: 

SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia) are domestic corporations engaged in the business of operating cinema houses, among others.



The BIR sent SM Prime a Preliminary Assessment Notice (PAN), and later a Formal Demand Letter, for VAT deficiency on cinema ticket sales for taxable year 2000.

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SM Prime filed a letter-protest, which the BIR denied. Thus, SM Prime filed a Petition for Review before the CTA.

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The BIR also sent First Asia a PAN for VAT deficiency on cinema ticket sales for taxable years 1999, 2000, 2002 and 2003.



First Asia protested to these demands, which the BIR also denied. Accordingly, First Asia filed Petitions for Review before the CTA



The Petitions were consolidated due to the identity of issues raised therein and that SM Prime is a majority shareholder of First Asia.



CIR’s Arguments The CIR argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive because it covers all sales of services unless exempted by law. The rules on statutory construction do not apply and using extrinsic aids in interpreting Section 108 is improper because the provision is clear and unambiguous. Thus, he maintains that the exhibition of movies by cinema operators or proprietors to the paying public, being a sale of service, is subject to VAT.



SM and First Asia’ Arguments On the other hand, respondents argue that a plain reading of Section 108 of the NIRC of 1997 shows that the gross receipts of proprietors or operators of cinemas/theaters derived from public admission are not among the services subject to VAT. Respondents insist that gross receipts from cinema/theater admission tickets were never intended to be subject to any tax imposed by the national government. According to them, the absence of gross receipts from cinema/theater admission tickets from the list of services which are subject to the national amusement tax under Section 125 of the NIRC reinforces this legislative intent.

ISSUE: Whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to VAT. NO RULING: It is correct that the enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive.

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Section 108 of the NIRC of the 1997 reads: SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. xxx equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including xxx lessors or distributors of cinematographic films; xxx and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase sale or exchange of services shall likewise include: xxxx (7) The lease of motion picture films, films, tapes and discs; xxxx A cursory reading of the provision clearly shows that the enumeration of the sale or exchange of services subject to VAT is not exhaustive. The words, including, similar services, and shall likewise include, indicate that the enumeration is by way of example only. Among those included in the enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not the same as the showing or exhibition of motion pictures or films. Exhibition in Black’s Law Dictionary is defined as: To show or display; to produce anything in public so that it may be taken into possession. Lease is defined as: a contract by which one owning such property grants to another the right to possess, use and enjoy it on specified period of time in exchange for periodic payment of a stipulated price, referred to as rent. Since the activity of showing motion pictures, films or movies by cinema/ theater operators or proprietors is not included in the enumeration, it is incumbent upon the court to the determine whether such activity falls under the phrase similar services. The intent of the legislature must therefore be ascertained. The legislature never intended operators or proprietors of cinema/theater houses to be covered by VAT. (1) Historically, the activity of showing motion pictures, films or movies by cinema/theater operators or proprietors has always been considered as a form of entertainment subject to amusement tax. (2) Prior to the Local Tax Code, all forms of amusement tax were imposed by the national government. (3) When the Local Tax Code was enacted, amusement tax on admission tickets from theaters, cinematographs, concert halls, circuses and other places of amusements were transferred to the local government.

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(4) Under the NIRC of 1977, the national government imposed amusement tax only on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai and race tracks. (5) The VAT law was enacted to replace the tax on original and subsequent sales tax and percentage tax on certain services. (6) When the VAT law was implemented, it exempted persons subject to amusement tax under the NIRC from the coverage of VAT. (7) When the Local Tax Code was repealed by the LGC of 1991, the local government continued to impose amusement tax on admission tickets from theaters, cinematographs, concert halls, circuses and other places of amusements. (8) Amendments to the VAT law have been consistent in exempting persons subject to amusement tax under the NIRC from the coverage of VAT. (9) Only lessors or distributors of cinematographic films are included in the coverage of VAT.

These reveal the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended to replace the percentage tax on certain services. The mere fact that they are taxed by the local government unit and not by the national government is immaterial. The Local Tax Code, in transferring the power to tax gross receipts derived by cinema/theater operators or proprietor from admission tickets to the local government, did not intend to treat cinema/theater houses as a separate class. No distinction must, therefore, be made between the places of amusement taxed by the national government and those taxed by the local government. To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors, who would be paying an additional 10% VAT on top of the 30% amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of 1997 would be in a better position than those taxed under the LGC of 1991. The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts of cinema/theater operators or proprietors derived from admission tickets. The removal of the prohibition under the Local Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater operators or proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a burden on the taxpayer, it cannot be presumed nor can it be extended by implication. A law will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. As it is, the power to impose amusement tax on cinema/theater operators or proprietors remains with the local government.

TAXATION 2 CASE DIGEST 31 ATTY. JERRY CATAGUE

ERICSSON TELECOMMUNICATIONS, INC. v. CITY OF PASIG G.R. NO. 176667 November 22, 2007 FACTS:  Ericsson Telecommunications, Inc. is a corporation engaged in the design, engineering, and marketing of telecommunication facilities/system. 

In an Assessment Notice issued by the City Treasurer of Pasig City, Ericsson was assessed a business tax deficiency for the years 1998-2001 based on its gross revenues as reported in its audited financial statements.



Ericsson filed a Protest, claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue.



This was denied by the City Treasurer, thus Ericsson filed a petition for review with the RTC of Pasig for the annulment and cancellation of deficiency local business taxes assessed.



Respondent argues that gross receipts is synonymous earnings/revenue, which, in turn, includes uncollected earnings.



Ericsson, however, contends that only the portion of the revenues which were actually and constructively received should be considered in determining its tax base.

with

gross

ISSUE: Whether the local business tax on contractors should be based on gross receipts or gross revenue. RULING: Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of the Local Government Code. Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the same Code covering contractors and other independent contractors, to wit: SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses: xxxx (e) On contractors and other independent contractors, in accordance with the following schedule: xxx With gross receipts for the preceding calendar year. The above provision specifically refers to gross receipts which is defined under Section 131 of the Local Government Code, as follows: (n) Gross Sales or Receipts include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and

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the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT); The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive. Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. Constructive receipt occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. There is, therefore, constructive receipt, when the consideration for the articles sold, exchanged or leased, or the services rendered has already been placed under the control of the person who sold the goods or rendered the services without any restriction by the payor. In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. This is in consonance with the International Financial Reporting Standards, which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends), which is measured at the fair value of the consideration received or receivable. Revenue from services rendered is recognized when services have been performed and are billable. It is recorded at the amount received or expected to be received. In Ericsson’s case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. This is because petitioner uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayers right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income. The imposition of local business tax based on petitioners gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing[26] inasmuch as petitioners revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Thus, the tax should be computed based on gross receipts.

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ACCENTURE v. CIR G.R. No. 190102 July 11, 2012 FACTS:  Accenture, Inc. (Accenture) is a corporation engaged in the business of providing management consulting, business strategies development, and selling and/or licensing of software. 

It is duly registered with the BIR as a VAT taxpayer in accordance with Section 236 of the NIRC.



The following are reflected in Accenture’s VAT Return for the fourth quarter of 2002: Total Input Tax ₱9,355,809.80 Zero-rated Sales ₱316,113,513.34 Total Sales ₱335,640,544.74



Quarterly VAT Return for 2003 contains the following information: Total Input Tax ₱27,682,459.38 Zero-rated Sales ₱545,686,639.18 Total Sales ₱572,880,982.68



The monthly and quarterly VAT returns of Accenture show that, notwithstanding its application of the input VAT credits earned from its zerorated transactions against its output VAT liabilities, it still had excess or unutilized input VAT credits. These VAT credits are in the amounts of ₱9,355,809.80 for the 1st period and ₱27,682,459.38 for the 2nd period, or a total of ₱37,038,269.18.



Out of the ₱37,038,269.18, only ₱35,178,844.21 pertained to the allocated input VAT on Accenture’s “domestic purchases of taxable goods which cannot be directly attributed to its zero-rated sale of services.”



The excess input VAT was not applied to any output VAT that Accenture was liable for in the same quarter when the amount was earned—or to any of the succeeding quarters. Instead, it was carried forward to Accenture’s 2nd Quarterly VAT Return for 2003.



Thus, in July 2004, Accenture filed with the Department of Finance (DoF) an administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC). The DoF did not act on the claim of Accenture. Hence, the latter filed a Petition for Review with the CTA for the issuance of a TCC in its favor in the amount of ₱35,178,844.21.



The CIR argued thus: 1. The sale by Accenture of goods and services to its clients are not zerorated transactions. 2. Claims for refund are construed strictly against the claimant, and

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3. Accenture has failed to prove that it is entitled to a refund, because its claim has not been fully substantiated or documented. 

The CTA denied the Petition of Accenture for failing to prove that its sale of services to its foreign clients qualified for zero percent VAT.



Accenture appealed to the CTA En Banc and argued that prior to the amendment introduced by R.A. 9337, there was no requirement that the services must be rendered to a person engaged in business conducted outside the Philippines to qualify for zero-rating.



The CTA En Banc agreed that because the case pertained to the third and the fourth quarters of taxable year 2002, the applicable law was the 1997 Tax Code, and not R.A. 9337.

ISSUES: 1. Whether or not Accenture is entitled to the refund of the amount of ₱35,178,884.21, representing the unutilized input VAT on domestic purchases of goods and services from July 1-November 30, 2002, from its sales of services to various foreign clients. NO RULING: Recipient of services must be doing business outside the Philippines for the transactions to qualify as zero-rated. Before, Section 102(b) of the 1977 Tax Code provides that if the consideration for the services provided by a VAT-registered person is in a foreign currency, then this transaction shall be subjected to zero percent rate. The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its Section 108(B), which now reads: (B) Transactions Subject to Zero Percent (0%) Rate. -The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted xxx; (2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency xxx.

The SC ruled that the recipient of the service must be doing business outside the Philippines for the transaction to qualify for zero-rating under Section 108(B) of the Tax Code. When the provider and recipient of services are both doing business in the Philippines, their transaction falls squarely under Section 108(a) governing

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domestic sale or exchange of services. Indeed, this is a purely local sale or exchange of services subject to the regular VAT, unless of course the transaction falls under the other provisions of Section 108(b). Thus, when Section 108(b)(2) speaks of “services other than those mentioned in the preceding subparagraph,” the legislative intent is that only the services are different between subparagraphs 1 and 2. The requirements for zerorating, including the essential condition that the recipient of services is doing business outside the Philippines, remain the same under both subparagraphs. Accenture has failed to establish that the recipients of its services do business outside the Philippines. Accenture argues that based on the documentary evidence it presented, it was able to establish the following circumstances: 1. The records of the SEC show that Accenture’s clients have not established any branch office in which to do business in the Philippines. 2. For these services, Accenture bills another corporation, Accenture Participations B.V. (APB), which is likewise a foreign corporation with no “presence in the Philippines.” 3. Only those not doing business in the Philippines can be required under BSP rules to pay in acceptable currency for their purchase of goods and services from the Philippines. Thus, in a domestic transaction, where the provider and recipient of services are both doing business in the Philippines, the BSP cannot require any party to make payment in foreign currency. Accenture claims that these documentary pieces of evidence show that these zero-rated sales were paid in foreign exchange currency and duly accounted for in the rules and regulations of the BSP. However, the documents presented by Accenture merely substantiate the existence of the sales, receipt of foreign currency payments, and inward remittance of the proceeds of these sales duly accounted for in accordance with BSP rules. Accenture presented no evidence whatsoever that these clients were doing business outside the Philippines. We deny Accenture’s Petition for a tax refund. The evidence presented by Accenture may have established that its clients are foreign. This fact does not automatically mean, however, that these clients were doing business outside the Philippines. Consequently, to come within the purview of Section 108(B)(2), it is not enough that the recipient of the service be proven to be a foreign corporation; rather, it must be specifically proven to be a non-resident foreign corporation. There is no specific criterion as to what constitutes “doing” or “engaging in” or “transacting” business. Each case must be judged in the light of its peculiar

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environmental circumstances. The term implies a continuity of commercial dealings and arrangements. In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual basis of that claim. Tax refunds, like tax exemptions, are construed strictly against the taxpayer. Accenture failed to discharge this burden. It alleged and presented evidence to prove only that its clients were foreign entities.

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CIR vs. CTA and AVECILLA G.R. No. L-42394 January 17, 1985

FACTS:  Avecilla Building Corporation is a domestic corporation engaged in the business of "general engineering and contracting of all kinds of constructions and structures.” 

For the period from September 1964 to September 1966, Avecilla was retained for a fixed monthly fee by the PNB, DBP and the SSS to render the following services as "work engineers" — to carefully check, inspect and fully supervise the work of the contractors engaged by the owners (PNB, DBP, SSS) in the construction of their buildings.



On February 2, 1967, Avecilla filed with the CTA a petition for review claiming refund in the amount of P9,572.69 plus interests thereon, for overpaying contractor's tax for the period from September 1964 to September 1966.



It claimed that it is not an "independent contractor" subject to the 3% contractor's tax under Section 191 of the NIRC.



Avecilla contends it did not engage in actual construction work but was hired to merely supervise construction. It uses the argument that a surgeon who performs a surgical operation, a dentist who extracts teeth and a lawyer who prepares a deed of sale are in similar categories as its engineers who performed professional services. They are not independent contractors.



The CIR maintained that the contractor's taxes paid by Avecilla were collected in accordance with laws and regulations.

ISSUE: Whether or not Avecilla Building was an independent contractor within the meaning of Section 191 of the NIRC with respect to its business of furnishing technical services in the construction of buildings. RULING: Section 191 of the National Internal Revenue Code reads as follows: SEC. 191. Percentage Tax on Road, Building, Irrigation, Artesian Well, Water Works, and Other Construction Work Contractors, Proprietors of Operators of Dockyards, and Others. Road, building, irrigation, artesian welt water works, and other construction work contractors; filing contractors; xxx and other independent contractors, xxx shall pay a tax equivalent to three per centum of their gross receipts. It can be gleaned from its articles of incorporation that Avecilla is principally engaged in the construction of buildings and other structures. It offers actual as well as technical services to the public. In the instant case, Avecilla rendered technical services through its work engineers to the PNB, DBP and SSS in the construction of their buildings. Avecilla’s "work engineers" acted as overseers of the building contractors engaged by the three government agencies.

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The "work engineers" rendered their professional services as employees of Avecilla. They did not render services in their individual capacities but as extensions of the firm which was hired to oversee the construction. Thus, licensed engineers did not go there as hired professionals of the PNB, DBP, or SSS but as employees of Avecilla Building Corporation. Avecilla had a distinct personality from the work engineers, tax wise and in other respects. Premised on these circumstances, Avecilla is a building contractor subject to the 3% percentage tax under Section 191 of the NIRC. A "contractor" within the context of Section 191 has been defined as follows: “… a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. The contractor's tax as contemplated by the Revenue Code is in the nature of an excise tax on the exercise of a privilege. The tax is imposed on the sale of services or labor. It is an indirect tax and whether or not the contractor is exempt from internal revenue taxes is immaterial. The tax imposed on Avecilla is, therefore, a tax on its business and privilege of selling the services and labor of its employees and not on the professional services of those employees themselves. The law does not distinguish actual from technical services performed by the contractor. Where the law does not distinguish the court should not distinguish. Hence, a building or any other construction work contractor like Avecilla, whether engaged in actual or technical services in relation to its construction business, is liable to the 3% contractor's tax under Section 191.

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SAN MIGUEL CORPORATION vs. MUN. COUNCIL OF MANDAUE G.R. N. L-30761, July 11, 1973 FACTS: Ordinance No. 23, series of 1966, as amended by Ordinance No. 25, series of 1967, of the Municipality of Mandaue, Cebu, imposed "a graduated quarterly fixed tax based on the gross value of money or actual market value at the time of removal of the manufactured articles from their factories or other manufacture or processing establishments." Petitioner, a domestic corporation engaged in the business of manufacturing beer and other products with a subsidiary manufacturing plant in Mandaue, Cebu, since December, 1967, paid the taxes prescribed in the aforesaid ordinance, protest thus: P309.40 on January 22, 1968 and P5,171.80 as of July 18, 1968, computed respectively "on the basis of 70,412 and 2,203.070 cases of beer manufactured and removed from said Mandaue plant, multiplied by P7.60 which is the prevailing market price (wholesaler's price) per case of beer at the time of the removal". Claiming that it is adversely affected by the ordinance, which in its view was beyond the power and authority of the municipality to enact, petitioner brought and action in the Court of First Instance of Cebu, Branch VI, for the annulment of said ordinance. Petitioner contends that (1) the phrase "gross value in money or actual market value" employed in the questioned ordinance clearly referred to "sales or market price" of the articles or commodities manufactured thereby indicating a manifest intent to impose a tax based on sales, and (2) that to impose a tax upon the privilege of manufacturing beer, when the amount of the tax is measured by the gross receipts from its sales of beer, is the same as imposing a tax upon the product itself. Respondents upon the other hand insist that the tax imposed in the questioned ordinance (1) is not a percentage tax or a tax on the sales of beer but is a tax on the privilege to engage in the business of manufacturing beer, and the phrase "actual market value" was merely employed as a basis for the classification and graduation of the tax sought to be imposed; (2) that it is not a specific tax because it is not a tax on the beer itself, but on the privilege of manufacturing beer; and (3) that with conversion of Mandaue into a city on June 21, 1969, the appeal has become moot, because the prohibition against the imposition of any privilege tax on sales or other taxes in any form based thereon, is applicable only to municipalities. ISSUE: Whether or not the challenged ordinance has transcended the exceptions and limitations imposed by section 2 of Republic Act 2264. HELD: YES While We have heretofore announced the doctrine that the grant of power to tax to charterred cities and municipalities under Section 2 of the Local Autonomy Act is sufficiently plenary,2 it is, however, subject to the exceptions and limitations contained in the two (2) provisos of the same statute. In other words, the municipal corporation should not transcend the limitations imposed by the statute on the basis of which the power to tax is sought to be exercised.

