Updates on Taxation 2012

1. Updates on Taxation 2012 + AMDG

2. CHEVRON PHILIPPINES, INC. vs. BCDA & CDC GENERAL PRINCIPLES … CDC imposed on Chevron a royalty fee of P0.50 per liter on fuel deliveries made to customers inside the CSEZ. Chevron protested stating that the imposition is a tax which CDC has no power to impose. ??? Is the royalty fee a tax or a regulatory measure? !!! It is a REGULATORY FEE. The royalty fee was deemed imposed primarily for regulatory purposes and not for generation of income which is the primary feature of a tax levy. The Court mentioned that the oil industry is “greatly imbued with public interest” and that the highly combustible product “poses serious threat to life and property”. It also upheld the reasonable relation between the fee and the regulation sought to be attained given the high volume of fuel entering the CSEZ and the fact that the increasing administrative costs were triggered by security risks arising from possible terrorist strikes. Thus, CDC was authorized to impose the fee. + AMDG

3. ANGELES UNIVERSITY FOUNDATION vs. CITY OF ANGELES GENERAL PRINCIPLES … Petitioner is a non-stock, non-profit educational foundation. It received a Building Permit Fee assessment for the construction of the AUF Medical Center but claimed exemption from the same as well as from other permits and fees by virtue of Republic Act 6055. Respondent disputed the claimed exemption by stating that the impositions are regulatory in nature and not taxes from which Petitioner is exempt under the said law. ??? Is the building permit fee a tax from which Petitioner is exempt? !!! It is a REGULATORY FEE. The DPWH has in fact issued implementing rules which provide the bases for the assessment of fees and Petitioner has failed to show that they were arbitrarily determined or unrelated to the activity being regulated. Neither has there been proof that the fee was unreasonable or in excess of the cost of regulation or inspection. The Court added that even if there was incidental revenue, the same is deemed not to change the nature of the charge. Thus, the City of Angeles was justified in its assessment. + AMDG

4. CIR vs. PILIPINAS SHELL PETROLEUM CORPORATION GENERAL PRINCIPLES … Shell filed a claim for refund for excise taxes it paid on sales of gas and fuel oils to various international carriers. ??? Is Shell entitled to refund the excise taxes given the earlier decisions in the Silkair and Exxonmobil cases? !!! NO. Excise tax on manufactured petroleum products are paid upon withdrawal of the goods. Thus, the excise tax payments made by Shell can not be considered as having been an “erroneous or illegal tax”. The Court also pointed out that the only provision which allows refunds of excise taxes paid is that which relate to goods actually exported. Section 135 of the Tax Code which provides exemption from excise tax on petroleum products sold to international carriers is construed as prohibiting the manufacturers-sellers from passing on the tax to the carriers by incorporating the excise tax into the selling price or effectively shifting the tax burden. This is consistent with the ruling in the Philippine Acetylene case which stated that the “tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by the manufacturer”. + AMDG

5. BUREAU OF CUSTOMS EMPLOYEES ASSOCIATION (BOCEA) vs. TEVES GENERAL PRINCIPLES … BOCEA questions R.A. 9335 (Attrition Act of 2005) and states that the law violates their rights to (1) due process; (2) equal protection of the laws; and (3) security of tenure. They likewise claim that the same is an undue delegation of legislative power and is a bill of attainder. ??? Is the law unconstitutional? !!! NO. Given the clear parameters on revenue targets, rewards, removal levels, etc., R.A. 9335 is complete in all its essential terms and conditions and contains sufficient standards that negate a claim of undue delegation. BOC and BIR are both revenue-generating agencies that are both under the DOF. Such substantial distinction Is germane and related to the purpose of the law. The law does not deny the BOC employees their right to be heard and they still can not be arbitrarily removed. It is not a bill of attainder as the same does not seek to punish without a judicial trial as all it does is lays down the grounds for possible termination. + AMDG

6. CIR vs. FORTUNE TOBACCO CORPORATION GENERAL PRINCIPLES … R.A. 8240 took effect on January 1, 1997 and a shift from ad valorem to specific taxes on cigarettes was implemented. The amending law separately provided that (i) the specific tax due from any brand of cigarette within the next 3 years (i.e., the transition period) shall not be lower than the tax due before the new law and (2) the rates of specific tax shall be increased by 12% on January 1, 2000. The BIR then issued RR 17-99 to implement the law increasing the rate and substantially echoed R.A. 8240 except that it additionally stipulated that the specific tax to be paid shall not be lower than the tax actually paid before January 1, 2000. The CIR, in defending the RR, opined that “the adoption of the “higher tax rule” during the transition period shows the intent of Congress not to lessen the excise tax collection”. ??? Is RR 17-99 valid to the extent that it carries the “higher tax rule” for the January 1, 2000 increase? + AMDG

