Assignment No.

3: Value-added Tax (VAT) Missing Cases: ABAKADA Seagate Toshiba

Tolentino v. Secretary of Finance - 249 SCRA 635 FACTS: Petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines, Roco, and Chamber of Real Estate and Builders Association) seek reconsideration of the Courts previous ruling dismissing the petitions filed for the declaration of unconstitutionality of R.A. No. 7716, the Expanded Value-Added Tax Law. Petitioners contend that the R.A. did not originate exclusively in the HoR as required by Article 6, Section 24 of the Constitution. The Senate allegedly did not pass it on second and third readings, instead passing its own version. Petitioners contend that it should have amended the House bill by striking out the text of the bill and substituting it with the text of its own bill, so as to conform with the Constitution. ISSUE: W/N the R.A. is unconstitutional for having originated from the Senate, and not the HoR. HELD: Petition is unmeritorious. The enactment of the Senate bill has not been the first instance where the Senate, in the exercise of its power to propose amendments to bills (required to originate in the House), passed its own version. An amendment by substitution (striking out the text and substituting it), as urged by petitioners, concerns a mere matter of form, and considering the

petitioner has not shown what substantial difference it would make if Senate applied such substitution in the case, it cannot be applied to the case at bar. While the aforementioned Constitutional provision states that bills must originate exclusively in the HoR, it also adds, but the Senate may propose or concur with amendments. The Senate may then propose an entirely new bill as a substitute measure. Petitioners erred in assuming the Senate version to be an independent and distinct bill. Without the House bill, Senate could not have enacted the Senate bill, as the latter was a mere amendment of the former. As such, it did not have to pass the Senate on second and third readings. Petitioners question the signing of the President on both bills, to support their contention that such are separate and distinct. The President certified the bills separately only because the certification had to be made of the version of the same revenue bill which AT THE MOMENT was being considered. Petitioners question the power of the Conference Committee to insert new provisions. The jurisdiction of the conference committee is not limited to resolving differences between the Senate and the House. It may propose an entirely new provision, given that such are germane to the subject of the conference, and that the respective houses of Congress subsequently approve its report. Petitioner PAL contends that the amendment of its franchise by the withdrawal of its exemption from VAT is not expressed in the title of the law, thereby violating the Constitution. The Court believes that the title of the R.A. satisfies the Constitutional Requirement. Petitioners claim that the R.A. violates their press freedom and religious liberty, having removed them from the exemption to

pay VAT. Suffice it to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. By granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Lastly, petitioners contend that the R.A. violates due process, equal protection and contract clauses and the rule on taxation. Petitioners fail to take into consideration the fact that the VAT was already provided for in E.O. No. 273 long before the R.A. was enacted. The latter merely EXPANDS the base of the tax. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate, the taxing power having authority to make reasonable and natural classifications for purposes of taxation. It is enough that the statute applies equally to all persons, forms and corporations placed in s similar situation.

COMASERCO asserted that the services it rendered to Philamlife and its affiliates, relating to collections, consultative and other technical assistance, including functioning as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It averred that it was not engaged in the business of providing services to Philamlife and its affiliates. It was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of services. It was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT. CIR avers that to "engage in business" and to "engage in the sale of services" are two different things. Petitioner maintains that the services rendered by COMASERCO to Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on the value added by the performance of the service. It is immaterial whether profit is derived from rendering the service. The CTA rules in favour of CIR. The CA reversed. Issue: Whether or not COMASERCO was engaged in the sale of services and must be liable to pay for VAT. Held: 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

CIR v. CA/COMASERCO Facts: Commonwealth Management and Services Corporation (COMASERCO) 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. BIR issued an assessment to COMASERCO for deficiency VAT amounting to P351,851.01 for taxable year 1988. COMASERCOs annual corporate income tax return ending December 31, 1988 indicated a net loss in its operations in the amount of P6,077.

commercial or an economic activity regardless of whether or not the entity is profit-oriented. the Commissioner of Internal Revenue issued BIR Ruling No. 01098 emphasizing that a domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax. 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. At any rate, since taxes are the lifeblood of the nation, statutes that allow exemptions are construed against the grantee and liberally in favour of the government. Any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom. In the case of VAT, Section 109, Republic Act 8424 clearly enumerates the transactions exempted from VAT. The services rendered by COMASERCO do not fall within the exemptions.