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Section 2 of the aforecited statute provides: Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax. Section 1 of Ordinance No. 88 of the Municipality of Mandaue, as amended by Ordinances Nos. 23 (1967) and 25 (1968), specifically provides that the graduated quarterly tax shall be "based on the gross value in money or actual market value at the time of removal, of the manufactured products ... from their factories ... during the preceding calendar year ... . Well settled is the rule that in the absence of legislative intent to the contrary, technical or commercial terms and phrases, when used in tax statutes, are presumed to have been used in their technical sense or in their trade or commercial meaning. Thus, the phrase "gross value in money" has a welldefined meaning in our tax statutes. The phrase "actual market value" has been construed as the price which an article "would command in the ordinary course of business, that is to say, when offered for sale by one willing to sell, but not under compulsion to sell, and purchased by another who is willing to buy, but under no obligation purchase it, or the price which the property will bring in a fair market after fair and reasonable efforts have been made to find a purchaser who will give the highest price for it. The "actual market value" of property, for purposes of taxation, therefore means the selling price of the article in the course of ordinary business. We therefore hold that the questioned ordinance imposed tax based on sales and therefore beyond the authority of the municipality to enact.

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COMMISSIONER OF INTERNAL REVENUE vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.. G.R. No. 153205. January 22, 2007. FACTS: A foreign consortium entered into a contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of NAPOCOR’s two power barges. The Consortium appointed BWSC-Denmark as its coordination manager. Herein respondent subcontracted the actual operation and maintenance of NAPOCOR’S two power barges as well as the performance of other duties to be done in the Philippines. NAPOCOR paid the consortium with a mixture of foreign currencies while in turn, the foreign consortium paid the respondent in foreign currency inwardly remitted to the Philippines through the banking system. In order to ascertain tax implications on the transaction, the respondent followed the ruling by the BIR to be registered as a VAT-person in order for its services paid in foreign currency be subjected to VAT at zero-rate. In 1996, it filed the proper VAT returns showing zero rating. In 1997, it misinterpreted that Rev. Regulations No. 5-96, it paid 10% output VAT for the period of April-December 1996 therough the Voluntary Assessment Program (VAP) of the BIR. In 1997, the respondent was able to obtain a ruling from the BIR reconfirming that it is subject to VAT at zero-rating. On this basis, it applied for a refund of the output VAT that it paid but the BIR did not want to grant the refund since the services are “not destined for consumption abroad” (or the destination principle). ISSUES: 1. Whether or not the respondent is entitled to a VAT zero-rate. 2. Whether or not the respondent is entitled to a refund which was erroneously paid in 1996. HELD: 1. No. The BWSCMI is not zero-rated and is subjected to a 10% VAT. In this case, the payer-recipient of respondent’s services is the Consortium which is a joint-venture doing business in the Philippines. While the Consortium’s principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines. In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other than those in (1)’ of Sec. 102 both require (i) payment in foreign currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is doing business outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency. Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR’s power barges in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign currency outwardly remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT.

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2. Yes. BWSCMI is entitled to refund of the 10% output VAT it paid the based on the non-retroactivity of the prejudicial revocation of the BIR Rulings which held that it’s services are subject to 0% VAT and which BWSCMI invoked in applying for refund of the output VAT.

TAXATION 2 CASE DIGEST 43 ATTY. JERRY CATAGUE

SAN ROQUE POWER CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE. G.R. No. 180345. November 25, 2009.

FACTS: Petitioner herein entered into a Power Purchase Agreement (PPA) with the National Power Corporation or NPC to develop the hydro potential of the Lower Agno River and be able to generate additional power and energy for the Luzon Power Grid by developing and operating the San Roque Multipurpose Project. Under the PPA, the Petitioner shall be responsible for the Power Station and it shall operate and maintain the same, subject to the instructions of the NPC. During the cooperation period of 25 years commencing from the completion date of thePower Station, the NPC shall purchase all the electricity generated by the Power Plant. Because of the exclusive nature of the PPA, petitioner herein applied for and was granted five certificates of zero-rate by the BIR. Based on these certificates, the zero-rated status of petitioner commenced from 1998 throughout the year 2002. From January to December 2002, the Petitioner filed with the respondent its monthly and Quarterly VAT declarations. Its quarterly VAT declarations showed excess input VAT payments on account of its importation and domestic purchases of goods and services. Subsequently, the petitioner filed four separate administrative claims for refund of Unutilized Input VAT. Respondent failed to act on the request of tax refund for credit of petitioner, which prompted the petitoner to file a Petition for Review before the CTA. After the hearing on the merits, the CTA denied the petitioner’s claim for refund or credit. A Motion for Reconsideration was subsequently filed but the same was denied by the CTA. Hence, the present petition.

ISSUE: Whether or not the Petitioner should be entitled to a tax refund or credit.

HELD: Yes. Section 112 (A) of the NIRC provides the criteria to claim refund or tax credit. Based on the evidence presented, petitioner complied with said requirements. Firstly, petitioner had adequately proved that it is a VAT registered taxpayer when it presented Certificate of Registration No. OCN-98-006-007394. Secondly, it is unquestioned that petitioner is engaged in providing electricity for NPC, an activity which is subject to zero rate, under Section 108(B)(3) of the NIRC. Thirdly, petitioner offered as evidence suppliers' VAT invoices or official receipts, as well as Import Entries and Internal Revenue Declarations, which were examined in the audit. It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect tax so as to encourage the development of particular industries.

TAXATION 2 CASE DIGEST 44 ATTY. JERRY CATAGUE

COMMISSIONER ON INTERNAL REVENUE vs. SEAGATE TECHNOLOGY. G.R. NO. 153866. February 11, 2005.

FACTS: Seagate Technology is a resident foreign corporation duly registered with the Securities and Exchange Commission (SEC) and with the Philippine Export Zone Authority (PEZA) with an issued PEZA certificate to engage in the manufacture of recording components primarily used in computers for export. It is likewise a VAT-registered entity and filed VAT returns. An administrative claim for refund of VAT input taxes was filed with the Revenue District of Cebu but the same not acted upon by the Petitioner. This prompted Seagate to file the Petition for review in order to toll the runnung of the two-year prescriptive period. Having heard the merits of the case, the Court of Tax Appeals (CTA) rendered a decision granting said refund. The Court of Appeals also affirmed the decision of the CTA withh a reduced amount of refund to P12,122,922.66. This sum represented the unutilized but substantiated input VAT paid on capital goods purchased. ISSUE: Whether or not the Respondent, a PEZA-registered enterprise, is entitled to the refund or tax credit which represented the alleged unutilized input VAT paid on capital goods. HELD: Yes. As a PEZA-registered enterprise within a special economic zone, respondent is entitled to the fiscal incentives and benefits provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 and 7844. The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal revenue laws and regulations the equipment -- including capital goods -- that registered enterprises will use, directly or indirectly, in manufacturing. EO 226 even reiterates this privilege among the incentives it gives to such enterprises. Petitioner merely asserts that by virtue of the PEZA registration alone of respondent, the latter is not subject to the VAT. Consequently, the capital goods and services respondent has purchased are not considered used in the VAT business, and no VAT refund or credit is due. This is a non sequitur. By the VATs very nature as a tax on consumption, the capital goods and services respondent has purchased are subject to the VAT, although at zero rate. Registration does not determine taxability under the VAT law. Repondent as an entity is exempt from internal revennue laws and regulations. This regulation covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another. Respondent, as an exempt entity can neither be directly charged for the VAT on its sales not indirectly made to bear, as added costs to such sales, the equivalent VAT on its purchases.Special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by the law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto.

TAXATION 2 CASE DIGEST 45 ATTY. JERRY CATAGUE

INSTITUTIONAL SHAREHOLDER SERVICES, INC. Vs. COMMISSIONER ON INTERNAL REVENUE. G.R. No. 7662. 2010. FACTS: Petitioner is the regional operating headquarter of Institutional Shareholder Services, Inc., a foreign multinational company. It was granted a license by the Securities and exchange Commission and was a VAT-registered taxpayer. It is currently engaged in the business of logistics services, research and development services, product development, data processing and communication and business development. For the second quarter of taxable year 2005 to the first quarter of taxable year 2007, petitioner filed with respondent its Quarterly VAT Returns and Amended Quarterly VAT Returns. On June 2007, the Petitioner filed with respondent a claim for refund or issuance of tax credit certificate for the input VAT allegeddly incurred during the second quarter of taxable year 2005 until the first quarter of the taxable year 2007 in the total amount of P6,364,720.39. Respondent, in her answer, alleged that the petitioner failed to demonstrate that the tax was erroneously or illegally collected and since taxes paid and collected are presumed to be in accordance with the law, hence, it is not creditable or refundable.After the trial on the merits, the Court denied the Petition for failure of Petitioner to prove that its sale of services to its mother company is zero-rated ISSUE: Whether or not the Petitioner herein is entitled to a VAT refund. HELD: No. The right of the Petitioner to a refund is a mere statutory privilege and not a vested right. Well-settled is the rule that recovery of excess input VAT is a refund which is in a nature of an exemption. Clearly, a claim for tax refund may be based on statutes granting tax exemption or tax refund. In such case, the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, a legislative grace, which cannot be allowed unless granted in the most explicit and categorical language. The twoyear presciptive period is applicable to administrative claims for VAT refund only, pursuant to Section 112 of the NIRC. Applying the foregoing in the instant case, records show that Petitioner filed its petition barely 28 days after it filed iits administrative claim. Clearly, the Petition for Review filed before the CTA was prematurely filed since the CIR was not given the full opportunity to decide on the Petitioner’s claim.

TAXATION 2 CASE DIGEST 46 ATTY. JERRY CATAGUE

COMMISSIONER OF INTERNAL REVENUE vs. TOSHIBA INFORMATION EQUIPMENT INC.. G.R. No. 150154. August 9, 2005. FACTS: Respondent Toshiba is a domestic corporation, duly-registered with the Securities and Exchange Commission, with the primary purpose of engaging in the business of manufacturing and exporting of electrical and mechanical machinery, equipment, systems, accessories, parts, components, materials and goods of all kinds, including, without limitation, to those relating to office automation and information technology, and all types of computer hardware and software, such as HDD, CD-ROM and personal computer printed circuit boards. In 1995, it also registered with the Philippine Economic Zone Authority (PEZA) as an ECOZONE Export Enterprise and as a VAT Taxpayer and a Withholding agent with the BIR. Respondent Toshiba filed its VAT returns for the first and second quarters of taxable year 1996. It alleged that the input VAT was from its purchases of capital goods and services which remained unutilized since it had not yet engaged in any business activity or transaction for which it may be liable for any output VAT. Consequently, Toshiba filed with the Department of Finance applications for tax credit/refund of its unutilized VAT from January to March and from April to June 1996. To toll the claimm of the running of the two-year prescriptive period for judicially claiming a tax refund, Petitioner herein filed with the CTA a Petition for Review. After evaluating the evidence submitted by the respondent, the CTA ordered the CIR to refund, oor in the alternative, to issue a tax credit to Toshiba. An appeal was made before the Court of Appeals but the same was denied and said court affirmed the previous decision of the CTA. ISSUE: Whether or not Toshiba is entitled to a tax refund/credit of its input VAT on its purchases of capital goods and services. HELD: Yes. Tooshiba bases its claim for tax credit/refund on Section 106 (b) of the Tax Code of 1977. Also, since respondent is a PEZA-registered enterprise, it is subject to five percent preferential tax imposed under the Special Economic Zone Act of 1995. According to said section, except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid The five percent (5%) preferential tax rate imposed on the gross income of a PEZA-registered enterprise shall be in lieu of all national taxes, including VAT. Hence, as an Ecozone Enterprise, it is also a VAT-exempt entity. Sales of goods, properties and services by persons from the Customs Territory to ECOZONE enterprises shall be subject to VAT at zero percent.

TAXATION 2 CASE DIGEST 47 ATTY. JERRY CATAGUE

COCONUT OIL REFINERS ASSOCIATION INC. Vs. HON. RUBEN TORRES. 465 SCRA 47. July 29, 2005. FACTS: On March 1992, Republic Act 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. On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among others, that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. Pursuant to the directive under E.O. 80, the BCDA allowed the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ. Nine days after, E.O. No. 97-A was issued, Further Clarifying the Tax and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone. Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the aforecited provisions respectively to SSEZ residents living outside the Secured Area of the SSEZ and to Filipinos aged 15 and over residing outside the SSEZ. Petitioners thus filed the instant petition, seeking the declaration of nullity of the assailed issuances. ISSUE: Whether or not EO No. 97 is unconstitutional for being an exercise of an executive lawmaking, being violative of the equal protection clause, and the prohibition against unfair competition and practices in restraint of trade and for being violative with RA No. 7227. HELD: On the issue of executive legislation, 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. On the issue of equal protection clause, the Court ruled in the negative. established principle of constitutional law that the guaranty of the equal protection of the laws is not violated by a legislation based on a reasonable classification. Classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class. Applying the foregoing test to the present case, this Court finds no violation of the right to equal protection of the laws. First, contrary to petitioners claim, substantial distinctions lie between the establishments inside and outside the zone, justifying the difference in their treatment. In Tiu v. Court of Appeals, the constitutionality of Executive Order No. 97-A was challenged for being violative of the equal protection clause. In that case, petitioners claimed that Executive Order

TAXATION 2 CASE DIGEST 48 ATTY. JERRY CATAGUE

No. 97-A was discriminatory in confining the application of Republic Act No. 7227 within a secured area of the SSEZ, to the exclusion of those outside but are, nevertheless, still within the economic zone. Upholding the constitutionality of Executive Order No. 97-A, this Court therein found substantial differences between the retailers inside and outside the secured area, thereby justifying a valid and reasonable classification:

TAXATION 2 CASE DIGEST 49 ATTY. JERRY CATAGUE

COMMISSIONER OF INTERNAL REVENUE vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.. G.R. No. 153205. January 22, 2007. FACTS: A foreign consortium entered into a contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of NAPOCOR’s two power barges. The Consortium appointed BWSC-Denmark as its coordination manager. Herein respondent subcontracted the actual operation and maintenance of NAPOCOR’S two power barges as well as the performance of other duties to be done in the Philippines. NAPOCOR paid the consortium with a mixture of foreign currencies while in turn, the foreign consortium paid the respondent in foreign currency inwardly remitted to the Philippines through the banking system. In order to ascertain tax implications on the transaction, the respondent followed the ruling by the BIR to be registered as a VAT-person in order for its services paid in foreign currency be subjected to VAT at zero-rate. In 1996, it filed the proper VAT returns showing zero rating. In 1997, it misinterpreted that Rev. Regulations No. 5-96, it paid 10% output VAT for the period of April-December 1996 therough the Voluntary Assessment Program (VAP) of the BIR. In 1997, the respondent was able to obtain a ruling from the BIR reconfirming that it is subject to VAT at zero-rating. On this basis, it applied for a refund of the output VAT that it paid but the BIR did not want to grant the refund since the services are “not destined for consumption abroad” (or the destination principle). ISSUE: 1. Whether or not the respondent is entitled to a VAT zero-rate. 2. Whether or not the respondent is entitled to a refund which was erroneously paid in 1996. HELD: No. The BWSCMI is not zero-rated and is subjected to a 10% VAT. In this case, the payer-recipient of respondent’s services is the Consortium which is a joint-venture doing business in the Philippines. While the Consortium’s principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines. In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other than those in (1)’ of Sec. 102 both require (i) payment in foreign currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is doing business outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency. Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR’s power barges in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign currency outwardly remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT. Yes. BWSCMI is entitled to refund of the 10% output VAT it paid the based on the non-retroactivity of the prejudicial revocation of the BIR Rulings which held that it’s services are subject to 0% VAT and which BWSCMI invoked in applying for refund of the output VAT.

TAXATION 2 CASE DIGEST 50 ATTY. JERRY CATAGUE

SAN ROQUE POWER CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE. G.R. No. 180345. November 25, 2009. FACTS: Petitioner herein entered into a Power Purchase Agreement (PPA) with the National Power Corporation or NPC to develop the hydro potential of the Lower Agno River and be able to generate additional power and energy for the Luzon Power Grid by developing and operating the San Roque Multipurpose Project. Under the PPA, the Petitioner shall be responsible for the Power Station and it shall operate and maintain the same, subject to the instructions of the NPC. During the cooperation period of 25 years commencing from the completion date of thePower Station, the NPC shall purchase all the electricity generated by the Power Plant. Because of the exclusive nature of the PPA, petitioner herein applied for and was granted five certificates of zero-rate by the BIR. Based on these certificates, the zero-rated status of petitioner commenced from 1998 throughout the year 2002. From January to December 2002, the Petitioner filed with the respondent its monthly and Quarterly VAT declarations. Its quarterly VAT declarations showed excess input VAT payments on account of its importation and domestic purchases of goods and services. Subsequently, the petitioner filed four separate administrative claims for refund of Unutilized Input VAT. Respondent failed to act on the request of tax refund for credit of petitioner, which prompted the petitoner to file a Petition for Review before the CTA. After the hearing on the merits, the CTA denied the petitioner’s claim for refund or credit. A Motion for Reconsideration was subsequently filed but the same was denied by the CTA. Hence, the present petition. ISSUE: Whether or not the Petitioner should be entitled to a tax refund or credit. HELD: Yes. Section 112 (A) of the NIRC provides the criteria to claim refund or tax credit. Based on the evidence presented, petitioner complied with said requirements. Firstly, petitioner had adequately proved that it is a VAT registered taxpayer when it presented Certificate of Registration No. OCN-98-006-007394. Secondly, it is unquestioned that petitioner is engaged in providing electricity for NPC, an activity which is subject to zero rate, under Section 108(B)(3) of the NIRC. Thirdly, petitioner offered as evidence suppliers' VAT invoices or official receipts, as well as Import Entries and Internal Revenue Declarations, which were examined in the audit. It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect tax so as to encourage the development of particular industries.