7. GENERAL PRINCIPLES !!! NO. The “higher tax rule” clearly only applies to the transition period. As such, the RR was deemed an invalid act of administrative legislation. The CIR can not state that the sole purpose for the shift to specific tax was to increase revenue since there were other reasons for the same such as to curb corruption, simplify tax administration, etc. Likewise, the rule of uniformity was deemed violated since brands belonging to the same category would be imposed with different tax rates if the “higher tax rule” were to be implemented. Finally, the Court pointed out that the rule of strictly interpreting tax exemption laws will not apply to the instant tax refund since the refund of the Petitioner is not premised on legislative grace but on the principle of solution indebiti given that the government is put in a position to unjustly enrich itself due to a mistake in law. + AMDG

8. REPUBLIC ACT NO. 10143 PHILIPPINE TAX ACADEMY GENERAL PRINCIPLES !!! Serves as a learning institution for tax collectors and administrators of the government and selected applicants from the private sector. !!! It shall handle all trainings, continuing education programs and other courses for all officials and personnel of the BIR, BOC, and BLGF. All existing officials and personnel of the said agencies shall be required to undergo the re-tooling and enhancement seminars and training programs. !!! The Board of Trustees will be composed of representatives from the DOF (ex officio Chairman), BIR, BOC, BLGF, and 3 representatives from the academe with at least 5 years of teaching experience. The first 3 will be Presidential appointees. + AMDG

9. PAGCOR vs. BIR INCOME TAX ??? Is Republic Act 9337 constitutional insofar as it excluded PAGCOR from the enumeration of GOCCs exempt from the payment of corporate income tax? !!! YES. The original exemption of PAGCOR from corporate income tax was not made pursuant to a valid classification based on substantial distinctions so that the law may operate only on some and not on all. Instead, the same was merely granted due to the acquiescence of the House Committee on Ways and Means to the request of PAGCOR. The argument that the withdrawal of the exemption also violates the non-impairment clause will not hold since any franchise is subject to amendment, alteration or repeal by Congress. However, the Court made it clear that PAGCOR remains exempt from payment of indirect taxes and as such its purchases remain not subject to VAT, reiterating the rule laid down in the Acesite case. + AMDG

10. DUMAGUETE CATHEDRAL CREDIT COOPERATIVE vs. CIR INCOME TAX … Petitioner was assessed for deficiency withholding taxes on interest from savings and time deposits of its members. The CTA ruled against the Petitioner and said that the withholding of tax on income payments subject to final withholding tax includes the said interest as "interest from x xx similar arrangements . . ." . ??? Is Petitioner liable for the deficiency WT? !!! NO. The BIR had earlier ruled without any qualification that since interest from any Philippine currency bank deposit and yield or any other monetary benefit from deposit substitutes are paid by banks, other entities such as cooperatives are not required to withhold the corresponding tax on the interest from savings and time deposits of their members. The fact that “similar arrangements” is preceded by banking terms means that that those subject to withholding must have deposit peculiarities. This is also consistent with the preferential treatment accorded to members of cooperatives who are exempt in the same way as the cooperatives themselves. + AMDG

11. CIR vs. FILINVEST DEVELOPMENT CORPORATION INCOME TAX … Filinvest Development Corporation extended advances in favor of its affiliates and supported the same with instructional letters and cash and journal vouchers. The BIR assessed Filinvest for deficiency income tax by unilaterally imputing an “arm’s length” interest rate on its advances to affiliates. Filinvest disputed this by saying that the CIR lacks the authority to impute theoretical interest and that the rule is that interests cannot be demanded in the absence of a stipulation to that effect. ???Can the CIR unilaterally impute theoretical interest on the advances made by Filinvest to its affiliates? !!! NO. Despite the seemingly broad power of the CIR to distribute, apportion and allocate gross income under (now) Section 50 of the Tax Code, the same does not include the power to impute theoretical interests even with regard to controlled taxpayers’ transactions. This is true even if the CIR is able to prove that interest expense (on FDC’s own loans) was in fact claimed by FDC. + AMDG