G.R. No. 152609 | June 29, 2005 | J. Panganiban | digest by MCAC Baldemor Facts: The respondent is a Philippine Branch of American Express International, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, U.S.A. It is a servicing unit of the American Express International HK Branch and is engaged primarily to facilitate the collections of AMEX-HK receivables from card members situated in the Philippines and payment to service establishments in the Philippines. The respondent corporation is a registered VAT taxpayer. The controversy in this case arose when the respondent requested from the BIR a refund of its 1997 excess input taxes, which was arrived at after deducting from its total input VAT paid its applied output liabilities. There being no action on the part of the BIR, the respondent filed a petition before the Court of Tax Appeals. According to the respondent, Section 102 provides that export sales by a VAT registered person, the consideration of which is paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with existing regulations of the BSP, are subject to VAT at zero percent. Moreover, Section 106 provides that input taxes on domestic purchases of taxable goods and services related to zero-related revenues are available as tax refund. Being a VAT-registered entity, the respondent argued that it is subject to the said VAT rate and that it can avail of the refunds or tax credits of input tax. The Court of Tax Appeals granted the petition of the respondent to be given the refund of its excess input taxes, and such ruling of the CTA was affirmed by the CA. According to the CA, the CIR

Commissioner of Internal Revenue vs. American Express International, Inc. (Philippine Branch)

was mistaken in requiring that the respondents services be consumed abroad in order to be zero-rated. By doing so, it went beyond the sphere of interpretation and into that of legislation. Issue: credits Ruling: Yes, it can. The law is very clear in saying that VAT-registered person in the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. The respondent in this case is a VAT registered person that facilitates the collection and payment of receivables belonging to its resident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the service it renders in the Philippines is not in the same category as processing, manufacturing or repacking of goods and should, hence, be zero-rated. For facilitating in the Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client, and getting paid for it in duly accounted acceptable foreign currency, the respondent renders service falling under the category of zero-rating. With this, the Court upholds the respondents entitlement to the refund. It is also important to note that the law neither makes a qualification nor adds a condition in determining the tax situs of the zero-rated service. Under this criterion, the place where the service is rendered determines the jurisdiction to impose VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction in order to enforce a zero rate. The place of W/N the respondent company can avail of tax

payment is immaterial, much less is the place where the output of service will be further or ultimately used. CIR vs Cebu Toyo Corporation Facts: Cebu Toyo Corp. (Cebu) is a domestic subsidiary of Toyo Lens Corporation Japan, engaged in the manufacture of lenses and various optical components used in TV set, cameras, CDs, etc. Its principal office is located at the Mactan Export Processing Zone (MEPZ) as a zone export enterprise registered with the PEZA. It is also registered with the BIR as a VAT taxpayer. Cebu sells 80% of its products to its mother corporation, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing business in the MEPZ. On March 30, 1998, it filed an application for tax credit/refund of VAT paid for the period April 1996 to December 1997 amounting to about P4.4 million representing excess VAT input payments. Cebu argues that as a VAT-registered exporter of goods, it is subject to VAT at the rate of 0% on its export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on its purchases of goods and services related to such zero-rated activities are available as tax credits or refund. The BIR opposed this on the following grounds: It failed to show that the tax was erroneously or illegally collected; the taxes paid and collected are presumed to have been made in accordance with law; and that claims for refund are strictly construed against the claimant. The CTA ruled that not the entire amount claimed for refund by Toyo were actually offset against its related accounts. It determined that the refund/credit amounted only to P2.1M. The same was affirmed by the CA.