TAXATION 2 CASE DIGEST 51 ATTY. JERRY CATAGUE

COMMISSIONER ON INTERNAL REVENUE vs. SEAGATE TECHNOLOGY. G.R. NO. 153866. February 11, 2005. FACTS: Seagate Technology is a resident foreign corporation duly registered with the Securities and Exchange Commission (SEC) and with the Philippine Export Zone Authority (PEZA) with an issued PEZA certificate to engage in the manufacture of recording components primarily used in computers for export. It is likewise a VAT-registered entity and filed VAT returns. An administrative claim for refund of VAT input taxes was filed with the Revenue District of Cebu but the same not acted upon by the Petitioner. This prompted Seagate to file the Petition for review in order to toll the runnung of the two-year prescriptive period. Having heard the merits of the case, the Court of Tax Appeals (CTA) rendered a decision granting said refund. The Court of Appeals also affirmed the decision of the CTA withh a reduced amount of refund to P12,122,922.66. This sum represented the unutilized but substantiated input VAT paid on capital goods purchased. ISSUE: Whether or not the Respondent, a PEZA-registered enterprise, is entitled to the refund or tax credit which represented the alleged unutilized input VAT paid on capital goods. HELD: Yes. As a PEZA-registered enterprise within a special economic zone, respondent is entitled to the fiscal incentives and benefits provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 and 7844. The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal revenue laws and regulations the equipment -- including capital goods -- that registered enterprises will use, directly or indirectly, in manufacturing. EO 226 even reiterates this privilege among the incentives it gives to such enterprises. Petitioner merely asserts that by virtue of the PEZA registration alone of respondent, the latter is not subject to the VAT. Consequently, the capital goods and services respondent has purchased are not considered used in the VAT business, and no VAT refund or credit is due. This is a non sequitur. By the VATs very nature as a tax on consumption, the capital goods and services respondent has purchased are subject to the VAT, although at zero rate. Registration does not determine taxability under the VAT law. Repondent as an entity is exempt from internal revennue laws and regulations. This regulation covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another. Respondent, as an exempt entity can neither be directly charged for the VAT on its sales not indirectly made to bear, as added costs to such sales, the equivalent VAT on its purchases.Special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by the law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto.

TAXATION 2 CASE DIGEST 52 ATTY. JERRY CATAGUE

INSTITUTIONAL SHAREHOLDER SERVICES, INC. Vs. COMMISSIONER ON INTERNAL REVENUE. G.R. No. 7662. 2010.

FACTS: Petitioner is the regional operating headquarter of Institutional Shareholder Services, Inc., a foreign multinational company. It was granted a license by the Securities and exchange Commission and was a VAT-registered taxpayer. It is currently engaged in the business of logistics services, research and development services, product development, data processing and communication and business development. For the second quarter of taxable year 2005 to the first quarter of taxable year 2007, petitioner filed with respondent its Quarterly VAT Returns and Amended Quarterly VAT Returns. On June 2007, the Petitioner filed with respondent a claim for refund or issuance of tax credit certificate for the input VAT allegeddly incurred during the second quarter of taxable year 2005 until the first quarter of the taxable year 2007 in the total amount of P6,364,720.39. Respondent, in her answer, alleged that the petitioner failed to demonstrate that the tax was erroneously or illegally collected and since taxes paid and collected are presumed to be in accordance with the law, hence, it is not creditable or refundable.After the trial on the merits, the Court denied the Petition for failure of Petitioner to prove that its sale of services to its mother company is zero-rated ISSUE: Whether or not the Petitioner herein is entitled to a VAT refund. HELD: No. The right of the Petitioner to a refund is a mere statutory privilege and not a vested right. Well-settled is the rule that recovery of excess input VAT is a refund which is in a nature of an exemption. Clearly, a claim for tax refund may be based on statutes granting tax exemption or tax refund. In such case, the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, a legislative grace, which cannot be allowed unless granted in the most explicit and categorical language. The twoyear presciptive period is applicable to administrative claims for VAT refund only, pursuant to Section 112 of the NIRC. Applying the foregoing in the instant case, records show that Petitioner filed its petition barely 28 days after it filed iits administrative claim. Clearly, the Petition for Review filed before the CTA was prematurely filed since the CIR was not given the full opportunity to decide on the Petitioner’s claim.

TAXATION 2 CASE DIGEST 53 ATTY. JERRY CATAGUE

COMMISSIONER OF INTERNAL REVENUE vs. TOSHIBA INFORMATION EQUIPMENT INC.. G.R. No. 150154. August 9, 2005.

FACTS: Respondent Toshiba is a domestic corporation, duly-registered with the Securities and Exchange Commission, with the primary purpose of engaging in the business of manufacturing and exporting of electrical and mechanical machinery, equipment, systems, accessories, parts, components, materials and goods of all kinds, including, without limitation, to those relating to office automation and information technology, and all types of computer hardware and software, such as HDD, CD-ROM and personal computer printed circuit boards. In 1995, it also registered with the Philippine Economic Zone Authority (PEZA) as an ECOZONE Export Enterprise and as a VAT Taxpayer and a Withholding agent with the BIR. Respondent Toshiba filed its VAT returns for the first and second quarters of taxable year 1996. It alleged that the input VAT was from its purchases of capital goods and services which remained unutilized since it had not yet engaged in any business activity or transaction for which it may be liable for any output VAT. Consequently, Toshiba filed with the Department of Finance applications for tax credit/refund of its unutilized VAT from January to March and from April to June 1996. To toll the claimm of the running of the two-year prescriptive period for judicially claiming a tax refund, Petitioner herein filed with the CTA a Petition for Review. After evaluating the evidence submitted by the respondent, the CTA ordered the CIR to refund, oor in the alternative, to issue a tax credit to Toshiba. An appeal was made before the Court of Appeals but the same was denied and said court affirmed the previous decision of the CTA. ISSUE: Whether or not Toshiba is entitled to a tax refund/credit of its input VAT on its purchases of capital goods and services. HELD: Yes. Tooshiba bases its claim for tax credit/refund on Section 106 (b) of the Tax Code of 1977. Also, since respondent is a PEZA-registered enterprise, it is subject to five percent preferential tax imposed under the Special Economic Zone Act of 1995. According to said section, except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid The five percent (5%) preferential tax rate imposed on the gross income of a PEZA-registered enterprise shall be in lieu of all national taxes, including VAT. Hence, as an Ecozone Enterprise, it is also a VAT-exempt entity. Sales of goods, properties and services by persons from the Customs Territory to ECOZONE enterprises shall be subject to VAT at zero percent.

TAXATION 2 CASE DIGEST 54 ATTY. JERRY CATAGUE

COCONUT OIL REFINERS ASSOCIATION INC. Vs. HON. RUBEN TORRES. 465 SCRA 47. July 29, 2005. FACTS: On March 1992, Republic Act 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. On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among others, that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. Pursuant to the directive under E.O. 80, the BCDA allowed the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ. Nine days after, E.O. No. 97-A was issued, Further Clarifying the Tax and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone. Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the aforecited provisions respectively to SSEZ residents living outside the Secured Area of the SSEZ and to Filipinos aged 15 and over residing outside the SSEZ. Petitioners thus filed the instant petition, seeking the declaration of nullity of the assailed issuances. ISSUE: Whether or not EO No. 97 is unconstitutional for being an exercise of an executive lawmaking, being violative of the equal protection clause, and the prohibition against unfair competition and practices in restraint of trade and for being violative with RA No. 7227. HELD: On the issue of executive legislation, 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. On the issue of equal protection clause, the Court ruled in the negative. established principle of constitutional law that the guaranty of the equal protection of the laws is not violated by a legislation based on a reasonable classification. Classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class. Applying the foregoing test to the present case, this Court finds no violation of the right to equal protection of the laws. First, contrary to petitioners claim, substantial distinctions lie between the establishments inside and outside the zone, justifying the difference in their treatment. In Tiu v. Court of Appeals, the constitutionality of Executive Order No. 97-A was challenged for being violative of the equal protection clause. In that case, petitioners claimed that Executive Order No. 97-A was discriminatory in confining the application of Republic Act No. 7227

TAXATION 2 CASE DIGEST 55 ATTY. JERRY CATAGUE

within a secured area of the SSEZ, to the exclusion of those outside but are, nevertheless, still within the economic zone. Upholding the constitutionality of Executive Order No. 97-A, this Court therein found substantial differences between the retailers inside and outside the secured area, thereby justifying a valid and reasonable classification:

TAXATION 2 CASE DIGEST 56 ATTY. JERRY CATAGUE

CIR vs. Philippine Health Care Provider, Inc. FACTS: The Philippine Health Care Providers, Inc., herein respondent, is a corporation with primary purpose To establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization. On July 25, 1987, Executive Order (E.O.) No. 273 was issue, amending the National Internal Revenue Code of 1977 (Presidential Decree No. 1158) by imposing Value-Added Tax (VAT) on the sale of goods and services. This E.O. took effect on January 1, 1988. Before the effectivity of E.O. No. 273, or on December 10, 1987, respondent wrote the Commissioner of Internal Revenue (CIR), petitioner, inquiring whether the services it provides to the participants in its health care program are exempt from the payment of the VAT. On June 8, 1988, petitioner CIR, issued VAT Ruling stating that respondent, as a provider of medical services, is exempt from the VAT coverage. Meanwhile, on January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT Law) took effect, amending further the National Internal Revenue Code of 1977. Then on January 1, 1998, R.A. No. 8424 (National Internal Revenue Code of 1997) became effective. This new Tax Code substantially adopted and reproduced the provisions of E.O. No. 273 on VAT and R.A. No. 7716 on E-VAT. In the interim, on October 1, 1999, the BIR sent respondent a Preliminary Assessment Notice for deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996 and 1997. On October 20, 1999, respondent filed a protest with the BIR. On January 27, 2000, petitioner CIR sent respondent a letter demanding payment of deficiency VAT in the amount of P100,505,030.26 and DST in the amount of P124,196,610.92, or a total of P224,702,641.18 for taxable years 1996 and 1997. On February 23, 2000, respondent filed another protest questioning the assessment notice. ISSUES:  

Whether Philhealth is subject to VAT. Whether VAT Ruling No. 231-88 exempting Philhealth from payment of VAT has retroactive application.

HELD: YES. Section 103 of the NIRC exempts taxpayers engaged in the performance of medical, dental, hospital, and veterinary services from VAT. But, in Philhealth's letter requesting of its VAT-exempt status, it was held that it showed Philhealth

TAXATION 2 CASE DIGEST 57 ATTY. JERRY CATAGUE

provides medical service only between their members and their accredited hospitals, that it only provides for the provision of pre-need health care services, it contracts the services of medical practitioners and establishments for their members in the delivery of health services. Thus, Philhealth does not fall under the exemptions provided in Section 103, but merely arranges for such, making Philhealth not VAT-exempt. YES. Generally, the NIRC has no retroactive application except when:   

-where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; -where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or -where the taxpayer acted in bad faith.

The Court held that Philhealth acted in good faith. The term health maintenance organization was first recorded in the Philippine statute books in 1995. It is apparent that when VAT Ruling No. 231-88 was issued in Philhealth's favor, the term health maintenance organization was unknown and had no significance for taxation purposes. Philhealth, therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997 on the basis of VAT Ruling No. 23188. The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer.

TAXATION 2 CASE DIGEST 58 ATTY. JERRY CATAGUE

JACINTO MOLINA VS. JAMES J. RAFFERTY, Collector of Internal Revenue FACTS: The present case was a rehearing granted to the appellee for a trail court decision on Feb 1, 1918. The petition was granted and oral argument of the motion was permitted. Jacinto Molina was the owner of various fish ponds in Bulacan. He was required to pay the merchant’s tax required by the Bureau of Internal Revenue. Molina protested that he was an agriculturist and not a merchant and therefore exempt from the taxes imposed by the Internal Revenue Law upon the gross sales of merchants. Point of contention- Plaintiff contends that the fish produced by him are to be regarded as an “agricultural product” within the meaning of the term used in paragraph (c) of Section 41 of Act No. 2339 (Now section 1460 of the Administrative Code of 1917), enforced when the disputed tax was levied and that he is exempt from the percentage tax on merchants’ sales established by section 40 of Act No. 2339. Paragraph (c) of Act No. 2339 sec. 41 reads: In computing the tax above imposed transactions in the following commodities shall be excluded: (c) Agricultural products when sold by the producer or owner of the land where grown, whether in their original state or not In the Trial Court, the Honorable Jose Abreu in a carefully prepared decision ordered defendant to refund the P71.81 paid by plaintiff as internal-revenue taxes and penalties under protest, with legal interest thereon from November 26, 1915, the date of such payment under protest. ISSUE: Whether or not fish produced as were those upon which the tax in question was levied are an agricultural product HELD: The underlying principle of all construction is that the intent of the legislature should be sought in the words employed to express it, and that when found it should be made to govern. The first inquiry, therefore, must relate to the purpose of the Legislative had in mind in establishing the exemption contained in the clause now under consideration. It seems reasonable to assume that it was due to the belief on the part of the law making body that by exempting agricultural products from this tax the farming industry would be favored and the development of the resources of the country encouraged. It is a fact, of which we take judicial cognizance, that there are immense tracts of public land in this country, at present wholly unproductive, which might be made fruitful by cultivation, and that large sums of money go abroad every year for the purchase of food substances which might be grown here. Every dollar's worth of food which the farmer produces and sells in these Islands adds directly to the wealth of the country. On the other hand, in the process of distribution of commodities to the ultimate consumer, no direct increase in value results solely from their transfer from one person to another in the course of commercial transactions. It is fairly to be inferred from the statute that the object and purpose of the Legislature was, in general terms, to levy the tax in question, significantly termed the "merchant's tax," upon all persons engaged in making a profit upon goods produced by others, but to exempt from the tax all persons directly producing goods from the land. In order to accomplish

TAXATION 2 CASE DIGEST 59 ATTY. JERRY CATAGUE

this purpose the Legislature, instead of attempting an enumeration of exempted products, has grouped them all under the general designation of "agricultural products." It seems to require no argument to demonstrate that it is just as much to the public interest to encourage the artificial propagation and growth of fish as of corn, pork, milk or any other food substance. If the artificial production of fish is held not to be included within the exemption of the statute this conclusion must be based upon the inadequacy of the language used by the Legislature to express its purpose, rather than the assumption that it was actually intended to exclude producers of artificially grown fish from the benefits conferred upon producers of other substances brought into the store of national wealth by the arts of husbandry and animal industry.

TAXATION 2 CASE DIGEST 60 ATTY. JERRY CATAGUE

PAGCOR vs. BIR

FACTS: Simultaneous to the creation of PAGCOR, P.D. No. 1067-B (supplementing P.D. No. 1067-A) was issued exempting from the payment of any type of tax, except a franchise tax of five percent (5%) of the gross revenue. Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope of PAGCOR's exemption. To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 1869[6] was issued. Section 13 thereof reads as follows: Sec. 13. Exemptions. x x x (2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges, or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five percent (5%)of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established, or collected by any municipal, provincial or national government authority. PAGCOR's tax exemption was removed in June 1984 through P.D. No. 1931, but it was later restored by Letter of Instruction No. 1430, which was issued in September 1984. On January 1, 1998, R.A. No. 8424,[8] otherwise known as the National Internal Revenue Code of 1997, took effect. Section 27 (c) of R.A. No. 8424 provides that government-owned and controlled corporations (GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the Government Service and Insurance Corporation, the Social Security System, the Philippine Health Insurance Corporation, and the Philippine Charity Sweepstakes Office, With the enactment of R.A. No. 9337[10] on May 24, 2005, certain sections of the National Internal Revenue Code of 1997 were amended. The particular amendment that is at issue in this case is Section 1 of R.A. No. 9337, which amended Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income tax. ISSUE: Whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment of R.A. No. 9337. HELD: Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's exemption from the payment of corporate income tax, which was already addressed above by this Court.

TAXATION 2 CASE DIGEST 61 ATTY. JERRY CATAGUE

As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7 (k) thereof, which reads: Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows: Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the valueadded tax: xxxx (k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except Presidential Decree No. 529.[37]

Petitioner is exempt from the payment of VAT, because PAGCORs charter, P.D. No. 1869, is a special law that grants petitioner exemption from taxes. Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424, thus: [R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is hereby further amended to read as follows: SEC. 108. Value-Added Tax on Services and Use or Lease of Properties.

Sale

of

(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: x x x xxxx (B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate; xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; x x x x[38]

TAXATION 2 CASE DIGEST 62 ATTY. JERRY CATAGUE

As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108 of R.A. No. 8424 by imposing VAT on other services not previously covered, it did not amend the portion of Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate.

Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes. The manner of charging VAT does not make PAGCOR liable to said tax. It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT. VAT exemption extends to Acesite Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides: Section 102. Value-added tax on sale of services.- (a) Rate and base of tax - There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by VAT registered persons shall be subject to 0%. xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate (emphasis supplied).

TAXATION 2 CASE DIGEST 63 ATTY. JERRY CATAGUE

The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractor's tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.[40] Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporationwas Section 102 (b) of the 1977 Tax Code, as amended, which section was retained as Section 108 (B) (3) in R.A. No. 8424, [41] it is still applicable to this case, since the provision relied upon has been retained in R.A. No. 9337.

TAXATION 2 CASE DIGEST 64 ATTY. JERRY CATAGUE

FORT BONIFACIO DEVELOPMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE

FACTS: Petitioner was a real estate developer that bought from the national government a parcel of land that used to be the Fort Bonifacio military reservation. At the time of the said sale there was as yet no VAT imposed so Petitioner did not pay any VAT on its purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp. In reporting the said sale for VAT purposes (because the VAT had already been imposed in the interim), Petitioner claimed transitional input VAT corresponding to its inventory of land. The BIR disallowed the claim of presumptive input VAT and thereby assessed Petitioner for deficiency VAT. ISSUE: Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its nature as a real estate dealer and if so (i) is the transitional input VAT applied only to the improvements on the real property or is it applied on the value of the entire real property and (ii) should there have been a previous tax payment for the transitional input VAT to be creditable? HELD: YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the improvements but on the value of the entire real property and regardless of whether there was in fact actual payment on the purchase of the real property or not. The amendments to the VAT law do not show any intention to make those in the real estate business subject to a different treatment from those engaged in the sale of other goods or properties or in any other commercial trade or business. On the scope of the basis for determining the available transitional input VAT, the CIR has no power to limit the meaning and coverage of the term "goods" in Section 105 of the Tax Code without statutory authority or basis. The transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies.