12. INCOME TAX The term in the definition of gross income that even those income “from whatever source derived” is covered still requires that there must be actual or at least probable receipt or realization of the item of gross income sought to be apportioned, distributed, or allocated. Finally, the rule under the Civil Code that “no interest shall be due unless expressly stipulated in writing” was also applied in this case. The Court also ruled that the instructional letters, cash and journal vouchers qualify as loan agreements that are subject to DST. + AMDG

13. CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATION, INC. vs. EXECUTIVE SECRETARY INCOME TAX … CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of the due process clause as it levies income tax even if there is no realized gain. They also question the creditable withholding tax (CWT) on sales of real properties classified as ordinary assets stating that (1) they ignore the different treatment of ordinary assets and capital assets; (2) the use of gross selling price or fair market value as basis for the CWT and the collection of tax on a per transaction basis (and not on the net income at the end of the year) are inconsistent with the tax on ordinary real properties; (3) the government collects income tax even when the net income has not yet been determined; and (4) the CWT is being levied upon real estate enterprises but not on other enterprises, more particularly those in the manufacturing sector. ??? Are the impositions of the MCIT on domestic corporations and CWT on income from sales of real properties classified as ordinary assets unconstitutional? + AMDG

14. INCOME TAX !!! NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the law allows the carry forward of any excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can suspend the imposition of MCIT in justifiable instances. The regulations on CWT did not shift the tax base of a real estate business’ income tax from net income to GSP or FMV of the property sold since the taxes withheld are in the nature of advance tax payments and they are thus just installments on the annual tax which may be due at the end of the taxable year. As such the tax base for the sale of real property classified as ordinary assets remains to be the net taxable income and the use of the GSP or FMV is because these are the only factors reasonably known to the buyer, at the time of sale, in connection with the performance of his duties as a withholding agent. The use of the GSP/FMV as basis to determine the withholding taxes is evidently for purposes of practicality and convenience. Neither is there violation of equal protection even if the CWT is levied only on the real industry as the real estate industry is, by itself, a class on its own and can be validly treated differently from other businesses. + AMDG

15. MERCURY DRUG CORPORATION vs. CIR INCOME TAX … Mercury Drug granted 20% sales discount to qualified senior citizens on their purchases of medicines. They subsequently filed a refund for taxable years 1993 and 1994 given that the then prevailing rule allowed that the sales discounts be claimed as tax credits. ??? Is the claim for tax credit to be based on the full amount of the 20% senior citizen discount or the acquisition cost of the item sold? !!! The tax credit should be equivalent to the actual 20% sales discount granted to the senior citizens. The previous ruling of the CTA that the tax credit is based only on the “cost of the discount” which was interpreted to cover only direct acquisition cost, excluding administrative and other incremental costs, was struck down by the Court. Note: The case of M.E. Holdings Corporation vs. CIR & CTA clarified that the rule will be -- (i) prior to March 21, 2004 (effectivity of Expanded Senior Citizens Act) the discounts are treated as tax credit; (ii) after March 21, 2004 the same are treated as deductions. + AMDG

16. CIR vs. FAR EAST BANK & TRUST COMPANY INCOME TAX … Far East Bank filed a claim for refund of overpaid creditable withholding taxes which included CWT on rental income allegedly earned by the Petitioner as lessor. ???Can a claim for refund be granted notwithstanding claimant’s failure to show in the return that that income upon which the creditable taxes withheld were based was in fact reported? !!! NO. The 3 essential requirements for a claim for refund of this nature to prosper are (1) filing the same within the 2-year period; (2) establishing the fact of withholding with copies of the CWT certificates; and (3) showing that the income received was declared as part of gross income. Here the Petitioner failed to prove (3) as the return in fact showed “Not Applicable” under the portion referring to Rental Income. In addition, some certificates were likewise not submitted as evidence. + AMDG