Issue: Whether the CA erred in affirming the CTA granting a refund representing unutilized input VAT on goods and services. Ruling: The petition is denied. Cebu is entitled to the P2.1M tax refund/credit. Petitioners contention that respondent is not entitled to refund for being exempt form VAT is untenable. This argument turns a blind eye to the fiscal incentives given to PEZA registered enterprises under RA 7916. Under this statute, Cebu has to options with respect to its tax burden. It could avail of an income tax holiday pursuant to EO 226, thus exempting it from income taxes for a number of years (in this case, 4 years) but not from other internal revenue taxes such as VAT; or it could avail of the tax exemption on all taxes, including VAT under PD 66 and pay only the preferential rate of 5% under RA 7916. Thus, availing of the first option, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in a taxable rather than exempt transactions. In taxable transactions, the seller (Cebu) shall be entitled to tax credit for the VAT paid on purchases and leases of goods properties or services. Under the VAT system, a zero-rate sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, input tax on his purchase of goods, properties or services related to such zero-related sale shall be available as a tax credit or refund. While a zero rating and exemption are computationally the same, they actually differ in several aspects, to wit:

A) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax; B) The input VAt on the purchases of VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any output tax on his purchases despite the issuance of a VAT invoice or receipt; C) Persons engaged in transactions which are zero-rated, being subject to VAt, are required to register while registration is optional for VAt-exempt persons. Since Cebu did not have any output tax against which said input tax may be offset, it had the option to file a claim for tax refund/credit of its unutilized input taxes. CIR vs. Sekisui Jushi Philippines, Inc. - 496 SCRA 206 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 claiming CIR filed its answer claiming that: (1) said claim for tax credit/refund is subject to administrative routinary investigation by the BIR; (2) Sekisui failed to show that the amount claimed as VAT input taxes were erroneously collected or that the same were properly collected; (3) taxes due and collected are presumed to have been made in accordance with law; (4) the burden of proof is on the tax payer to establish his right to a refund in an action for tax refund; (5) respondent should show that it complied with the provisions of Section 204 in relation with Section 229 of the Tax Code; and (6) claims for refund are strictly construed against the taxpayer. CTA: Sekisui was entitled to the refund. While the company was registered with the Philippine Export Zone Authority (PEZA) as an ecozone and was, as such, exempt from the income tax, it availed itself of the fiscal incentive under EO 226. It thereby subjected itself to other internal revenue taxes like the VAT. It ruled that only input taxes amounting to P4, 377,102.26 were duly substantiated by invoices and official receipts while those amounting to P254, 313.43 had not been sufficiently proven and were thus disallowed.

The Court of Appeals affirmed the decision of the CTA. Hence, this petition. CIR: Sekisui, being registered with the PEZA as an ecozone export enterprise, is not subject to VAT pursuant to section 103 of the Tax Code. Since Sekisui is exempt from Vat, the capital goods and services it purchases are considered not used in VAT taxable business, hence, Sekisui is not allowed any tax credit/refund on VAT input tax previously paid on such capital goods.

Issue(s): 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? Ruling: Yes. Ratio: An entity registered with the PEZA as an ecozone may be covered by the VAT system. Section 23 of RA 7916 gives a PEZAregistered 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. 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.

- When the seller sells his products or services, the VATregistered taxpayer generally becomes liable for 12% of the selling price as output VAT. - Hence, it is the VAT on the sale of taxable goods or services by any person registered or required to register under the NIRC. EXAMPLE: Mang Nats is in the business of making leather goods (e.g. leather bound codals). He imports Italian leather from China (hehe). Mang Nats will have to pay an INPUT VAT on his importation. Now Ate Pearl wants to buy a codal to decorate her cubicle. She buys from Mang Nats the Labor Code because blue is her favorite color. When Mang Nats sold the codal to Ate Pearl, the price already included the OUTPUT VAT. Remember that VAT is an indirect tax that may be shifted to the buyer. Mang Nats is liable for the OUTPUT VAT but he shifted the burden to Ate pearl. GETS?! FACTS: Benguet Corp. (Benguet) is a domestic corporation engaged in mining. It is a VAT-registered enterprise. In January 1988, Benguet filed an application for zero-rating of its sales of mine products. The application was approved. 1ST VAT RULING (AUG. 1988): The CIR issued VAT Ruling No. 378-88 which declared that the sale of gold to the Central Bank (CB) is considered an export sale and therefor subject to 0% VAT. From 1988 to 1990, the CIR (more than 5 times) reiterated and confirmed its position that the sale of gold by a VATregistered taxpayer to the CB is subject to 0% VAT. In reliance to the CIRs position, Benguet (from January 1988 to July 1989) sold gold to the CB and treated these sales as 0% VAT rated. In this same period, Benguet incurred input taxes