TAXATION 2 CASE DIGEST 65 ATTY. JERRY CATAGUE

Fort Bonifacio Development Corporation vs. CIR GR No. 158885/ 170680, October 2, 2009 FACTS: The respondent filed a Motion for Reconsideration of CIR’s Decision which granted the consolidated petitions of Fort Bonifacio Development Corporation restraining the respondents from collecting from petitioner the amount of P28,413,783.00 representing the transitional input tax credit due it for the fourth quarter of 1996 and directed to refund to petitioner the amount of P347,741,695.74 paid as output VAT for the third quarter of 1997 in light of the persisting transitional input tax credit available to petitioner for the said quarter, or to issue a tax credit corresponding to such amount. The respondents invoke Section 100 of the old NIRC as amended by RA 7716 and Section 4.105.1 and paragraph (A) (III) of the Revenue Regulation No. 7-95 limiting the 8% transitional input tax to the improvements on real properties. ISSUE: Whether or not the motion for reconsideration is proper. HELD: No. The instant motion for reconsideration lacks merit. The first VAT law, found in the term goods or properties by the unambiguous terms of Section 100 includes real properties held primarily for sale to costumers or held for lease in the ordinary course of business. Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax credit. Goods, as commonly understood in the business sense, refers to the product which the VAT-registered person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which constitute their "goods." Such real properties are the operating assets of the real estate dealer. Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties" such "real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business." Said definition was taken from the very statutory language of Section 100 of the Old NIRC. By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only contravened the definition of "goods" as provided in the Old NIRC, but also the definition which the same revenue regulation itself has provided.Section 4.105-1 of RR 7-95 restricted the definition of goods, viz: However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of EO 273 (January 1, 1988). The language of Section 105 is explicit. It precludes reading into the law that the transitional input tax credit is limited to the amount of VAT previously paid. When the aforesaid section speaks of eight percent (8%) of the value of such inventory followed by the clause or the actual value-added tax paid on such goods, materials and supplies, the implication is clear that under the first clause, eight percent (8%) of the value of such inventory, the law does not contemplate the payment of any prior tax on such inventory.This is distinguished from the second clause, the actual value-added tax paid on the goods, materials and supplies where actual payment of VAT on the goods, materials and supplies is assumed. Had the intention of the law been to limit the amount to the actual VAT paid, there would have been no need to explicitly allow a claim based on 8% of the value of such inventory.

TAXATION 2 CASE DIGEST 66 ATTY. JERRY CATAGUE

The contention that the 8% transitional input tax credit in Section 105 presumes that a previous tax was paid, whether or not it was actually paid, requires a transaction where a tax has been imposed by law, is utterly without basis in law. The rationale behind the provisions of Section 105 was aptly elucidated in the Decision sought to be reconsidered, thus: It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayers income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments. As pointed out in their decision of April 2, 2009, to give Section 105 a restrictive construction that transitional input tax credit applies only when taxes were previously paid on the properties in the beginning inventory and there is a law imposing the tax which is presumed to have been paid, is to impose conditions or requisites to the application of the transitional tax input credit which are not found in the law. The courts must not read into the law what is not there. To do so will violate the principle of separation of powers which prohibits this Court from engaging in judicial legislation.

TAXATION 2 CASE DIGEST 67 ATTY. JERRY CATAGUE

Fort Bonifacio Development Corp., Petitioner vs. Commissioner of Internal Revenue (CIR) and Revenue District Officer, Revenue District No. 44, Taguig and Pateros, Bureau of Internal Revenue, Respondents (G.R. No. 173425, September 4, 2012) FACTS: The case directly involves three parties. Fort Bonifacio Development Corporation (FBDC) a domestic entity engaged in the development and sale of real property. Bases Conversion Development Authority (BCDA) owner of 45% of FBDC’s issued and outstanding capital stock. Bonifacio Land Corporation. On September 19, 1996, FBDC submitted to the Bureau of Internal Revenue (BIR) an inventory of its real properties, the book value thereof totaling P71, 227,503,200.00. Relying on Section 105 of the old Tax Code, petitioner filed a claim with the BIR of transitional input tax credit in the amount of P5, 698,200,256.00. In October of the same year, FBDC began selling its lot at FBGC. Petitioner garnered the sum of P3, 685,356,365.95 from its sales and lease of lots covering the first quarter of 1997. Of said amount, FBDC’s payable VAT totaled ₱368,535,653.00. Petitioner paid said amount in cash (₱359,652,009.47) and via its unutilized input tax credit (₱8,883,644.48) on purchases of goods and service Petitioner claims that it is entitled to recover the amount of ₱ 359,652,009.47 erroneously paid as output VAT for the first quarter of 1997 since its transitional input tax credit of ₱ 5,698,200,256 is more than sufficient to cover its output VAT liability for the said period.Petitioner assails the pronouncement of the CA that prior payment of taxes is required to avail of the 8% transitional input tax credit. Petitioner contends that there is nothing in Section 105 of the old NIRC to support such conclusion. Petitioner further argues that RR 7-95, which limited the 8% transitional input tax credit to the value of the improvements on the land, is invalid because it goes against the express provision of Section 105 of the old NIRC, in relation to Section 10033 of the same Code, as amended by RA 7716. Respondents, on the other hand, maintain that petitioner is not entitled to a transitional input tax credit because no taxes were paid in the acquisition of the Global City property. Respondents assert that prior payment of taxes is inherent in the nature of a transitional input tax. Regarding RR 7-95, respondents insist that it is valid because it was issued by the Secretary of Finance, who is mandated by law to promulgate all needful rules and regulations for the implementation of Section 105 of the old NIRC. ISSUE: Whether or not FBDC has the right to refund the amount ₱359,652,009.47 erroneously paid as output VAT. HELD: The Supreme Court (SC) decided in favor of petitioner FBDC. The court ruled that “prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax credit.” Section 105 of the old NIRC reads: SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.

TAXATION 2 CASE DIGEST 68 ATTY. JERRY CATAGUE

Contrary to the view of the CTA and the CA, there is nothing in the abovequoted provision to indicate that prior payment of taxes is necessary for the availment of the 8% transitional input tax credit. Obviously, all that is required is for the taxpayer to file a beginning inventory with the BIR. To require prior payment of taxes, as proposed in the Dissent is not only tantamount to judicial legislation but would also render nugatory the provision in Section 105 of the old NIRC that the transitional input tax credit shall be "8% of the value of [the beginning] inventory or the actual [VAT] paid on such goods, materials and supplies, whichever is higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies would always be higher than the 8% (now 2%) of the beginning inventory which, following the view of Justice Carpio, would have to exclude all goods, materials, and supplies where no taxes were paid. Clearly, limiting the value of the beginning inventory only to goods, materials, and supplies, where prior taxes were paid, was not the intention of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods, materials, and supplies where no taxes were paid. As retired Justice Consuelo Ynares-Santiago has pointed out in her Concurring Opinion in the earlier case of Fort Bonifacio: If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have simply said that the tax base shall be the actual value-added tax paid. Instead, the law as framed contemplates a situation where a transitional input tax credit is claimed even if there was no actual payment of VAT in the underlying transaction. In such cases, the tax base used shall be the value of the beginning inventory of goods, materials and supplies. Moreover, prior payment of taxes is not required to avail of the transitional input tax credit because it is not a tax refund per se but a tax credit. Tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from one’s total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Thus, unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a tax credit.

TAXATION 2 CASE DIGEST 69 ATTY. JERRY CATAGUE

COMMISSIONER OF INTERNAL REVENUE VS. MIRANT PAGDILAO CORPORATION, September 12, 2008, GR No. 172129 FACTS: MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell (Phil.) Corporation, is a domestic firm engaged in the generation of power which it sells to the National Power Corporation (NPC). For the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant, which appears to have been undertaken from 1993 to 1996, MPC secured the services of Mitsubishi Corporation (Mitsubishi) of Japan. In the light of the NPCs tax exempt status, MPC, on the belief that its sale of power generation services to NPC is, pursuant to Sec. 108(B)(3) of the Tax Code,zerorated for VAT purposes, filed on December 1, 1997 with Revenue District Office (RDO) No. 60 in Lucena City an Application for Effective Zero Rating. The application covered the construction and operation of its Pagbilao power station under a Build, Operate, and Transfer scheme. Not getting any response from the BIR district office, MPC refiled its application in the form of a request for ruling with the VAT Review Committee at the BIR national office on January 28, 1999. On May 13, 1999, the CIR issued VAT Ruling No. 052-99, stating that the supply of electricity by Hopewell Phil. to the NPC, shall be subject to the zero percent (0%) VAT, pursuant to Section 108 (B) (3) of the National Internal Revenue Code of 1997. It must be noted at this juncture that consistent with its belief to be zero-rated, MPC opted not to pay the VAT component of the progress billings from Mitsubishi for the period covering April 1993 to September 1996for the E & M Equipment Erection Portion of MPCs contract with Mitsubishi. This prompted Mitsubishi to advance the VAT component as this serves as its output VAT which is essential for the determination of its VAT payment. Apparently, it was only on April 14, 1998 that MPC paid Mitsubishi the VAT component for the progress billings from April 1993 to September 1996, and for which Mitsubishi issued Official Receipt (OR) No. 0189 in the aggregate amount of PhP 135,993,570. On August 25, 1998, MPC, while awaiting approval of its application aforestated, filed its quarterly VAT return for the second quarter of 1998 where it reflected an input VAT of PhP 148,003,047.62, which included PhP 135,993,570 supported by OR No. 0189. Pursuant to the procedure prescribed in Revenue Regulations No. 7-95, MPC filed on December 20, 1999 an administrative claim for refund of unutilized input VAT in the amount of PhP 148,003,047.62. According to the petitioner, MPCs claim for tax refund or credit was filed on December 20, 1999, clearly way beyond the two-year prescriptive period set in Sec. 112 of the NIRC; ISSUE: Whether or not respondent [MPC] is entitled to the refund of its input VAT payments made from 1993 to 1996 amounting to 146,760,509.48. HELD: The claim for refund or tax credit for the creditable input VAT payment made by MPC embodied in OR No. 0189 was filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC pertinently reads: (A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within

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two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x. (Emphasis ours.) The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112(A), Prescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued. Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund or tax credit filed on December 10, 1999 had already prescribed. For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation. Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.

TAXATION 2 CASE DIGEST 71 ATTY. JERRY CATAGUE

Commissioner of Internal Revenue v. Aichi Forging Co. of Asia, Inc., G.R. No. 184823, October 6, 2010

FACTS: Petitioner filed a claim of refund/credit of input vat in relation to its zero-rated sales from July 1, 2002 to September 30, 2002. The CTA 2nd Division partially granted respondent’s claim for refund/credit. Petitioner filed a Motion for Partial Reconsideration, insisting that the administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004. He cited as basis Article 13 of the Civil Code, which provides that when the law speaks of a year, it is equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC. According to the petitioner, a prior filing of an administrative claim is a “condition precedent” before a judicial claim can be filed. The CTA denied the MPR thus the case was elevated to the CTA En Banc for review. The decision was affirmed. Thus the case was elevated to the Supreme Court. Respondent contends that the non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is not fatal because what is important is that both claims are filed within the two-year prescriptive period. In support thereof, respondent cited Commissioner of Internal Revenue v. Victorias Milling Co., Inc. [130 Phil 12 (1968)] where it was ruled that “if the CIR takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the CTA before the end of the two-year period without awaiting the decision of the CIR.” ISSUES: 1. Whether or not the claim for refund was filed within the prescribed period 2. Whether or not the simultaneous filing of the administrative and the judicial claims contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim, and violates the doctrine of exhaustion of administrative remedies HELD: 1. Yes. As ruled in the case of Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (G.R. No. 172129, September 12, 2008), the two-year period should be reckoned from the close of the taxable quarter when the sales were made. Moreover, In Commissioner of Internal Revenue v. Primetown Property Group, Inc (G.R. No. 162155, August 28, 2007, 531 SCRA 436), we said that as between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must prevail being the more recent law, following the legal maxim, Lex posteriori derogat priori.

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Thus, applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondent’s administrative claim was timely filed.

2. Yes.the filing of the judicial claim with the CTA premature. Section 112(D) of the NIRC clearly provides that the CIR has “120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit],” within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days. Subsection (A) of Section 112 of the NIRC states that “any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.” The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. The premature filing of respondent’s claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

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CIR vs. Primetown Property Group, Inc G.R. No. 162155, August 28, 2007

FACTS: Gilbert Yap, vice chair of respondent Primetown Property Group, Inc., applied for the refund or credit of income tax respondent paid in 1997.He claimed that because explained because respondent suffered losses, it was not liable for income taxes. Nevertheless, respondent paid its quarterly corporate income tax and remitted creditable withholding tax from real estate sales to the BIR in the total amount of P26,318,398.32. Therefore, respondent was entitled to tax refund or tax credit. Revenue officer required respondent to submit additional documents to support its claim. Respondent complied but its claim was not acted upon. It filed a petition for review in the CTA. However, the CTA the petition as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax refund or tax credit as provided in Sec. 229 of the NIRC. In addition, the tax court applied Article 13 of the Civil Code which states: Art. 13. When the law speaks of years, months, days or nights, it shall be understood that years are of three hundred sixty-five days each…. Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for the filing of judicial claims was equivalent to 730 days. Because the year 2000 was a leap year, respondent's petition, which was filed 731 days after respondent filed its final adjusted return, was filed beyond the reglementary period. Respondent moved for reconsideration but it was denied. Hence, it filed an appeal in the CA and the CA reversed the decision of the CTA. Petitioners moved for reconsideration but it was denied. Thus, this appeal. ISSUE: Whether or not Art. 13 of the Civil Code should be applicable in computing the legal periods or Sec. 31 of the Administrative Code of 1987 HELD: E.O. 292 should be applied in computing the legal period being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori. Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. The SC therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period.

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CBK POWER COMPANY LIMITED, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. G.R. No. 198928, December 18, 2014 FACTS: CBK Power, a partnership duly organized and existing under Philippine laws, is registered as a VAT entity since April 10, 2000 and on January 29, 2003, its application for a VAT zero-rate status was approved pursuant to VAT Review Committee Ruling No. 018-13. CBK Power submitted its quarterly VAT returns for the period covering January 1, 2003 to December 31, 2003. Subsequently, CBK Power made amendments in its VAT returns. These amendments reflected unutilized/excess input VAT in the amount of P298,430,362.42. CBK Power filed before the Bureau of Internal Revenue (BIR) an administrative claim for the issuance of a tax credit certificate for a total amount of P295,994,518.00, representing unutilized input VAT on its purchase of capital goods, as well as unutilized input VAT on its local purchase of goods and services other than capital goods, all for the calendar year 2003. Thereafter, CBK Power filed its judicial claim for tax refund/credit before the CTA. For its part, respondent Commissioner of Internal Revenue (CIR) claimed that the amount being claimed by CBK Power as alleged unutilized input VAT must be denied for not being properly documented. The CTA Second Division ruled in favor of CBK Power and accordingly awarded it a tax credit certificate, albeit in the reduced amount of P215,998,263.13. Upon appeal, the CTA En Banc reversed the prior decision and denied CBK Power’s claim for refund in its entirety. It found that CBK Power filed its judicial claim for refund/credit on April 18, 2005 or just 20 days after it filed its administrative claim on March 29, 2005. As such, it failed to observe the mandatory and jurisdictional 120-day period provided under Section 112(D) of the National Internal Revenue Code (NIRC). Consequently, it ruled that such non-observance resulted in the prematurity of CBK Power’s claim,warranting a dismissal thereof for lack of jurisdiction. ISSUE: whether or not the CBK Power’s claim for refund was prematurely filed RULING: No. Section 112. Refunds or Tax Credits of Input Tax. – (A) Zero-rated or Effectively Zero-rated Sales. – any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x xx. x

x

x

x

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the

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application filed in accordance with Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. In CIR v. Aichi Forging Company of Asia, Inc. (Aichi), the Court held that the observance of the 120-day period is a mandatory and jurisdictional requisite to the filing of a judicial claim for refund before the CTA. However, in CIR v. San Roque Power Corporation (San Roque), the Court categorically recognized an exception to the mandatory and jurisdictional nature of the 120-day period. It ruled that BIR Ruling No. DA-489-03 dated December 10, 2003 provided a valid claim for equitable estoppel under Section 246 of the NIRC. In Taganito Mining Corporation v. CIR,the Court reconciled the pronouncements in the Aichi and San Roque cases in the following manner:chanroblesvirtuallawlibrary Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for refund of excess input VAT before the CTA. Before and after the aforementioned period (i.e., December 10, 2003 to October 6, 2010), the observance of the 120-day period is mandatory and jurisdictional to the filing of such claim. In this case, records disclose that CBK Power filed its administrative and judicial claims for issuance of tax credits on March 29, 2005 and April 18, 2005, respectively or during the period when BIR Ruling No. DA-489-03 was in place, i.e., from December 10, 2003 to October 6, 2010. As such, it need not wait for the expiration of the 120-day period before filing its judicial claim before the CTA, which was timely filed.