17. ASIAWORLD PROPERTIES PHILIPPINE CORPORATION vs. CIR INCOME TAX … Asiaworld filed its 2001 ITR stating that a portion of the amount representing Prior Year’s Excess Credits was the 1999 excess creditable withholding tax which it is now seeking to refund. The said 1999 excess payment was previously treated as having been carried over to 2000. Asiaworld posits its claim on the portion of the provision which states that the “such option shall be considered irrevocable for that taxable period” in that the same refers to only a one-year prohibition for the action of the claim for refund. ??? Is the irrevocability rule under Section 76 of the Tax Code only applicable to the next taxable year which in this case was the year 2000? !!! NO. The option to carry-over is not limited to the following taxable year of 2000 but will apply to the succeeding taxable years until the whole amount of the 1999 creditable withholding tax overpayment is fully utilized. + AMDG

18. CIR vs. SMART COMMUNICATIONS, INC. INCOME TAX … Smart entered into an Agreement with Prism, a nonresident foreign corporation domiciled in Malaysia, whereby Prism will provide programming and consultancy services to Smart. Thinking that the payments to Prism were royalties, Smart withheld 25% under the RP-Malaysia Tax Treaty. Smart then filed a refund with the BIR alleging that the payments were not subject to Philippine withholding taxes given that they constituted business profits paid to an entity without a permanent establishment in the Philippines. ??? Does Smart have the right to file the claim for refund? !!! YES. The Court reiterated the ruling in Procter & Gamble stating that a person “liable for tax” has sufficient legal interest to bring a suit for refund of taxes he believes were illegally collected from him. Since the withholding agent is an agent of the beneficial owner of the payments (i.e., nonresident), the authority as agent is held to include the filing of a claim for refund. The Silkair case was held inapplicable as it involved excise taxes and not withholding taxes. + AMDG

19. INCOME TAX Smart was granted a refund given that only a portion of its payments represented royalties since it is only that portion over which Prism maintained intellectual property rights and the rest involved full transfer of proprietary rights to Smart and were thus treated as business profits of Prism. + AMDG

20. SUPREME TRANSLINER, INC. vs. BPI FAMILY SAVINGS BANK, INC. INCOME TAX … Supreme Transliner took out a loan from respondent but was unable to pay the same. The respondent bank extrajudicially foreclosed the collateral and, before the expiration of the one-year redemption period, the mortgagors notified the bank of its intention to redeem the property. ??? Is the mortgagee-bank liable to pay the capital gains tax upon the execution of the certificate of sale and before the expiry of the redemption period? !!! NO. It is clear that in foreclosure sale there is no actual transfer of the mortgaged real property until after the expiration of the one-year period and title is consolidated in the name of the mortgagee in case of non-redemption. This is because before the period expires there is yet no transfer of title and no profit or gain is realized by the mortgagor. Note: Remember that in extrajudicial foreclosures, the mortgagee-bank is the statutory seller who is liable for the CGT. + AMDG

21. CIR vs. PHILIPPINE AIRLINES, INC. INCOME TAX … PAL paid the 10% Overseas Communications Tax (OCT) for overseas telephone calls made through PLDT. It then later filed with the BIR a claim for refund of the amount paid as OCT, claiming that other than being liable for basic corporate income tax or the franchise tax, whichever was lower, it was exempted from all other taxes by virtue of the "in lieu of all taxes" clause in its charter. ??? Is PAL liable for the OCT? !!! NO. The language of PAL’s franchise is clearly all-inclusive --- the basic corporate income tax or franchise tax paid by respondent shall be "in lieu of all other taxes” except only real property tax. It is not the fact of tax payment that exempts it, but the exercise of its option. In the event that respondent incurs a net loss, it shall have zero liability for basic corporate income tax, the lowest possible tax liability. There being no qualification to the exercise of its options, then Respondent is free to choose basic corporate income tax, even if it would have zero liability. + AMDG

22. REPUBLIC ACT 9856 REAL ESTATE INVESTMENT TRUST INCOME TAX !!! The taxable net income of REITs is the gross income under Section 32 less (a) the deductions under Section 34 AND (b) dividends distributed by the REIT out of its distributable income provided it (a) maintains its status as a public company; (b) maintains the listed status of the investor securities (shares issued by the REIT); and (c) distributes at least 90% of its distributable income. * Dividends should be distributed before the last day of the 5th month after the close of the taxable year * Public company defined as 1,000 public shareholders owning at least 50 shares each and owning an aggregate of 40% of the capital stock (increased to 67% from 3 years after listing) * Failure to observe the above rules will result to disallowance of dividends as additional deduction (Note: The RR provides a curing period of 30 days) + AMDG