CIR v. BENGUET CORP. G.R. Nos. 134587 & 134588, August 08, 2005 WHAT IS INPUT VAT?! - It represents the actual payments, costs and expenses incurred by a VAT-registered taxpayer in connection with his purchase of goods and services. - It is the VAT paid by a VAT-registered person in the course of his trade or business on the importation of goods or local purchase of goods or services from a VAT-registered person. WHAT IS OUTPUT VAT?!

attributable to its sale of gold to the CB. Consequently, Benguet filed with the CIR applications for the issuance of Tax Credit Certificates for input VAT Credits attributable to its export sales (inclusive of direct export sales and sale of gold to the CB). 2ND VAT RULING (JAN. 1992): The CIR issued VAT Ruling No. 008-92 declaring that the sales of gold to the CB are considered domestic sales subject to 10% VAT (instead of 0% from 19981990 in the 1ST VAT RULING). 3RD VAT RULING (AUG. 1992): The CIR issued VAT Ruling No. 59-92. It stated the retroactive application of the 2ND VAT RULING to all such sales starting January 1, 1988. It also said that mining companies will not be unduly prejudiced by the retroactive application of the 2ND VAT RULING because their claim for refund of input taxes are not lost because they are allowable on its: (1) Output taxes on the sales of gold to CB (2) Output taxes on other sales (3) As a deduction to income tax The CIR treated Benguets sales to CB as domestic sales subject to 10% VAT but allowed Benguet a total tax credit of only around P81M which corresponded to VAT input taxes attributable only to its direct EXPORT SALES. Despite this, Benguet was not refunded the said amounts of tax credit claimed. Hence, Benguet prayed for the issuance of Tax Credit Certificates with the CTA. Benguets computation of tax credit amounted to P131M which included input tax to BOTH EXPORT SALES and SALES OF GOLD TO THE CB. CTA: Denied Benguets claim for tax credit. The alleged prejudice to Benguet of the retroactive application is merely speculative and not actual and imminent so as to prohibit its retroactivity. There wont be any prejudice because the 3RD VAT

RULING provides for the remedies for the recovery of the input VAT. CA: Affirmed the CTA. On MR, the CA reversed itself. Ergo, the P131M tax credit claim was approved! According to the CA, the P131M includes: (1) P81M (input VAT credits attributable to direct EXPORT SALES) (2) P50M (input VAT credits attributable to SALES OF GOLD TO CB which were subject to 0% when the said sales were made) ISSUES: W/N the 2ND VAT RULING (subjecting sales of gold to the CB to 10% VAT) would be prejudicial to Benguet. NOTE: General rule: BIR rules would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Exception: (1) Taxpayer deliberately misstates or omits material facts from his return (2) The facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based (3) Taxpayer acted in bad faith CIRS POSITION: The CA erred in rejecting the retroactive application of the 2ND VAT RULING because its retroactive application will not prejudice Benguet. It may: (1) Use said input taxes in paying its output taxes in connection with its other sales transactions which are subject to the 10% VAT (2) If there are no other sales transaction subject to the 10% VAT, treat the input VAT as cost and deduct the same from income for income tax purposes.

HELD: CIR FAIL! BENGUET FTW! The prejudice to Benguet is obvious! No retroactive effect! Benguet may claim the P50M input VAT credit! The VAT system allows a VAT-registered taxpayer to recover its input VAT either by: (1) Passing on the 10% output VAT (now 12%) on the gross selling price or gross receipts to its buyers. (2) If the input tax is attributable to the purchase of capital goods or to zero-rated sales, by filing a claim for a refund or tax credit with the BIR. Benguets claimed tax credit of input tax amounting to P50M represents the costs or expenses incurred by Benguet in connection with its gold production. Relying on the 1ST VAT RULING (sales of gold to the CB are considered export sales subject to 0%), Benguet sold gold to the CB without passing on CB its input VAT costs, obviously intending to obtain a refund or credit thereof from the BIR at the end of the taxable period. However, by the time Benguet applied for credit of its input VAT costs, the 2ND VAT RULING treated sales of gold to the CB as domestic sales subject to 10% VAT. And the 3RD VAT RULING retroactively applied the 2ND VAT RULING to such sales made from January 1, 1988 onwards. By reason of the denial of its claim for credit, Benguet has been precluded from recovering its input VAT costs. The CIRS remedies (set off with other transactions or income deduction) cannot be applied. (1) Benguet has clearly shown that it has no other transactions subject to 10% VAT and CIR has failed to prove the existence of such other transactions against which to set off Benguets input VAT. (2) Treating the input VAT as an income tax deduction will yield only to a partial benefit. The use of input VAT as a tax deductions