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NORTHERN MINDANAO POWER CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. G.R. No. 185115

February 18, 2015

FACTS: Petitioner is engaged in the production sale of electricity as an independent power producer and sells electricity to National Power Corporation (NPC). It allegedly incurred input value-added tax (VAT) on its domestic purchases of goods and services that were used in its production and sale of electricity. For the 3rd and the 4th quarters of taxable year 1999, petitioner’s input VAT totaled to ₱2,490,960.29, while that incurred for all the quarters of taxable year 2000 amounted to ₱3,920,932.55.4 Petitioner filed an administrative claim for a refund on 20 June 2000 for the 3rd and the 4th quarters of taxable year 1999, and on 25 July 2001 for taxable year 2000 in the sum of ₱6,411,892.84.5 Thereafter, alleging inaction of respondent on these administrative claims, petitioner filed a Petition6 with the CTA on 28 September 2001. ISSUE: Whether or not the claim for refund was timely filed. RULING: No. Section 112 of the National Internal Revenue Code (NIRC) of 1997 laid down the manner in which the refund or credit of input tax may be made. For a VATregistered person whose sales are zero-rated or effectively zero-rated, Section 112(A) specifically provides for a two-year prescriptive period after the close of the taxable quarter when the sales were made within which such taxpayer may apply for the issuance of a tax credit certificate or refund of creditable input tax. In the consolidated tax cases Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal Revenue 11 (hereby collectively referred to as San Roque), the Court clarified that the twoyear period refers to the filing of an administrative claim with the BIR. In this case, petitioner had until 30 September 2001 and 31 December 2001 for the claims covering the 3rd and the 4th quarters of taxable year 1999; and 31 March, 30 June, 30 September and 31 December in 2002 for the claims covering all four quarters of taxable year 2000 −or the close of the taxable quarter when the zero-rated sales were made −within which to file its administrative claim for a refund. On this note, petitioner had sufficiently complied with the two-year prescriptive period when it filed its administrative claim for a refund. Pursuant to Section 112(D) of the NIRC of 1997, respondent had one hundred twenty (120) days from the date of submission of complete documents in support of the application within which to decide on the administrative claim. The burden of proving entitlement to a tax refund is on the taxpayer. Absent any evidence to the contrary, it is presumed that in order to discharge its burden, petitioner attached to its applications complete supporting documents necessary to prove

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its entitlement to a refund. Thus, the 120-day period for the CIR to act on the administrative claim commenced on 20 June 2000 and 25 July 2001. As laid down in San Roque, judicial claims filed from 1 January 1998 until the present should strictly adhere to the 120+30-day period referred to in Section 112 of the NIRC of 1997.The only exception is the period 10 December 2003 until 6 October 2010. Within this period, BIR Ruling No. DA-489-03 is recognized as an equitable estoppel, during which judicial claims may be filed even before the expiration of the 120-day period granted to the CIR to decide on a claim for a refund. The judicial claim was thus prematurely filed for failure of petitioner to observe the 120-day waiting period. The CTA therefore did not acquire jurisdiction over the claim for a refund of input VAT for all the quarters of taxable year 2000.

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SOUTHERN PHILIPPINES POWER CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. G.R. No. 179632

October 19, 2011

FACTS: Southern Philippines Power Corporation (SPP), a power company that generates and sells electricity to the National Power Corporation (NPC), applied with the Bureau of Internal Revenue (BIR) for zero-rating of its transactions under Section 108(B)(3) of the National Internal Revenue Code (NIRC). The BIR approved the application for taxable years 1999 and 2000. On June 20, 2000 SPP filed a claim with respondent Commissioner of Internal Revenue (CIR) for a ₱5,083,371.57 tax credit or refund for 1999. On July 13, 2001 SPP filed a second claim of ₱6,221,078.44 in tax credit or refund for 2000. The amounts represented unutilized input VAT attributable to SPP’s zero-rated sale of electricity to NPC. SPP filed with the Court of Tax Appeals (CTA) Second Division a petition for review covering its claims for refund or tax credit. SPP is not entitled to tax credit or refund since (a) the BIR was still examining SPP’s claims for the same; (b) SPP failed to substantiate its payment of input VAT; (c) its right to claim refund already prescribed, and (d) SPP has not shown compliance with Section 204(c) in relation to Section 229 of the NIRC as amended and Revenue Regulation (RR) 5-87 as amended by RR 3-88. CTA denied SPP’s claims, holding that its zero-rated official receipts did not correspond to the quarterly VAT returns, bearing a difference of ₱800,107,956.61. Those receipts only support the amount of ₱118,945,643.88. Further, these receipts do not bear the words "zero-rated" in violation of RR 7-95. On appeal, the CTA En Banc affirmed and rejected SPP’s contention that its sales invoices reflected the words "zero-rated," pointing out that it is on the official receipts that the law requires the printing of such words. Moreover, SPP did not report in the corresponding quarterly VAT return the sales subject of its zero-rated receipts ISSUE: Whether or not SPP failed to prove the zero-rated or effectively zerorated sales that it made. RULING: The Court reiterated in San Roque Power Corporation v. Commissioner of Internal Revenue the following criteria governing claims for refund or tax credit under Section 112(A) of the NIRC: (1) The taxpayer is VAT-registered; (2) The taxpayer is engaged in zero-rated or effectively zero-rated sales; (3) The input taxes are due or paid;

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(4) The input taxes are not transitional input taxes; (5) The input taxes have not been applied against output taxes during and in the succeeding quarters; (6) The input taxes claimed are attributable to zero-rated or effectively zerorated sales; (7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; (8) Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) The claim is filed within two years after the close of the taxable quarter when such sales were made. The CTA En Banc ruled that SPP failed to establish that it made zero-rated sales. True, SPP submitted official receipts and sales invoices stamped with the words "BIR VAT Zero-Rate Application Number 419.2000" but the CTA En Banc held that these were not sufficient to prove the fact of sale. But NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be evidenced by a VAT invoice "or" official receipt issued in accordance with Section 113. Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons. – A. Invoicing Requirements. – A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer’s identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. (Emphasis supplied) The above does not distinguish between an invoice and a receipt when used as evidence of a zero-rated transaction. Consequently, the CTA should have accepted either or both of these documents as evidence of SPP’s zero-rated transactions. Although the Court holds that SPP’s sales invoices and receipts would be sufficient to prove its zero-rated transactions, the case has to be remanded to the CTA for determination of whether or not SPP has complied with the other requisites.

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LUZON HYDRO CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. G.R. No. 188260

November 13, 2013

FACTS: The petitioner has been registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer. Pursuant to the Power Purchase Agreement entered into with the National Power Corporation (NPC), the electricity produced by the petitioner was to be sold exclusively to NPC. Relative to its sale, the petitioner was granted by the BIR a certificate for Zero Rate for VAT purposes four quarters of taxable year 2001. On November 26, 2001, the petitioner filed a written claim for refund or tax credit relative to its unutilized input VAT aggregating ₱14,557,004.38. Subsequently, it amended the claim for refund or tax credit for ₱20,609,047.56. The BIR made a recommendation in its report favorable to the petitioner’s claim. However, Respondent Commissioner of Internal Revenue (Commissioner) did not ultimately act on it. Hence, the petitioner filed its petition for review in the CTA. Denied the petion stating that in petitioner’s VAT returns for the four quarters of 2001, no amount of zero-rated sales was declared. Likewise, petitioner did not submit any VAT official receipt of payments for services rendered to NPC. Upon appeal, CTA En Banc affirmed. ISSUE: Whether or not the CTA in Division erred in denying its claim for refund or tax credit upon a finding that it had not established its having effectively zerorated sales for the four quarters of 2001. RULING: No. SEC. 112. Refunds or Tax Credits of Input Tax.— (A) Zero-rated or Effectively Zero-rated Sales--Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. A claim for refund or tax credit for unutilized input VAT may be allowed only if the following requisites concur, namely: (a) the taxpayer is VAT-registered; (b) the

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taxpayer is engaged in zero-rated or effectively zero-rated sales; (c) the input taxes are due or paid; (d) the input taxes are not transitional input taxes; (e) the input taxes have not been applied against output taxes during and in the succeeding quarters; (f) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (g) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; (h) where there are both zerorated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (i) the claim is filed within two years after the close of the taxable quarter when such sales were made. The petitioner did not competently establish its claim for refund or tax credit. Petitioner did not produce evidence showing that it had zero-rated sales for the four quarters of taxable year 2001. As the CTA En Banc precisely found, the petitioner did not reflect any zero-rated sales from its power generation in its four quarterly VAT returns, which indicated that it had not made any sale of electricity. Had there been zero-rated sales, it would have reported them in the returns. Indeed, it carried the burden not only that it was entitled under the substantive law to the allowance of its claim for refund or tax credit but also that it met all the requirements for evidentiary substantiation of its claim before the administrative official concerned, or in the de novo litigation before the CTA in Division. The petitioner’s assertion that it need not prove its having actually made zerorated sales of electricity by presenting the VAT official receipts and VAT returns cannot be upheld. It ought to be reminded that it could not be permitted to substitute such vital and material documents with secondary evidence like financial statements.

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COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. TOLEDO POWER COMPANY, Respondent. G.R. No. 195175, August 10, 2015 FACTS: Toledo Power Company (TPC) is engaged in the business of power generation and subsequent sale thereof to the National Power Corporation (NPC), Cebu Electric Cooperative III (CEBECO), Atlas Consolidated Mining and Development Corporation, and Atlas Fertilizer Corporation. Pursuant to Section 6, Chapter II5 of Republic Act (R.A.) No. 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), value-added tax (VAT) on sales of generated power by generation companies are zero-rated. Hence, TPC filed a claim for refund with the Bureau of Internal Revenue (BIR) for alleged unutilized input VAT. TPC, then elevated to the CTA its claim on April 24, 2006. ISSUE: Whether TPC is entitled to the refund of its alleged unutilized input VAT RULING: No. One of the requisites for claiming unutilized or excess input VAT is that the application and the claim for refund have been filed within the prescribed period. The Court ruled that the observance of the 120+30 day period is mandatory and jurisdictional. A summary of rules on prescriptive periods involving claims for the refund of input VAT was provided in Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue and Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue as follows:LawlibraryofCRAlaw Summary of Rules on Prescriptive Periods Involving VAT: We summarize the rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT as provided in Section 112 of the 1997 Tax Code, as follows (1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. (2) The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction. (3) A judicial claim must be filed with the CTA within 30 days from the receipt of

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the CIR’s decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR. (4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day periods. On the basis of the foregoing, TPC lost its right to claim a refund or credit of its alleged excess input VAT attributable to zero-rated or effectively zero-rated sales by virtue of its own failure to observe the prescriptive periods.

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J.R.A. PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE G.R. NO. 177127. October 11, 2010. DEL CASTILLO, J.

FACTS: Petitioner J.R.A. Philippines (JRA) is a VAT and PEZA registered corporation engaged in the manufacture and export of ready-to-wear items. JRA claimed to have paid the aggregate sum of P7, 786,614.04 as excess input VAT for the calendar year 1999, which amount it purportedly used to purchase domestic goods and services directly attributable to its zero-rated export sales. Alleging that its input VAT remained unutilized as it has not engaged in any business activity or transaction for which it may be liable for output VAT, petitioner filed four separate applications for tax refund with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance. When the same applications were not acted upon by respondent CIR, and in order to toll the two-year prescriptive period under Sec. 229 of the NIRC, petitioner filed a petition for review before the CTA. The CTA Division denied the petition on the ground that all of its export sales invoices failed to comply with the invoicing requirements: have no BIR Permit to Print; did not contain its TIN-VAT or TIN-V and the word zero-rated was not imprinted thereon in violation of Section 113(A) in relation to Section 238 of the Tax Code. CTA En Banc affirmed the division when the case was elevated to it. ISSUE: Whether JRA, a VAT-registered taxpayer, is required to comply with all the VAT invoicing requirements to be able to file for a tax refund, which is a claim for input taxes on domestic purchases of goods or services attributable to a zerorated sales. RULING: Yes. In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the claim but also compliance with all the documentary and evidentiary requirements therefor. Sec. 110(A)(1) of the NIRC provides that creditable input taxes must be evidenced by a VAT invoice or official receipt, which must, in turn, comply with Sections 237 and 238 of the same law, as well as Section 4.108.1 of RR 7-95. The foregoing provisions require, inter alia, that an invoice must reflect, as required by law: (a) the BIR Permit to Print; (b) the TIN-V of the purchaser; and (c) the word "zero-rated" imprinted thereon. In this relation, failure to comply with the said invoicing requirements provides sufficient ground to deny a claim for tax refund or tax credit. In this case, records show that all of the export sales invoices presented by petitioner not only lack the word "zero-rated" but also failed to reflect its BIR Permit to Print as well as its TIN-V. Thus, it cannot be gainsaid that it failed to comply with the above-stated invoicing requirements, thereby rendering improper its claim for tax refund. Clearly, compliance with all the VAT invoicing requirements is required to able to file a claim for input taxes attributable to zerorated sales.

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PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE PHILIPPINES vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. 178090. February 8, 2010. ABAD, J. FACTS: Petitioner Panasonic Communications Imaging Corporation of the Philippines (Panasonic) produces and exports plain paper copiers and their subassemblies, parts, and components. From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner Panasonic generated export sales amounting to US$12,819,475.15 and US$11,859,489.78, respectively, for a total of US$24,678,964.93. Believing that these export sales were zero-rated for VAT under Section 106(A)(2)(a)(1) of the 1997 National Internal Revenue Code as amended by Republic Act (R.A.) 8424 (1997 NIRC), Panasonic paid input VAT of P4,980,254.26 and P4,388,228.14 for the two periods or a total of P9,368,482.40 attributable to its zero-rated sales. Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July 20, 1999 petitioner Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for refund or tax credit of what it paid. When the BIR did not act on the same, Panasonic filed on December 16, 1999 a petition for review with the Court of Tax Appeals (CTA), averring the inaction of the respondent Commissioner of Internal Revenue (CIR) on its applications. After trial or on August 22, 2006 the CTA’s First Division rendered judgment, denying the petition for lack of merit. The First Division said that, while petitioner Panasonic’s export sales were subject to 0% VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC, the same did not qualify for zero-rating because the word “zero-rated” was not printed on Panasonic’s export invoices. This omission, said the First Division, violates the invoicing requirements of Section 4.108-1 of Revenue Regulations (RR) 7-95. ISSUE: Whether or not Panasonic cannot claim for refund of the VAT it paid as a zerorated taxpayer on the ground that its sales invoices did not state on their faces that its sales were “zero-rated” RULING: Yes. The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports. For example, when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of his own VAT liability. The difference in tax shown on invoices passed and invoices received is the tax paid

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to the government. In case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed. Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer. Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at zero. When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output tax, he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which allows him to recover the input taxes he paid relating to the export sales, making him internationally competitive. For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must comply with invoicing requirements. Interpreting these requirements, respondent CIR ruled that under Revenue Memorandum Circular (RMC) 42-2003, the taxpayer’s failure to comply with invoicing requirements will result in the disallowance of his claim for refund. This Court held that, since the “BIR authority to print” is not one of the items required to be indicated on the invoices or receipts, the BIR erred in denying the claim for refund. Here, however, the ground for denial of petitioner Panasonic’s claim for tax refund—the absence of the word “zero-rated” on its invoices—is one which is specifically and precisely included in the above enumeration. Consequently, the BIR correctly denied Panasonic’s claim for tax refund.This Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. Besides, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the VAT are in the nature of 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.

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THE COMMISSIONER OF INTERNAL REVENUE vs. VISAYAS GEOTHERMAL POWER COMPANY, INC., G.R. No. 181276.November 11, 2013. MENDOZA, J.: FACTS: Visayas Geothermal Power Company, Inc. (VGPCI) is engaged in the business of generation and sale of electricity. Due to Republic Act No. 9136, effective June 26, 2001, VGPCI’s sales of generated power becamse zero-rated and were no longer subject to VAT at 10%.

On June 26, 2003, VGPCI filed before the BIR Revenue District No. 89 of Ormoc City a claim for refund of unutilized input VAT payment in the amount of P1,142,666.32 for the third quarter of 2001. On December 18, 2003, another claim was filed in the amount of P19,070,378.18 for the last quarter of 2001 and the four quarters of 2002. For failure of the BIR to act on the claims, VGPCI filed separate petitions of review before the CTA on September 30, 2003 and December 19, 2003, praying for a refund or the issuance of a tax credit certificate on the abovementioned taxes covering the period from July to September 2001 and for the period from October 2001 to December 2002. There are two claims for refund before the BIR. There were also two petitions for review before the CTA. Both petitions for review before the CTA were filed before the expiration of the 120-day period under Section 112(D). The petition for review before the CTA for the refund of unutilized input taxes for the last quarter of 2001 and the entire 2002 was filed on December 19, 2003 or one day after the second administrative claim for refund was filed before the BIR.) The CIR contends that the CTA did not have jurisdiction over VGPCI’s petition for review because it was filed before the expiration of the 120-day period wherein which the CIR should act on the taxpayer’s administrative claim for a refund or tax credit of unutilized input taxes. VGPCI contends that the petitions before the CTA were filed correctly because both the administrative and the judicial claims for refund must be filed within the two-year prescriptive period, regardless of the length of time during which the administrative claim has been pending with the CIR. VGPCI cites Section 229 of the NIRC and the cases of Gibbs v. Collector of Internal Revenue and College of Oral & Dental Surgery v. Court of Tax Appeals, both cases of which state that the taxpayer need not wait for the decision of the BIR because the filing of a judicial claim BEYOND the two-year period bars recovery of the tax paid. The First Division of the CTA partially granted VGPCI’s petition and ordered the CIR to issue refund or issue a tax credit certificate to VGPCI in the amount of P16,355,749.74 representing unutilized input VAT from Sept. 1, 2001 to Dec. 31, 2002. The CTA En Banc affirmed the decision of the First Division of the CTA. ISSUE:

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Whether VGPCI failed to observe the proper prescriptive period required by law for the filing of an appeal before the CTA because it filed its petition before the end of the 120-day period granted to the CIR to decide its claim for refund under Section 112(D) of the National Internal Revenue Code (NIRC).