23. INCOME TAX !!! Other tax rules: Not subject to the MCIT Income payments to REIT are subject to a lower CWT of 1% Sale of real property to REITs subject to DST reduction of 50% Dividends received by an OFW from the REIT is exempt from the 10% WT for the first 7 years of the law. VAT is imposed on sale of real property by the REIT but not of its securities as it is not considered a dealer in securities + AMDG

24. REPUBLIC ACT 9994 ADDITIONAL (TAX) BENEFITS TO SENIOR CITIZENS INCOME TAX !!! The following transactions with senior citizens are exempt from VAT (on top of the 20% discount): Professional fees of physicians, licensed health workers Purchase of medicines Medical and dental services and laboratory fees Fare for any land transportation Fare for domestic air and sea services Utilization of hotels and similar lodging establishments Admission fees on theaters, concert halls, circuses, etc. Funeral and burial services + AMDG

25. INCOME TAX !!! Discounts given by establishments, sellers are still considered as tax deductions and NOT tax credits !!! Employment of senior citizens will entitle employer to additional tax deduction of 15% of total amount paid as salaries and wages to senior citizens provided that the employment lasts for at least 6 months !!! Realty tax holiday for the first 5 years is granted to those establishing foster care facilities + AMDG

26. REPUBLIC ACT 10026 TAX EXEMPTION TO LOCAL WATER DISTRICTS INCOME TAX !!! Local water districts are now exempt from income taxes under Section 27 provided that the amount saved by virtue of the exemption is to be used for capital equipment expenditure to expand water services coverage !!! All unpaid taxes starting August 13, 1996 are condoned provided (1) the BIR establishes financial incapacity of the LWD and (2) the LWD submits to Congress a program of internal reforms. + AMDG

27. DIZON vs. CIR ESTATE TAX … There were claims against the estate which the BIR contested stating that lower amounts were paid as compromise payments during the settlement of the estate and these are amounts that should be considered as deductions in arriving at the net estate. ??? Will the compromise amounts be the amounts considered as deductions to the gross estate? !!! NO. The deductions allowable are the amounts determined at the time of death. Post-death developments are not material in determining the amount of deduction. Thus, the Court applied the “date-of-death valuation rule” which is the US rule on deductions and which is applicable also in the Philippines. The amount deductible is the debt which could have been enforced against the deceased in his lifetime. + AMDG

28. CIR vs. SONY PHILIPPINES, INC. VALUE ADDED TAX … Sony Philippines was ordered examined for “the period 1997 and unverified prior years” as indicated in the Letter of Authority . The audit yielded assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of FWT on royalties for the period January to March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony International Singapore (SIS). ??? (1) Is Petitioner liable for deficiency VAT? (2) Was the investigation of its 1998 FWT return valid? !!! (1) 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. + AMDG

29. VALUE ADDED TAX 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. !!! (2) NO. A Letter of Authority should cover a taxable period not exceeding one year and to indicate that it covers ‘unverified prior years’ should be enough to invalidate it. In addition, even if the FWT was covered by Sony Philippines’ fiscal year ending March 1998, the same fell outside of ‘the period 1997’ and was thus not validly covered by the LOA. + AMDG

30. CIR vs. SM PRIME HOLDINGS, INC. VALUE ADDED TAX ??? Are the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets subject to VAT? !!! NO. While (1) the enumeration under Section 108 on the VAT-taxable services is not exhaustive and (2) the said list includes “the lease of motion picture films, films, tapes and discs”, the said activity however is not the same as showing or exhibition of motion pictures or films. Thus, since the showing or exhibition of motion pictures or films is not in the enumeration, the CIR must show that it falls under the phrase “similar services”. 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 (on the national government to tax certain activities) 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. + AMDG

31. DIAZ vs. SECRETARY OF FINANCE VALUE ADDED TAX ??? Are toll fees collected by tollway operators subject to VAT? !!! YES. VAT is imposed on “all kinds of services” and tollway operators who are engaged in constructing, maintaining, and operating expressways are no different from lessors of property, transportation contractors, etc. Not only do they fall under the broad term under (1) but also come under those described as “all other franchise grantees” which is not confined only to legislative franchise grantees since the law does not distinguish. They are also not a franchise grantee under Section 119 which would have made them subject to percentage tax and not VAT. Neither are the services part of the enumeration under Section 109 on VAT-exempt transactions. + AMDG

32. VALUE ADDED TAX (4) The toll fee is not a user’s tax and thus it is permissible to impose a VAT on the said fee. The MIAA case does not apply and the Court emphasized that toll fees are not taxes since they are not assessed by the BIR and do not go the general coffers of the government. Toll fees are collected by private operators as reimbursement for their costs and expenses with a view to a profit while taxes are imposed by the government as an attribute of its sovereignty. Even if the toll fees were treated as user’s tax, the VAT can not be deemed as a ‘tax on tax’ since the VAT is imposed on the tollway operator and the fact that it might pass-on the same to the tollway user, it will not make the latter directly liable for VAT since the shifted VAT simply becomes part of the cost to use the tollways. (5) The assertion that the VAT imposed is not administratively feasible given the manner by which the BIR intends to implement the VAT (i.e., rounding off the toll rates and putting any excess collection in an escrow account) is not enough to invalidate the law. Non-observance of the canon of administrative feasibility will not render a tax imposition invalid “except to the extent that specific constitutional or statutory limitations are impaired”. + AMDG

33. TAMBUNTING PAWNSHOP, INC. vs. CIR VALUE ADDED TAX … Petitioner was assessed for deficiency VAT and DST on the premise that, for the VAT, it was engaged in the sale of services. ??? (1) Is Petitioner liable for the VAT? (2) Can the imposition of surcharge and interest be waived on the imposition of deficiency DST? !!! (1) NO. Since Petitioner is considered a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002 but since the collection of VAT from non-bank financial intermediaries was specifically deferred by law for that period, Petitioner is not liable for VAT during these tax years. With the full implementation of the VAT system on non-bank financial intermediaries starting January 1, 2003, Petitioner is liable for 10% VAT for said tax year. Beginning 2004 up to the present, by virtue of R.A. No. 9238, Petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be. + AMDG

34. VALUE ADDED TAX !!! (2) YES. Petitioner's argument against liability for surcharges and interest — that it was in good faith in not paying documentary stamp taxes, it having relied on the rulings of respondent CIR and the CTA that pawn tickets are not subject to documentary stamp taxes — was found to be meritorious. Good faith and honest belief that one is not subject to tax on the basis of previous interpretations of government agencies tasked to implement the tax law are sufficient justification to delete the imposition of surcharges and interest. + AMDG

35. LVM CONSTRUCTION CORPORATION vs. SANCHEZ VALUE ADDED TAX … Petitioner was engaged by DPWH for the construction of roads and bridges. In turn, LVM subcontracted construction of one of the projects to Respondent’s Joint Venture. After completing the project, the Joint Venture demanded full payment to which Petitioner responded that they discovered that no deductions for EVAT were made on previous payments and as such they were going to deduct 8.5% from the payments still due. Respondent disputed this and said that all the receipts issued to Petitioner would have made them (Respondent) subject to VAT and, consequently, Petitioner can thus claim the input tax thereon. ??? Can Petitioner rightfully deduct the amount representing withholding VAT due on its transaction with the DPWH? !!! NO. As the entity which dealt directly with the government insofar as the main contract was concerned, LVM was itself required by law to pay the 8.5% (now 5%) VAT which was withheld by DPWH. Given that (1) the Joint Venture complied with their own obligation when they paid their VAT from their own gross receipts and + AMDG

36. VALUE ADDED TAX (2) the fact that the contract between LVM and Joint Venture did not stipulate any obligation on LVM assuming the VAT, LVM has no basis to withhold payments . Although the burden to pay an indirect tax like the VAT can be passed on, the liability to pay the same remains with the seller. In this case, both LVM and Joint Venture are liable for their respective VAT obligations as respective sellers. + AMDG

37. KEPCO PHILIPPINES CORPORATION vs. CIR VALUE ADDED TAX … Kepco filed a claim for refund of unutilized input VAT based on its zero-rated sale of power to NPC. A substantial portion of the claim was disallowed for having been supported by VAT invoices which only had the TIN-VAT stamped and not printed. There were also certain sales by Kepco which failed to indicate the words “zero-rated”. Lastly, they also alleged that invoices and receipts are interchangeable and either should suffice as proof of purchase and consequently as support for a claim for refund. ??? Is Petitioner entitled to the claim for refund on the disallowed portion? !!! NO. The requirement that the TIN be imprinted and not merely stamped is a reasonable requirement imposed by the BIR. More importantly, the requirement of the appearance of the words “zero-rated” on the face of the invoice prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. The failure to adhere to the said rules will not only expose the taxpayer to penalties but should also serve to disallow the claim. Finally, the Court disagreed with the position that invoices and receipts are interchangeable since the former clearly refers to sales of goods while the latter to services. + AMDG