RULING: VGPCI’s judicial claim filed on September 30, 2003 was prematurely filed. However, the judicial claim filed on December 19, 2003 was properly filed because of the exception brought about by BIR Ruling DA-489-03. VGPCI’s reliance on Gibbs and College of Oral & Dental Surgery is misplaced. At the time that both cases were decided, there was no provision yet in the NIRC in force similar to Section 112. VGPCI is also mistaken to argue that Section 229 is the more relevant provision of law. Section 229 applies only to taxes erroneously or illegally collected. The applicable provision of the NIRC is undoubtedly Section 112, which deals specifically with creditable input tax. The Court relied on the cases of Commissioner vs. Mirant, G.R. 172129, Commissioner vs. Aichi Forging, G.R. 184823, and Commissioner vs. San Roque Power, G.R. No. 187485 to state that the appropriate period for claiming a refund or a tax credit for unutilized input VAT is Section 112(A), and not Section 229 of the NIRC. Further, input VAT is not “excessively” collected as understood under Section 229 because at the time the input VAT is collected, the amount paid is correct and proper. The 120-day period under Section 112(D) is crucial in filing an appeal with the CTA. The application of the 30-day period from receipt of the decision of the CIR or from the lapse of the 120-day period (the “120+30 day period”) given to the taxpayer within which to file a petition for review with the CTA is mandatory and jurisdictional. However, the court took notice of the issuance by the BIR of Ruling No. DA-489-03 dated December 10, 2003 which allowed for the filing of a judicial claim without waiting for the end of the 120-day period granted to the CIR to decide on the application for refund. Therefore, although the 120+30 day period in Section 112(D) is mandatory and jurisdictional and must be applied from the effectivity of the 1997 Tax Code on January 1, 1998, an exception shall be made for judicial claims filed from the issuance of BIR Ruling No. DA 489-03 on December 10, 2003 until the promulgation of Commissioner vs. Aichi on October 6, 2010. Hence, the judicial claim filed on September 30, 2003 was prematurely filed and cannot be taken cognizance of. However, the judicial claim filed on December 19, 2003 can be considered by the CTA because of the exception brought about by the BIR Ruling.

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MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE MINDANAO I GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE G.R. Nos. 193301, 194637. March 11, 2013. Carpio, J. FACTS: Mindanao I and II (Mindanao) are value-added taxpayers, and Block Power Production Facilities accredited by the Department of Energy. They had a Build-Operate-Transfer contract with the Philippine National Oil Corporation– Energy Development Company (PNOC-EDC), whereby Mindanao converts steam supplied to it by PNOC-EDC into electricity, and then delivers the electricity to the National Power Corporation (NPC) in behalf of PNOC-EDC. The Electric Power Industry Reform Act of 2000 (EPIRA, RA 9136), amended the Tax Reform Act of 1997 (RA 8424), when it decreed that sales of power by generation companies shall be subjected to a zero rate of VAT. Pursuant to EPIRA, Mindanao I and II filed their claims for the issuance of tax credit certificates on unutilized or excess input taxes from their sales of generated power and delivery of electric capacity and energy to NPC. The CTA En Banc denied Mindanao II’s claims for refund tax credit for the first and second quarters of 2003, and Mindanao I’s claims for refund/tax credit for the first, second, third, and fourth quarters of 2003, for being filed out of time. The Court of Tax Appeal en banc held that Mindanao I’s judicial claims were filed beyond the period allowed in Sec. 112(A), by which the reckoning of the two-year prescriptive period for filing the application for refund or credit of input VAT attributable to zero-rated sales or effectively zero-rated sales shall be counted from the close of the taxable quarter when the sales were made (regardless of whether the tax was actually paid), according to CIR v. Mirant Pagbilao Corporation (Mirant). Also, the sale of the fully-depreciated Nissan Patrol is incidental to Mindanao II’s VAT zero-rated transactions and is VATable pursuant to Sec. 105. Mindanao II’s claims for the first, second, third and fourth quarters of 2003 were filed out of time. Section 229 is inapplicable in light of Mirant. Moreover, the procedure prescribed under Section 112(C) should be followed first before the CTA En Banc can act on Mindanao I’s claim. Mindanao I and II went up to the Supreme Court arguing that their claims were timely filed pursuant to the case of Atlas, which was then the controlling ruling at the time of the filing. The Mirant case, which uses the close of the taxable quarter when the sales were made as the reckoning date in counting the two-year prescriptive period, cannot be applied retroactively to their prejudice. ISSUE (1): Whether the reckoning date for counting the two-year prescriptive period in Section 112 should be counted from the end of the taxable quarter when the sales were made (Mirant) or the date of filing the return (Atlas) RULING:

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Neither Atlas nor Mirant applies, because when Mindanao II and Mindanao I filed their respective administrative and judicial claims in 2005, neither case had been promulgated. Atlas was promulgated on 8 June 2007, Mirant on 12 September 2008. Besides, Atlas merely stated that the two-year prescriptive period should be counted from the date of payment of the output VAT, not from the close of the taxable quarter when the sales involving the input VAT were made. The Atlas doctrine did not interpret, expressly or impliedly, the 120+30 day periods. Prescriptive Period for the Filing of Administrative Claims Section 112(A) of the 1997 Tax Code was the applicable law at the time of filing of the claims in issue, therefore the claims needed to have been filed within two (2) years after the close of the taxable quarter when the sales were made. Mindanao I and II’s administrative claims for the first quarter of 2003 had prescribed, but their claims for the second, third and fourth quarters of 2003 were filed on time. Prescriptive Period for the Filing of Judicial Claims In determining whether the claims for the second, third and fourth quarters of 2003 had been properly appealed, there is still see no need to refer to either Atlas or Mirant, or even to Sec. 229. The second paragraph of Sect. 112(C) is clear that the taxpayer can appeal to the CTA “within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period.” The 120+30 day periods are mandatory and jurisdictional. The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within the 120-day period, because otherwise there would be no “decision” or “deemed a denial” decision for the CTA to review. Moreover, Sec. 112(C) expressly grants a 30-day period to appeal to the CTA, and this period need not necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within such time. The said prescriptive period does not refer to the filing of the judicial claim with the CTA, but to the administrative claim with the Commissioner. San Roque: Recognition of BIR Ruling No. DA-489-03 BIR Ruling No. DA-489-03 provided that the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA.” In the consolidated cases of CIR v. San Roque, however, the Supreme Court En Banc held that the taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within the 120-day jurisdictional period. Notwithstanding, the Court also held in San Roque that BIR Ruling No. DA-489-03 constitutes equitable estoppel in favor of taxpayers. Being a general interpretative rule, it can be relied on by all taxpayers from the time of its issuance on 10 December 2003 up to its reversal by the Court in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi) on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.” Mindanao II filed its administrative claims for the second, third, and fourth quarters of 2003 on 13 April 2005. Counting 120 days after filing of the administrative claim (11 August 2005) and 30 days after the CIR’s denial by inaction, the last day for filing a judicial claim with the CTA for the second, third, and fourth quarters of 2003 was on 12 September 2005. However, the judicial

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claim could not be filed earlier than 11 August 2005, which was the expiration of the 120-day period for the Commissioner to act. Mindanao II filed its judicial claim for the second quarter before the expiration of the 120-day period; it was thus prematurely filed. However, pursuant to San Roque, the claim qualifies under the exception to the strict application of the 120+30 day periods. Its judicial claims for the third quarter and fourth quarter of 2003 were filed on time. Mindanao I filed its administrative claims for the second, third, and fourth quarters of 2003 on 4 April 2005. Counting 120 days after filing of the administrative claim with the CIR (2 August 2005) and 30 days after the CIR’s denial by inaction, the last day for filing a judicial claim was on 1 September 2005. However, the judicial claim cannot be filed earlier than 2 August 2005, which is the expiration of the 120-day period for the Commissioner to act on the claim. Mindanao I prematurely filed its judicial claim for the second quarter of 2003 but claim qualifies under the exception in San Roque. Its judicial claims for the third and fourth quarters of 2003, however, were filed after the prescriptive period. ISSUE (2): Whether the sale of the fully-depreciated Nissan Patrol is a one-time transaction not incidental to the VAT zero-rated operation of Mindanao II, thus not VATable RULING: Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course of its business but an isolated transaction that should not have been subject to 10% VAT. It does not follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 would show that a transaction “in the course of trade or business” includes “transactions incidental thereto.” In the course of its business, Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s property, plant, and equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao II’s business which should be liable for VAT. DISPOSITION: Petitions partially granted. The claim of Mindanao II for the first quarter of 2003 is DENIED, while its claims for the second, third, and fourth quarters of 2003 are GRANTED. The claims of Mindanao I for the first, third, and fourth quarters of 2003 are DENIED while its claim for the second quarter of 2003 is GRANTED.

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TEAM ENERGY CORPORATION (Formerly MIRANT PAGBILAO CORPORATION) v. COMMISSIONER OF INTERNAL REVENUE G.R. No. 197760. January 13, 2014. Peralta, J. FACTS: Team Energy Corporation is principally engaged in the business of power generation and subsequent sale thereof to the National Power Corporation (NPC) under a Build, Operate, Transfer (BOT) scheme. As such, it is registered with the BIR as a VAT taxpayer. On December 17, 2004, petitioner filed an Application for VAT ZeroRate for the supply of electricity to the NPC from January 1, 2005 to December 31, 2005, which was subsequently approved. Petitioner filed with the BIR its Quarterly VAT Returns for the first three quarters of 2005 on April 25, 2005, July 26, 2005, and October 25, 2005, respectively. Likewise, petitioner filed its Monthly VAT Declaration for the month of October 2005 on November 21, 2005, which was subsequently amended on May 24, 2006. On December 20, 2006, petitioner filed an administrative claim for cash refund or issuance of tax credit certificate corresponding to the input VAT reported in its Quarterly VAT Returns for the first three quarters of 2005 and Monthly VAT Declaration for October 2005 in the amount of P80,136,251.60. Due to respondent’s inaction on its claim, petitioner filed the instant Petition for Review before the CTA on April 18, 2007. On July 13, 2010, the CTA Special First Division partially granted petitioner’s claim for refund or issuance of tax credit certificate. On November 26, 2010, the CTA Special First Division rendered an Amended Decision granting respondent’s Motion for Reconsideration in light of the Aichi ruling. ISSUE: Whether or not the judicial claims were filed on time RULING: Yes. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. From the foregoing, it is clear that a VAT-registered taxpayer claiming for refund or tax credit of their excess and unutilized input VAT must file their administrative claim within two years from the close of the taxable quarter when the sales were made. After that, the taxpayer must await the decision or ruling of denial of its claim, whether full or partial, or the expiration of the 120-day period

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from the submission of complete documents in support of such claim. Once the taxpayer receives the decision or ruling of denial or expiration of the 120-day period, it may file its petition for review with the CTA within thirty (30) days. In the Aichi case, this Court ruled that the 120-30-day period in Section 112 (C) of the NIRC is mandatory and its non-observance is fatal to the filing of a judicial claim with the CTA. In this case, the Court explained that if after the 120day mandatory period, the Commissioner of Internal Revenue (CIR) fails to act on the application for tax refund or credit, the remedy of the taxpayer is to appeal the inaction of the CIR to the CTA within thirty (30) days. The judicial claim, therefore, need not be filed within the two-year prescriptive period but has to be filed within the required 30-day period after the expiration of the 120 days. Two scenarios envisioned by the NIRC: When a decision is issued by the CIR before the lapse of the 120-day period; and When no decision is made after the 120-day period. Note: In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. Exemption to the 120-30 day rule Recently, however, in the case of Commissioner of Internal Revenue v. San Roque Power Corporation (San Roque), the Court clarified that the mandatory and jurisdictional nature of the 120-30-day rule does not apply on claims for refund that were prematurely filed during the interim period from the issuance of Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010 when the Aichi doctrine was adopted. The exemption was premised on the fact that prior to the promulgation of the Aichi decision, there was an existing interpretation laid down in BIR Ruling No. DA-489-03 where the BIR expressly ruled that the taxpayer need not wait for the expiration of the 120-day period before it could seek judicial relief with the CTA. In the present case, petitioner filed its judicial claim on April 18, 2007 or after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 but before October 6, 2010, the date when the Aichi case was promulgated. Thus, even though petitioners judicial claim was prematurely filed without waiting for the expiration of the 120-day mandatory period, the CTA may still take cognizance of the instant case as it was filed within the period exempted from the 120-30-day mandatory period. Petition GRANTED.

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G.R. No. 198076, November 19, 2014 TAGANITO MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. FACTS: Taganito is a corporation duly organized and existing under the laws of the Philippines, primarily engaged in the business of exploring, producing and exporting beneficiated nickel silicate ores and chromite ores. It is a duly registered VAT entity and likewise registered with the Board of Investments as an exporter. Taganito filed all its monthly and quarterly VAT returns from January 1, 2002 to December 31, 2002. In 2003, Taganito filed with respondent CIR its Excise Taxpayers’ Assistance Division under the Large Taxpayers Division, an application for refund of its excess input VAT paid on its domestic purchases of taxable goods and services and importation of goods for the period January 1, 2002 to December 3, 2002. 51 days after the filing of its application with the CIR, Taganito filed with the CTA a petition for review. The CIR answered that the claim for refund was still subject to investigation. On October 27, 2009, the CTA Division partially granted Taganito’s petition. Citing the case of CIR v. Aichi Forging Company of Asia, Inc. the CTA En Banc concluded that the premature filing of a petition for review before the CTA in a claim for refund or credit of input VAT warranted a dismissal inasmuch as no jurisdiction was acquired by the CTA. It stated that in claiming a tax refund or tax credit under Section 112 of the NIRC, the taxpayer should apply for refund/credit of unutilized input VAT within two years after the close of the taxable quarter when the sales were made. Thereafter, the CIR has 120 days from the date of the submission of the complete documents within which to grant or deny the claim. If the CIR decided during the 120-day period, or failed to act on the application for tax refund/credit after the 120-day period, the remedy of the tax payer is to appeal the decision or inaction of the CIR to the CTA within 30 days from the decision or inaction. The CTA En Banc ruled that a violation of Section 112 would lead to the dismissal of the petitioner’s appeal or petition due to prematurity, notwithstanding the timely filing of the administrative application for refund or tax credit. It stated that the petition did not comply with the prescribed period because Taganito filed its application for tax refund or tax credit on December 30, 2003, but it appealed before the CTA only 51 days later, on February 19, 2004, in clear contravention of Section 112 and Aichi. In fine, the CTA En Banc dismissed the petition on the ground that the CTA Division failed to acquire jurisdiction over the case. Taganito argued that prior to Aichi, it was well-settled that a taxpayer need not wait for the decision of the CIR on its administrative claim for refund before it could file its judicial claim for refund, consonant with the period provided in Section 229 of the NIRC stating that no suit for the recovery of erroneously or illegally collected tax should be filed after the expiration of two years from the date of payment of the tax. Taganito argued that since it filed its judicial claim after the issuance of BIR Ruling No. DA-489-03, but before the adoption of the Aichi doctrine, it can invoke BIR Ruling No. DA-489-03 which ruled that the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.”

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ISSUE: Whether or not Taganito’s judicial claim for refund/credit was prematurely filed. RULING: The Court finds merit in Taganito’s position in its Reply. The Court, in San Roque, conclusively settled that it is Section 112 of the NIRC which applies specifically to claims for tax credit certificates and tax refunds specifically for unutilized creditable input VAT, and not Section 229. The recent case of Visayas Geothermal Power Company vs. Commissioner of Internal Revenue, encapsulates the relevant ruling in San Roque, as follows: SEC. 112. Refunds or Tax Credits of Input Tax. – (A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, x x x SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. Thus, under Section 112(A), the taxpayer may, within 2 years after the close of the taxable quarter when the sales were made, via an administrative claim with the CIR, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. Under Section 112(D), the CIR must then act on the claim within 120 days from the submission of the taxpayer’s complete documents. In case of (a) a full or partial denial by the CIR of the claim, or (b) the CIR’s failure to act on the claim within 120 days, the taxpayer may file a judicial claim via an appeal with the CTA of the CIR decision or unacted claim, within 30 days (a) from receipt of the decision; or (b) after the expiration of the 120-day period. The 2-year period under Section 229 does not apply to appeals before the CTA in relation to claims for a refund or tax credit for unutilized creditable input VAT. Section 229 pertains to the recovery of taxes erroneously, illegally, or excessively collected. Accordingly, the general rule is that the 120+30 day period is mandatory and jurisdictional from the effectivity of the 1997 NIRC on January 1, 1998, up to the present. As an exception, judicial claims filed from December 10, 2003 to October 6, 2010 need not wait for the exhaustion of the 120-day period. As an exception to the mandatory and jurisdictional nature of the 120+30 day period, judicial claims filed between December 10, 2003 or from the issuance of BIR Ruling No. DA-489-03, up to October 6, 2010 or the reversal of the ruling in Aichi, need not wait for the lapse of the 120+30 day period in consonance with the principle of equitable estoppel.

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In the present case, Taganito filed its judicial claim with the CTA on February 19, 2004, clearly within the period of exception of December 10, 2003 to October 6, 2010. Its judicial claim was, therefore, not prematurely filed and should not have been dismissed by the CTA En Banc. WHEREFORE, the petition is GRANTED. The Commissioner of Internal Revenue is hereby ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT CERITICATE in favor of Taganito Mining Corporation the amount of THREE MILLION SIX HUNDRED THIRTY SIX THOUSAND EIGHT HUNDRED FIFTY FOUR PESOS AND 7/100 (P3,636,854.07), representing the unutilized input taxes attributable to its zero-rated sales from January 1, 2002 to December 31, 2002.