38. FORT BONIFACIO DEVELOPMENT CORPORATION vs. CIR VALUE ADDED TAX … 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. ??? 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? + AMDG

39. VALUE ADDED TAX !!! 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. + AMDG

40. CIR vs. GONZALEZ REMEDIES … An investigation was conducted against LMCEC for taxable years 1997 to 1999. The assessments that came out of the said investigation was disputed by the taxpayers on the grounds that (i) the assessment notices issued were invalid for not bearing serial numbers and (ii) the examinations made on the books of accounts and other records were done more than once in the relevant taxable years. ??? Are the assessments invalid? !!! NO. The formality of a control number in the assessment notice is not a requirement for its validity but rather it is the contents which should inform the taxpayer of the deficiency and which should contain the facts and the laws on the which the assessment is based. Likewise, this case is an exception to the general rule of having the books examined only once in a year. Section 235 of the Tax Code allows the multiple examinations when (a) there is fraud or irregularity; (b) the taxpayer requests for reinvestigation; (c) there is a required verification of compliance with withholding taxes and capital gains tax liabilities. + AMDG

41. RIZAL COMMERCIAL BANKING CORPORATION vs. CIR REMEDIES ??? Whether a taxpayer, by paying the other tax assessments covered by a Waiver of the Statute of Limitations, is consider estopped from questioning the validity of the said waiver (on the basis that the CIR did not sign it) with respect to the other covered but unsettled assessments? !!! YES. RCBC is considered estopped through its partial payment of the revised assessments within the extended period provided in the said waivers. Thus, it had impliedly admitted the validity of the said waivers. Had it believed that the waiver was invalid and that the period to assess had effectively prescribed, RCBC could have refused to make any payment based on any assessment against it. + AMDG

42. CIR vs. METRO STAR SUPERAMA, INC. REMEDIES … Metro Star Superama was audited for taxable year 1999 and received a Preliminary 15-day Letter on November 15, 2001. On April 11, 2002, it received a Formal Letter of Demand dated April 3, 2002. Denying that it received a PAN and thus not accorded due process, Metro Star Superama filed a Petition with the CTA. ??? Was the Petitioner accorded the required due process? !!! NO. Since the Petitioner denied receipt of the PAN, the burden of proving the same shifts to the BIR. To raise the presumption of receipt, it must be shown that (a) the letter was properly addressed with postage prepaid and (b) that it was mailed. If receipt is denied, the BIR must then show actual receipt through presentation of the registry receipt or, if the same cannot be located, at least a certification from the Bureau of Posts. The Court likewise added that the issuance of a PAN is a mandatory requirement save only on specified instances. The old rule laid down in CIR vs. Menguitothat only the FAN is mandatory no longer applies since the same was ruled upon based on the old provision. + AMDG

43. FLUOR DANIEL PHILIPPINES INC. vs. CIR REMEDIES … Fluor Daniel was initially assessed for deficiency EWT on its software maintenance fees paid to an offshore affiliate. In response to Petitioner’s protest, the CIR issued a Final Decision on Disputed Assessment (FDDA) cancelling the deficiency EWT assessment but issuing an assessment for FWT on the same software fees albeit using a lower 15% rate under the RP-US Tax Treaty. ???Was the Petitioner deprived of due process when the FDDA changed the assessment from deficiency EWT to deficiency FWT? !!! YES. The change of the assessment in the FDDA itself constituted a new assessment. As such, the taxpayer should have been given the chance to dispute the same via the process laid down in the Tax Code which is by way of filing a protest. Given that this was not complied with as what was issued was already an FDDA, the circumstances certainly deprived the Petitioner of a reasonable opportunity to be heard and submit evidence in support of its defense which is a clear violation of due process requirements. + AMDG

44. CIR vs. ENRON SUBIC POWER CORPORATION REMEDIES … The BIR assessed Enron which countered by filing a Petition for Review with the CTA stating that the assessment disregarded the provisions of the Tax Code and of RR No. 12-99, when the assessment failed to provide the legal and factual bases of the assessment. The CTA and CA ruled that the assessment notice must not only refer to the supporting revenue laws or regulations for the assessment but must also justify their applicability to the factual milieu of the assessment. ???Is the disputed assessment valid? !!! NO. The assessment is not valid. Although the revenue examiners discussed their findings with Respondent’s representative during the pre-assessment stage, the same, together with the Preliminary Five-Day Letter and Petitioner’s Annex G, were not sufficient to comply with the procedural requirement of due process. The Tax Code provides that a taxpayer shall be informed (and not merely “notified” as was the requirement before) in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. The use of the word “shall” indicates the mandatory nature of the requirement. + AMDG

45. CIR vs. FIRST EXPRESS PAWNSHOP COMPANY, INC. REMEDIES … CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When the CIR did not act on the protest during the 180-day period (reckoned from the filing of the protest), respondent filed a petition before the CTA. ??? Has the assessment become final and unappealable given that no supporting documents were submitted during the 60-day period? !!! NO. The assessment against Respondent has not become final and unappealable. It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when Respondent submitted its protest, Respondent attached all the documents it felt were necessary to support its claim. Further, CIR cannot insist on the submission of proof of DST payment because such document does not exist as Respondent claims that it is not liable to pay (and in fact has not paid) the DST on the deposit on subscription. + AMDG

46. REMEDIES !!! The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise started to run on that same date. + AMDG

47. LASCONA LAND CO., INC. vs. CIR REMEDIES … Lascona Land appealed a decision by the CIR holding that the assessment against it has become final and executory for failure to appeal to the CTA within 30 days from the lapse of the 180-day period provided for under the Tax Code. ???In cases of inaction on disputed assessments, can the taxpayer still file an appeal with the CTA even after the lapse of the 180-day period? !!! YES. In case the CIR fails to act on a disputed assessment within the 180-day period from the submission of documents, the taxpayer can either (a) file an appeal with the CTA within 30 days after the expiry of the 180-day period or (b) await the final decision of the CIR and then appeal the same within 30 days. These options are mutually exclusive and resort to one bars the application of the other. A taxpayer can not be prejudiced if he chooses to wait for the final decision of the CIR as this is the normal expectation when a protest is filed. Thus, an appeal filed within the 30-day period from the receipt of the decision, even if made after the 180-day period, is still considered as having been filed on time. + AMDG

48. ALLIED BANKING CORPORATION vs. CIR REMEDIES … Allied Banking Corporation received a PAN from the BIR which it timely disputed. In response, the BIR issued a Formal Letter of Demand with Assessment Notices. Instead of protesting the FAN, the petitioner filed a Petition for Review with the CTA. The CTA dismissed the Petition stating that it is neither the assessment nor the formal demand letter itself that is appealable before it but instead it should be the decision of the CIR on the disputed assessment. ??? Can the Formal Letter of Demand be construed as the final decision of the CIR appealable to the CTA under Republic Act 9282? + AMDG

49. REMEDIES !!! YES. This is considered an exception to the general rule on exhaustion of administrative remedies since the CIR is considered estopped from claiming the same principle applies in its case. The tenor of the demand letter is clear that the CIR had already made a final decision and that the remedy of the Petitioner was to appeal the same within 30 days of receipt. This can be gleaned from the use of the terms “final decision” and “appeal” which were deemed unequivocal language pointing to the finality of the decision. While the Court cited the rules relative to (a) protesting the FAN and not the PAN and (b) counting the 30 day period to appeal to the CTA from receipt of the decision of the CIR and not issuance of the assessment, this particular case was deemed a clear exception in view of the CIR’s own actions. + AMDG

50. CIR vs. HAMBRECHT & QUIST PHILIPPINES, INC. REMEDIES … The assessment against Hambrecht & Quist had become final and unappelable since there was a failure to protest the same within the 30-day period provided by law. However, the CTA held that the BIR failed to collect within the prescribed time and thus ordered the cancellation of the assessment notice. The CIR disputed the jurisdiction of the CTA arguing that since the assessment had become final and unappealable, the taxpayer can no longer dispute the correctness of the assessment even before the CTA. ??? Can the CTA still take cognizance of an assessment case which has become ‘final and unappealable’ for failure of the taxpayer to protest within the 30-day protest period? + AMDG