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G.R. No. 207112 December 8, 2015 PILIPINAS TOTAL GAS, INC. v. COMMISSIONER OF INTERNAL REVENUE FACTS: Petitioner, engaged in the business of selling industrial gas, gas equipment and other related goods, filed an administrative claim for refund of unutilized input VAT for the first two quarters of taxable year 2007. In 2009 Total Gas elevated the matter to the CTA in view of the inaction of the CIR. The CTA Division dismissed the petition for being prematurely filed. It explained that Total Gas failed to complete the necessary documents to substantiate the claim for refund enumerated under Revenue Memorandum Order (RMO) No. 53-98, including the Summary List of Local Purchases and the certifications from several government agencies that the taxpayer had not filed any similar claim for refund covering the same period. Ruling that Total petitioner failed to complete the necessary substantiation, the CTA held that the 120-day period allowed for the CIR to decide its claim under Section 112 (C) of the National Internal Revenue Code of 1997, had not even started to run. With this, the CTA held that the petition for review was prematurely filed because Total Gas failed to exhaust administrative remedies. Total Gas sought for reconsideration from the CTA Division, but its motion was denied. The CTA reiterated that the complete supporting documents should be submitted to the BIR before the 120-day period for the Commissioner to decide the claim for refund shall commence to run. It is only upon the lapse of the 120day period that the taxpayer can appeal to the CTA. The CTA En Banc denied the petition for review of Total Gas. It ruled that the CTA Division had no jurisdiction over the case. Counting from the date it filed its administrative claim on May 15, 2008, it explained that the CIR had 120 days to act on the claim (until September 12, 2008), and Total Gas had 30 days from then, or until October 12, 2008, to go to the CTA. Total Gas only filed its petition on January 23, 2009. For the CTA, the 120-day period could not commence on the day Total Gas filed its last supporting document on August 28, 2008, because to allow such would give the taxpayer unlimited discretion to indefinitely extend the 120-day period by simply filing the required documents piecemeal. Further, the CTA En Banc affirmed the CTA Division that Total Gas failed to submit the complete supporting documents as provided for under RMO No. 53-98. It likewise concurred in its finding that the judicial claim of Total Gas was prematurely filed because the 120day period for the CIR to decide the claim had yet to commence to run due to the lack of essential documents. Total Gas filed a motion for reconsideration, but was denied. Hence, the present petition. ISSUES: (1) Whether or not petitioner’s judicial claim for refund was belatedly filed. (2) Whether or not RMO No. 53-98 provided a checklist of documents to be used in determining whether the taxpayer had submitted complete supporting documents. (3) Whether or not the submission of incomplete documents at the administrative level (BIR) renders the judicial claim premature and dismissible for lack of jurisdiction. RULING: 1. NO. The CIR has 120 days from the date of submission of complete documents to decide a claim for tax credit or refund of creditable input taxes. Prior to the issuance of RMC 54-2014 dated June 11, 2004, it is the taxpayer who ultimately determines when complete documents have been submitted for

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the purpose of commencing and continuing the running of the 120-day period. From the date an administrative claim is filed, a taxpayer has thirty (30) days within which to submit the documentary requirements sufficient to support his claim, unless given further extension by the CIR. In all cases, whatever documents a taxpayer intends to file to support his claim must be completed within the two-year period under Section l 12(A) of the NIRC. However, under the current rule provided in RMC 54-2014, the reckoning of the 120-day period has been withdrawn from the taxpayer, since it requires him at the time he files his claim to complete his supporting documents and attest that he will no longer submit any other document to prove his claim. Further, the taxpayer is barred from submitting additional documents after he has filed his administrative claim. Nonetheless, the foregoing issuance cannot be applied rectroactively to the case at bar since it imposes new obligations upon taxpayers in order to perfect their administrative claim, as provided under Section 246 of the Tax Code. Applying the foregoing in the present case, it is observed that the CIR made no effort to question the inadequacy of the documents submitted by petitioner. Neither did it give notice to Total Gas that its documents were inadequate, nor ruled to deny its claim for failure to adequately substantiate its claim. Thus, the 120-day period should be reckoned from August 28, 2008, the date when Total Gas made its "submission of complete documents to support its application”. Consequently, counting from this later date, the BIR had 120 days to decide the claim or until December 26, 2008. With absolutely no action or notice on the part of the BIR for 120 days, Total Gas had until January 25, 2009 to file its judicial claim. Thus, it timely filed its judicial claim on January 23, 2009. 2. NO. The Court ruled that nothing stated in the issuance would show that it was intended to be a benchmark in determining whether the Documents submitted by a taxpayer are actually complete to support a claim for tax credit or refund of excess unutilized excess VAT. 3. NO. First, the 120-day period had commenced to run and the 120+30 day period was, in fact, complied with. Second, the CIR sent no written notice informing Total Gas that the documents were incomplete or required it to submit additional documents. By failing to inform Total Gas of the need to submit any additional document, the BIR cannot now argue that the judicial claim should be dismissed because it failed to submit complete documents. Lastly, the appeal made by Total Gas to the CTA cannot be said to be premature on the ground that it did not observe the otherwise mandatory and jurisdictional 120+30 day period. When Total Gas filed its appeal with the CTA on January 23, 2009, it simply relied on BIR Ruling No. DA-489-03, which, at that time, was not yet struck down by the Court's ruling in the case of CIR v. Aichi Forging Company of Asia. The Court, however, did not rule on petitioner’s entitlement to tax refund or tax credit certificate in the amount of 7,898,433.98 since the CTA did not rule on the same. The Court is not a trier of facts, especially when such facts have not been ruled upon by the lower courts. The case was remanded to the CTA Division for trial de novo.

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G.R. No. 174212 October 20, 2010 HITACHI GLOBAL STORAGE TECHNOLOGIES PHILIPPINES CORP. (formerly HITACHI COMPUTER PRODUCTS (ASIA) CORPORATION) VS. COMMISSIONER OF INTERNAL REVENUE FACTS: Hitachi is a domestic corporation engaged in the business of manufacturing and exporting computer products. Hitachi is registered with the BIR as a VAT taxpayer. Hitachi is also registered with the Export Processing Zone Authority as an Ecozone Export Enterprise. Hitachi filed an administrative claim for refund or issuance of a tax credit certificate before the BIR. The claim involved ₱25,023,471.84 representing excess input VAT attributable to Hitachi’s zero-rated export sales for the four taxable quarters of 1999. Due to the BIR’s inaction, Hitachi filed a petition for review with the CTA. The CTA First Division rendered a decision approving petitioner’s claim for refund or issuance of a tax credit certificate. Hitachi filed a motion for reconsideration which was denied by the CTA First Division. Thus, Hitachi filed a petition for review with the CTA En Banc. The CTA En Banc affirmed the Resolution of the CTA First Division. Hitachi filed a motion for reconsideration. In its 14 August 2006 Resolution, the CTA En Banc denied Hitachi’s motion. Hence, this petition. The Ruling of the CTA First Division: The CTA First Division denied Hitachi’s claim for refund or tax credit because of Hitachi’s failure to comply with the mandatory invoicing requirements. According to the CTA First Division, Hitachi’s export sales invoices did not have pre-printed taxpayer’s identification number (TIN) followed by the word VAT nor did the invoices bear the imprinted word "zero-rated" as required in Section 113(A) of the National Internal Revenue Code (NIRC) and Section 4.108-1 of Revenue Regulation No. 7-9510 (RR 7-95). The CTA First Division also found that Hitachi’s export sales invoices were not duly registered with the BIR as required under Section 237 11 of the NIRC and there was no BIR authority to print the invoices or BIR permit number indicated in the invoices. The Ruling of the CTA En Banc: The CTA En Banc affirmed the findings of the CTA First Division that Hitachi failed to comply with the mandatory invoicing requirements under the NIRC and RR 7-95. ISSUES: (1) Whether Hitachi’s failure to comply with the requirements prescribed under Section 4.108-1 of RR 7-95 is sufficient to invalidate Hitachi’s claim for VAT refund for taxable year 1999; RULING: The petition has no merit. We already settled the issue of printing the word "zero-rated" on the sales invoices in Panasonic v. Commissioner of Internal Revenue. In that case, we denied Panasonic’s claim for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on their face that its sales were "zero-rated." We said: But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999, the rule that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax Regulations, which the Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required the printing of the word "zero-rated" on

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invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the enactment of that law. As aptly explained by the CTA’s First Division, the appearance of the word "zerorated" on the face of the invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect. Likewise, in this case, when Hitachi filed its claim for refund or tax credit, RR 795 was already in force. Section 4.108-1 of RR 7-95 specifically required the following to be reflected in the invoice: Sec.4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, TIN and address of seller; 2. date of transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VATregistered purchaser, customer or client; 5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and 6. the invoice value or consideration. Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by invoices other than a "VAT invoice" shall not give rise to any input tax. Being a specialized court, the CTA has necessarily developed an expertise in the subject of taxation that this Court has recognized time and again.14 For this reason, the findings of fact of the CTA are generally conclusive on this Court absent grave abuse of discretion or palpable error, which are not present in this case. Besides, tax refunds, like tax exemptions, are construed strictly against the taxpayer. The claimants have the burden of proof to establish the factual basis of their claim for refund or tax credit. In this case, Hitachi failed to establish the factual basis of its claim for refund or tax credit.

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G.R. No. L-8799 August 31, 1956 THE CITY OF MANILA VS. THE INTER-ISLAND GAS SERVICE, INC. FACTS: The City of Manila instituted this action for the collection of a sum of money allegedly due from the defendant Inter-Island Gas Service, Inc., by way of deficiency municipal tax. Plaintiff is a municipal corporation created and existing under the laws of the Philippines and that the defendant is a corporation likewise created by any existing under the laws of the Philippines while the defendant sold at retail in the City of Manila from the 4th quarter of 1949 to the a 4th quarter of 1951, inclusive, cooking appliances and liquified petroleum gas in cylinders. Defendant paid the different amount alleged in the complaint corresponding to the quarters therein stated based on its sales of cooking appliances only and that the total claim of the plaintiff against the defendant under section 1, Group 2, of Ordinance No. 1925, as last amended by Ordinance No. 3364 is P11,250.00, based on the defendant's sales alleged in paragraph 2 of the complaint computed at the rate of P1,250.00 quarterly corresponding to the first, second, third and fourth quarterly of 1951, and the first quarter of 1952 and the defendant has paid the prescribed fees under Ordinance No. 3259 of the City of Manila, 'An Ordinance prescribing regulations for storage, installations, use and transportation of compressed and liquefied, inflammable gases other than acetylene, and providing fees therefor", covering the same quarters mentioned in paragraph 4 of the complaint. Then the case was submitted for decision, whereupon the CFI of Manila rendered judgment for the plaintiff. The defendant has appealed and now in maintains that the lower court erred in not holding and declaring that the No. 1925 as amended (imposing a tax for purposes of revenue), does not clearly provided that it applies to the sale of liquified flammable gas, that it erred in not holding and declaring that the provisions of section 1, Group 2, of Ordinance No. 1925, as amended by Ordinance No. 3364, are and clearly within the legislative powers granted to the Municipal Board of Manila, if said Ordinance is applied to the sale of liquefied flammable gas, that the complaint does not state a cause of action because no allegation has been made that the ordinance in question had previously been approved by the President of the Philippines, that the lower court erred in not finding that to apply it to the liquefied gas business of the defendant will constitute double taxation; hence, unconstitutional and void. Lastly, they alleged that the lower court erred in ordering the defendant to pay the City of Manila the deficiency tax due under Ordinance No. 1925, as amended by Ordinance No. 3364, and to pay the costs. In support of the first two assignments of error appellant cites paragraphs (m) and (o) of section 18 of the Revised Charter of Manila (Republic Act No. 409) authorizing said city: "(m) To tax, fix the license fee and regulate the . . . storage and sale of . . . petroleum or any of the products thereof and of all other highly combustible or explosive materials "(o) To tax and fix the license fee on dealers in general merchandise. . . . . Then appellant argues that liquefied flammable gas is included in said paragraph (m) and, hence, excluded from the connotation of the word "merchandise," as used in paragraph (o). As already adverted to, the case hinges on the connotation of the term "merchandise" as used in said ordinance, or the interest

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of the Municipal Board in connection therewith. Referring to the meaning of said word, Corpus Juris Secundum has the following to say: The word "merchandise," employed as a noun, is defined as meaning the objects of commerce; the subjects of commerce and traffic; whatever is usually bought and sold in trade, or market, or by merchants; goods; ware; commodities, goods, or wares bought and sold for gain; commodities or goods to trade with; a commercial commodity or commercial commodities in general. ISSUE: Whether liquified flammable gas comes within the purview of section 1, Group 2, of Ordinance No. 1925 of the City of Manila, as amended by Ordinance No. 3364 thereof, which provides that: . . . there shall be paid to the City Treasurer for engaging in any of the business or occupations below enumerated, quarterly license fees based on gross sales or receipts realized during the preceding quarter, in accordance with the rates herein prescribed: Provided, however, That a person engaging in any business or occupation for the first time shall pay the initial license fee based on the probable gross sales of receipts for the first quarter beginning from the date of the opening of the business as indicated herein for the corresponding business or occupation. RULING: Inasmuch as, admittedly, liquefied gas may be, and is being, bought and sold in trade, it clearly is a merchandise and comes within the purview of the ordinary import of this world. Thus, for instance, although the word "merchandise" appears in paragraph (o) of said Section 18, it is included in Group 2 of said ordinance, together with electrical supplies, sporting goods, textiles, hardware, including glassware, and cooking utensils, which are found in paragraph (n) of said Article 18. Moreover, said Group 2 refers to "retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax, such as: (1) Retail dealers in general merchandise . . . ." Obviously, the enumeration made in said Group 2 is not all inclusive. It merely illustrates some of the objects the dealers in which are taxed under its provision. The word "merchandise" as used therein has not restrictive meaning. Said group taxes dealers in all "new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax." Liquefied flammable gas is a "new" object of commerce, and hence, merchandise, and, at the time of the passage of said ordinance, dealers therein were not, as yet, subject to the payment of any municipal tax. In short, the first and second assignments of error are untenable. Also, it is claimed that the tax imposed under the ordinance in question is in the nature of a percentage tax. But the court ruled that this is not a percentage tax. It is a graduated tax, not based on a given ratio between the gross income and the burden imposed upon the taxpayer. Lastly, the fees paid by the defendant under Ordinance No. 3259 — for the storage, installation, use and transportation of compressed inflammable gases — was charged by way of license fees, in the exercise of the police power of the State, not under its inherent power of taxation; and (2) double taxation is not prohibited in our Constitution.

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G.R. No. L-31156 February 27, 1976 PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. VS. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., FACTS: Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary injunction before the CFI of Leyte for that court 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. Both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are practically the same, and that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series of 1962. Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." For the purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and corked during the month. On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, 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 (128 fluid ounces, U.S.) of volume capacity." The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.' The CFI of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs.” From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended. ISSUES: (1) Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive? (2) Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes? (3) Are Ordinances Nos. 23 and 27 unjust and unfair? RULING: (1) The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people. It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local concern. This is sanctioned by immemorial practice. By necessary implication,

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the legislative power to create political corporations for purposes of local selfgovernment 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. The plenary nature of the taxing power thus delegated, contrary to plaintiffappellant's pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not limited to the exact measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which, for reasons of public policy the State has not deemed wise to tax for more general purposes. There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. 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. 2. No. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered that the producer or manufacturer could increase the volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are mentioned therein." As long as the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based

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thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax.21 Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified. 3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per case, cannot be considered unjust and unfair. An increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the reates of imposable taxes. This is in line with the constitutional policy of according the widest possible autonomy to local governments in matters of local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized. 28 Finally, the municipal license tax of P1,000.00 appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a municipality. ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against petitioner-appellant.

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Commission on Internal Revenue vs City Trust Investment Philippines FACTS: Under Section 27(D), formerly Section 24(e)(1) of the National Internal Revenue Code of 1997 (Tax Code), the earnings of banks from passive income are subject to a 20% FWT. Apart from the 20% FWT, banks are also subject to the 5% GRT on their gross receipts, which includes their passive income. City trust, respondent, is a domestic corporation engaged in quasi-banking activities. In 1994, City trust reported the amount of P110,788,542.30 as its total gross receipts and paid the amount of P5,539,427.11 corresponding to its 5% GRT. Meanwhile the CTA, in Asian Bank Corporation v. Commissioner of Internal Revenue7 (ASIAN BANK case), ruled that the basis in computing the 5% GRT is the gross receipts minus the 20% FWT. In other words, the 20% FWT on a bank's passive income does not form part of the taxable gross receipts. On July 19, 1996, City trust, inspired by the above-mentioned CTA ruling, filed with the Commissioner a written claim for the tax refund or credit. It alleged that its reported total gross receipts included the 20% FWT on its passive income amounting to P32,600,701.25. Thus, it sought to be reimbursed of the 5% GRT it paid on the portion of 20% FWT. City trust alleges that the imposition of the 20% FWT and the 5% GRT constitutes as double taxation. The CIR argues that the imposition of the 20% FWT on the bank's passive income and the 5% GRT on its taxable gross receipts, which include the bank's passive income, does not constitute double taxation. ISSUE: Whether or not the imposition of the 20% FWT and the 5% GRT constitutes as double taxation? (No) HELD: Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind of character of tax. This is not the situation in the case at bar. The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two concepts are different from each other. In Solidbank Corporation,27 this Court defined that a percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. Thus, there can be no double taxation here as the Tax Code imposes two different kinds of taxes.

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Commission on Internal Revenue vs Solidbank Corporation FACTS: Solid Bank declared gross receipts included the amount from passive income which was already subjected to 20% final withholding tax (FWT). CTA affirmed that the 20% FWT should not form part of its taxable gross receipts for purpose of computing the gross receipts tax on such basis, Bank filed a request for refund. CTA ordered the refund while CA held that indeed, the 20% FWT on a bank’s interest income does not form part of the taxable gross receipts in computing the 5% GRT because the FWT was not actually received by the bank, but was directly remitted to the government. ISSUE: Whether or not the 20% FWT on a bank’s interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax. RULING: In China Banking vs. CA, this Court ruled that the amount interest income withheld in payment of 20% FWT forms part of the gross receipts in computing for the GRT on banks. A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. An income tax is national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. In a withholding tax system, the payee is the taxpayer, the person on whom tax is reposed, the payer, a separate entity, acts as no more than an agent of the government for the collection of taxes… Possession is acquired by the payer as the withholding agent of the government because the taxpayer ratifies the very act of possession for the government. There is constructive receipt, of such income and is included as part of the tax base.

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Commission on Internal Revenue vs Philippine American Accident Insurance Company FACTS: Respondents are domestic corporations licensed to transact INSURANCE business in the country. From August 1971 to September 1972, respondents paid the BIR under protest the 3% tax imposed on lending investors by Section 195-A4 of Commonwealth Act No. 466 (the NIRC applicable at that time). Respondents paid the certain amounts from Philippine American ("PHILAM") Accident Insurance Company, PHILAM Assurance Company and PHILAM General Insurance Company. Such amounts represented 3% of each company’s interest income from mortgage and other loans. Respondents also paid the taxes required of insurance companies under CA 466. The respondents sent a letter-claim to CIR seeking a refund of the taxes paid under protest but did not receive a response, and so each respondent filed a petition for review with the CTA. Respondents argued that they were not lending investors and as such, they were not subject to the 3% lending investors’ tax under Section 195-A. CTA ruled that respondents were not taxable on their lending transactions independently of their insurance business and were entitled to their refund. Its decision stated that: respondents are not taxable as lending investors because the term "lending investors" does not embrace insurance companies. The CIR also contended that CA 466 also treated differently insurance companies from lending investors in regard to fixed taxes. Insurance companies were subject to the same fixed tax as banks and finance companies. The insurance companies were grouped with banks and finance companies because the latter’s lending activities were also integral to their business. In contrast, lending investors were taxed at a different fixed tax. Insurance companies had never been required by respondent to pay the fixed tax imposed on lending investors. ISSUE: Whether or not respondent insurance companies are subject ot the 3% percentage tax as lending investors under Sections 182(A)(3)(DD) and 195-A respectively, in relation to Section 194(U)? (No) HELD: The SC ruled that respondents are not liable to the 3% tax, that insurance companies are not taxable as lending investors. In this case, petitioner does not dispute that respondents are in the insurance business. Petitioner merely alleges that the definition of lending investors under CA 466 is broad enough to encompass insurance companies. Petitioner insists that the two principal activities of the insurance business, namely, underwriting and investment, are separately taxable. CA 466 states: (u) "Lending investor" includes all persons who make a practice of lending money for themselves or others at interest.

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The above provision does not tax the practice of lending per se. It merely defines what lending investors are. The question is whether the lending activities of insurance companies make them lending investors for purposes of taxation. The SC said that the definition of lending investors under CA 466 does not include insurance companies. The definition in 466 is not broad enough to include the business of insurance companies. The Insurance Code of 1978 is very clear on what constitutes an insurance company. It provides that an insurer or insurance company "shall include all individuals, partnerships, associations or corporations xxx engaged as principals in the insurance business, excepting mutual benefit associations." The respondents fall under the category of insurance corporations as defined in Section 185 of the Insurance Code. Insurance companies and lending investors are different enterprises in the eyes of the law. Lending investors cannot, for a consideration, hold anyone harmless from loss, damage or liability, nor provide compensation or indemnity for loss. The underwriting of risks is the prerogative of insurers, the great majority of which are incorporated insurance companies like respondents. The Court has also held that when a company is taxed on its main business, it is no longer taxable further for engaging in an activity or work which is merely a part of, incidental to and is necessary to its main business. Respondents already paid percentage and fixed taxes on their insurance business. To require them to pay percentage and fixed taxes again for an activity which is necessarily a part of the same business, the law must expressly require such additional payment of tax. There is, however, no provision of law requiring such additional payment of tax. CA 466 do not require insurance companies to pay double percentage and fixed taxes. They merely tax lending investors, not lending activities. The SC also ruled that there is a Different Tax Treatment of Insurance Companies and as provided in CA 466.

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Perena vs Zarate This issues tackled in this case did not tackle anything about Taxation law however it is a very comprehensive discussion on transportation law.

MANUFACTURERS LIFE INSURANCE CO. v. MEER 89 PHIL 351 BENGZON, June 29, 1951

FACTS: Manufacturers Life Insurance Company is a duly organized corporation which has its head office at Toronto. It is duly registered and licensed to engage in life insurance business in the Philippines, and, maintains a branch office in Manila. It was engaged in such business in the Philippines for more than five years before and including the year 1941. But due to the exigencies of the war It closed the branch office at Manila during 1942 up to September 1945. - Plaintiff issued a number of life insurance policies in the Philippines containing stipulations referred to as NONFORFEITURE CLAUSES. From January 1, 1942 to December 31, 1946, Plaintiff head office at Toronto applied the provisions of the automatic premium loan clauses upon the nonpayment of the corresponding premiums by the people who subscribed to the insurance. The net amount of premiums advanced (by the company) or loaned (to the insured) as payment for the premium due totaled P1,069,254.98. Meer, the Collector of the National Internal Revenue assessed the net amount of premium at P17,917.12 pursuant to SEC.255, National Internal Revenue Code Company protested the assessment, but paid the taxes anyway. Then they filed a complaint to recover money paid under protest for taxes. The CFI dismissed the complaint. PLAINTIFF’s MAIN CONTENTION: when it made premium loans or premium advances by virtue of the non-forfeiture clauses, it did not collect premiums within the meaning of the above sections of the law, and therefore it is not amenable to the tax therein provided. ISSUES: 1. WON premium advances made by plaintiff-appellant under the automatic premium loan clause of its policies are premiums collected' by the Company subject to tax 2. WON, in the application of the automatic premium loan clause of plaintiffappellant's policies, there is 'payment in money, notes, credits, or any substitutes for money 3. WON the collection of the alleged deficiency premium taxes constitutes double taxation 4. WON the making of premium advances, granting for the sake of argument that it amounted to collection of premiums, were done in Toronto, Canada

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5. WON the fact that plaintiff-appellant was not doing business in the Philippines during the period from January 1, 1942 to September 30, 1945, inclusive, exempts it from payment of premium taxes corresponding to said period RULING: "Suppose that 'A', 30 years of age, secures a 20-year endowment policy for P5,000 from plaintiff-appellant Company and pays an annual premium of P250. 'A' pays the first ten yearly premiums amounting to P2,500 and on this amount plaintiff-appellant pays the corresponding taxes under section 255 of the National Internal Revenue Code. Suppose also that the cash value of said policy after the payment of the 10th annual premium amounts to P1,000." When on the eleventh year the annual premium fell due and the insured remitted no money within the mouth grace, the insurer treated the premium then over due as paid from the cash value, the amount being a loan to the policyholder1 who could discharge it at any time with interest at 6 per cent. The insurance contract, therefore, continued in force for the eleventh year. 1. YES - Based on the example given by the plaintiff, the insurer collected the amount of P250 as the annual premium for the eleventh year on the said policy when it loaned to “A” the sum of P250. The insurer “became a creditor” of the loan, but not of thepremiumthat had already been paid (advanced by the insurer). The insurer is entitled to collect interest on the loan, not on the premium. "A" paid the premium for the eleventh year; but in turn he became a debtor of the company for the sum of P250. This debt he could repay either by later remitting the money to the insurer or by letting the cash value compensate for it. The debt may also be deducted from the amount of the policy should "A" die thereafter during the continuance of the policy. – (ON ARGUMENT THAT THE ASSETS OF THE INSURER REMAINED THE SAME AFTER THE APPLICATION OF THE AUTOMATIC PREMIUM LOAN CLAUSE: there was an increase in assets in the form of CREDIT for the advances made (in the example, the P250 for the 11th year). ON the ARGUMENT THAT IF THE CREDIT IS PAID OUT OF THE CASH SURRENDER VALUE THERE WERE NO NEW FUNDS ADDED TO THE COMPANYS ASSETS ”: Cash surrender value "as applied to a life insurance policy, is the amount of money the company agrees to pay to the holder of the policy if he surrenders it and releases his claims upon it. The more premiums the insured has paid the greater will be the surrender value; but the surrender value is always a lesser sum than the total amount of premiums paid." (Cyclopedia Law Dictionary 3d. ed. 1077.) The cash value or cash surrender value is therefore an amount which the insurance company holds In trust for the insured to be delivered to him upon demand. It is therefore a liability of the company to the insured. Now then, when the company's credit for advances is paid out of the cash value or cash surrender value, that value and the company's liability is thereby diminished pro tanto. 2. YES - the insurer agreed to consider the premium paid on the strength of the automatic loan. The premium was therefore paid by means of a "note" or "credit" or "other substitute for money" and the tax is due because section 255 above quoted levies taxes according to the total premiums collected by the insurer "whether such premiums are paid in money, notes, credits or any substitute for money.

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3. No constitutional prohibition against double taxation. 4. NO - The loans are made to policyholders in the Philippines, who in turn pay therewith the premium to the insurer thru the Manila branch. Approval of appellant's position will enable foreign insurers to evade the tax by contriving to require that premium payments shall be made at their head offices. What is important, the law does not contemplate premiums collected in the Philippines. It is enough that the insurer is doing insurance business in the Philippines, irrespective of the place of its organization or establishment. 5. NO - Although during those years the appellant was not open for new business because its branch office was closed, still it was practically and legally, operating in this country by collecting premiums on its outstanding policies, incurring the risks and/or enjoying the benefits consequent thereto, without having previously taken any steps indicating withdrawal in good faith from this field of economic activity.

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LILIA DE JESUS-SEVILLA, PETITIONER VS. THE COLLECTOR OF INTERNAL REVENUE, RESPONDENT. G.R. No. L-20060, April 30, 1968 FACTS: The petitioner is a lawyer and a business-woman, who, sometime in June, 1954, was introduced by one Rene Nieto to Jesus Sto. Tomas Cortes (Jes Cortes for short), now deceased, a well-known operator and promoter of sports exhibitions and other entertainments in the Philippines. On this meeting, Jes Cortes broached the subject of promoting the first bullfight exhibitions in the Philippines and pictured to her its financial success. Because the staging of bullfights requires a considerable amount of money, and not being in a position to raise the capital, he proposed that petitioner undertake the raising of working capital for the venture to which proposal the latter agreed. "On August 20, 1954, the petitioner gave Jes Cortes a special power to enter into a contract with the representatives of the bullfight troupe from Lisbon, Portugal (Exh. 1, p. 166, Vol. III, BIR rec). On August 26, 1954, Jes Cortes concluded personally and in his own name a bullfight contract with David Rodriguez Barrote, representing Alfredo Da Silva Over 1 ha, Empresario and Manager of the Portuguese Bullfight Troupe (Exh. A, pp. 51-56, CTA rec). "On October 10, 1954, Jes Cortes and the petitioner entered into a 'Contract of Management,' wherein the former was denominated as promoter and the latter as general manager of the bullfight. Among others, the contract provided: "That the said AGENT, as General Manager, shall arrange and provide a working capital for the operations of the PROMOTER, by means of an overdraft or overdrafts in one or more of the banking institutions of the City of Manila, in such sums as maybe, from time to time, necessary and proper not to exceed in the sum total at any one time, the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, and does hereby warrant that said working capital shall be available in said requisite sums, promising and agreeing, whenever necessary, to guarantee the repayment of the said overdrafts unto the interested banking institutions the pledge of the faith and credit of the said AGENT, to the entire satisfaction of the interested banking institutions, or other creditors, if any.' (Par. II, Exh. D, pp. 59, 60 CTA rec). "Subsequently, the petitioner entered into contracts (Exh. 5, pp. 156-157, Vol. III, BIR rec.) with the Tabacalera granting the latter 'exclusive right to use for the advertisement of its products the bullfights which shall be held in Manila,' and with Harry Lyons, Inc. for the construction by the latter of the bullfight arena. "On December 3, 1954, Jes Cortes secured from the Director of Lands a permit to occupy and construct a bullfight arena in the Sunken Garden (Exh. H-7, p. 74, CTA rec). "There were actually seven (7) bullfight exhibitions held between December 31, 1954 to February 6, 1955. Before, during and after the exhibitions were held, the petitioner kept the books of accounts; caused the printing of handbills and tickets and the sale of the latter; and employed the personnel needed for the operation of the bullfight venture. She also provided the venture with a working capital in the total amount of P170,000.00.

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"On the basis of the gross proceeds derived from the bullfight exhibitions, respondent (Collector of Internal Revenue) assessed and demanded from petitioner the amount of P111,056.84 as amusement tax and surcharge, plus P600.00 as compromise penalty for failure to register the books of accounts with the Bureau of Internal Revenue (Exh. 23, pp. 250-251, Vol. I, BIR rec). ISSUE: Whether or not the petitioner is a mere financier of the Transaction and not an operator and thus should not be liable for the Amusement Tax? RULING: In denying her liability for the payment of the amusement tax demanded, petitioner contends that the late Jes Cortes, instead of her, should be considered the operator or promoter. She submits that being merely a financier or capitalist who furnished the necessary funds for the staging of the bullfight exhibitions, she cannot be held liable for the payment of the amusement tax due. In this connection, she invokes our ruling in the case of Blaquera vs. Aldaba (L-10534, March 30, 1960) to the effect that a "financier and capitalist" of a stage presentation cannot be held liable for the payment of the amusement tax. We believe that petitioner's reliance on the aforecited case is misplaced. In that case, it was conclusively shown that the financier's only participation in the stage presentation was limited to the giving of necessary funds - which really was in the nature of a loan to the company in-charge of the opera presentation with the understanding that the same would be returned as soon as the company had funds. The instant case presents an entirely different working arrangement. In addition to financing the bullfight exhibitions, petitioner assumed active involvement in the agreed business venture. On August 20, 1954 she expressly gave Jes Cortes authority - as embodied in the special power of attorney executed by petitioner in favor of Jes Cortes - to enter into a contract with the representatives of the bullfight troupe to stage several bullfight exhibitions in Manila. Six (6) days later, Jes Cortes executed and signed the bullfight contract. Admittedly, petitioner's participation with respect to the staging of the bullfight exhibitions became more involved after the bullfight contract was perfected. She acknowledged having granted to Tabacalera the exclusive right to use the bullfights for advertisement of its products; she likewise contracted the services of Harry Lyons, Inc. for the construction of the bullfight arena. She took charge of the disbursements and gate receipts during the bullfight exhibitions as well as the recording and keeping of the pertinent books of account. She was therefore more than a mere financier or capitalist in the sense understood in the Blaquera vs. Aldaba case (supra).

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PHILIPPINE BASKETBALL ASSOCIATION v. COURT OF APPEALS, COURT OF TAX APPEALS, AND COMMISSIONER OF INTERNAL REVENUE. G.R. No. 119122. August 8, 2000 FACTS: The PBA received an assessment letter from the Commissioner of Internal Revenue (CIR) for the payment of deficiency amusement tax. The PBA contested the assessment by filing a protest with the CIR who denied the same. The PBA then filed a petition for review with the Court of Tax Appeals (CTA), in which they held against the PBA. The PBA filed an appeal with the Court of Appeals which was also denied. ISSUES: Whether the amusement tax on admission tickets to PBA games is a national tax. Whether the cession of advertising and streamer spaces to Vintage Enterprises, Inc. subject to amusement tax. RULING: YES. The Local Tax Code does not provide for professional basketball games but rather in PD 1959. It is clear that the "proprietor, lessee or operator of professional basketball games" is required to pay an amusement tax of 15% of their gross receipts to the BIR, which payment is a national tax. YES. The definition of gross receipts is broad enough to embrace the cession of advertising and streamer spaces as the same embraces all the receipts of the proprietor, lessee or operator of the amusement place. The law being clear, there is no need for an extended interpretation.

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PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY K. LOY, Petitioner, vs. THE PROVINCE OF BENGUET, Respondent. G.R. No. 183137, 10 April 2013. FACTS: Petitioner Pelizloy Realty Corporation owns Palm Grove Resort in Tuba, Benguet, which has facilities like swimming pools, a spa and function halls. In 2005, the Provincial Board of Benguet approved its Revenue Code of 2005. Section 59, the tax ordinance levied a 10% amusement tax on gross receipts from admissions to "resorts, swimming pools, bath houses, hot springs and tourist spots." Pelizloy's posits that amusement tax is an ultra vires act. Thus, it filed an appeal/petition before the Secretary of Justice. Upon the Secretary’s failure to decide on the appeal within sixty days, Pelizloy filed a Petition for Declaratory Relief and Injunction before the RTC. Pelizloy argued that the imposition was in violation of the limitation on the taxing powers of local government units under Section 133 (i) of the Local Government Code, which provides that the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of percentage or valueadded tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided. The Province of Benguet assailed the that the phrase ‘other places of amusement’ in Section 140 (a) of the LGC encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots since Article 131 (b) of the LGC defines "amusement" as "pleasurable diversion and entertainment synonymous to relaxation, avocation, pastime, or fun." RTC rendered a Decision assailed Decision dismissing the Petition for Declaratory Relief and Injunction for lack of merit. Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. However, it gave credence to the Province of Benguet's assertion that resorts, swimming pools, bath houses, hot springs, and tourist spots are encompassed by the phrase ‘other places of amusement’ in Section 140 of the LGC. ISSUE: W/N provinces are authorized to impose amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs, and tourist spots for being "amusement places" under the LGC. RULING: NO. Amusement taxes are percentage taxes. However, provinces are not barred from levying amusement taxes even if amusement taxes are a form of percentage taxes. The levying of percentage taxes is prohibited "except as otherwise provided" by the LGC. Section 140 provides such exception. Section 140 expressly allows for the imposition by provinces of amusement taxes on "the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement."

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However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places expressly mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the determination of whether amusement taxes may be levied on admissions to these places hinges on whether the phrase ‘other places of amusement’ encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots. Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of particular and specific words of the same class or where the latter follow the former, the general word or phrase is to be construed to include, or to be restricted to persons, things or cases akin to, resembling, or of the same kind or class as those specifically mentioned." Section 131 (c) of the LGC already provides a clear definition: "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or performances. As defined in The New Oxford American Dictionary, ‘show’ means "a spectacle or display of something, typically an impressive one"; while ‘performance’ means "an act of staging or presenting a play, a concert, or other form of entertainment." As such, the ordinary definitions of the words ‘show’ and ‘performance’ denote not only visual engagement (i.e., the seeing or viewing of things) but also active doing (e.g., displaying, staging or presenting) such that actions are manifested to, and (correspondingly) perceived by an audience. Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be considered venues primarily "where one seeks admission to entertain oneself by seeing or viewing the show or performances". While it is true that they may be venues where people are visually engaged, they are not primarily venues for their proprietors or operators to actively display, stage or present shows and/or performances.