results in a loss of 65% of the input VAT which could have otherwise fully utilized as a tax credit. There is substantial difference between a tax credit and a tax deduction. A tax credit reduces tax liability, while a tax deduction only reduces taxable income (SEE P.70 OF THE CASE! It illustrates the difference between using the tax credit and tax deduction methods). Prejudice is all the more highlighted by the fact that it has been issued assessments for deficiency output VAT in the amounts of P252M (for 1988) and P244M (for 1989)! Benguet relied on the formal assurances of the BIRs 1ST VAT RULING. To retroact a later ruling revoking the grant of 0% rating status and applying a new and contrary position that such sales are now subject to 10% is inconsistent with justice and fair play.

Assignment No. 4: Other Percentage Taxes China Banking Corporation vs. Court of Appeals G.R. No. 146749 and G.R. No. 147938, June 10, 2003 Facts: CBC is a universal banking corporation organized and existing under Philippine law. CBC paid P12,354,933.00 as gross receipts tax in 1994. On 2006 CTA in Asian Bank Corporation v. Commissioner of Internal Revenue ruled that the 20% final withholding tax on a banks passive interest income does not form part of its taxable gross receipts. CBC now claims for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipts tax that CBC paid. Citing Asian Bank, CBC argued that it was not liable for the gross receipts tax on the sums withheld by the Bangko Sentral ng Pilipinas as final withholding tax on CBCs passive interest income in 1994. Commissioner claims that CBC paid the gross receipts tax pursuant to Section 119 (now Section 121) of the NIRC. The Commissioner argued that the final withholding tax on a banks interest income forms part of its gross receipts in computing the gross receipts tax. The Commissioner contended that the term gross receipts means the entire income or receipt, without any deduction. Ruling of CTA CTA ruled in favor of CBC and held that 20% Final withholding tax on interest income does not form part of CBCs taxable gross income based on the Asian Bank ruling.

Ruling of CA CA affirmed the CTA ruling Issues: 1. Whether the 20% final withholding tax on interest income should form part of CBCs gross receipts in computing the gross receipts tax on banks? Held: The amount of interest income withheld in payment of the 20% final withholding tax forms part of CBCs gross receipts in computing the gross receipts tax on banks. Ratio: Definition of Gross Receipts The Tax Code does not define the term gross receipts for purposes of the gross receipts tax on banks. Absent a statutory definition, the BIR has applied the term in its plain and ordinary meaning. In ordinary terms gross receipts means the entire receipts without any deduction. Deducting any amount from the gross receipts changes the result, and the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts, unless the law itself makes an exception. Under Revenue Regulations Nos. 12-80 and 17-84, as well as in several numbered rulings, the BIR has consistently ruled that the term gross receipts does not admit of any deduction.

The interpretation has yet to be changed until the present tax code. The legislature has adopted the BIRs interpretation, following the principle of legislative approval by re-enactment. The tax code does not define for gross receipts except for the amusement tax which is also a business tax. It defines it as it embraces all receipts of the proprietor, lessee or operator of the amusement place. The Tax Code further adds that [s]aid gross receipts also include income from television, radio and motion picture rights, if any. This definition merely confirms that the term gross receipts embraces the entire receipts without any deduction or exclusion, as the term is generally and commonly understood. Interest income forms part of Gross Receipts In Asian Bank, the Court of Tax Appeals held that the final withholding tax is not part of the banks taxable gross receipts. In Collector of Internal Revenue v. Manila Jockey Club , which held that gross receipts of the proprietor should not include any money which although delivered to the amusement place has been especially earmarked by law or regulation for some person other than the proprietor. The tax court adopted the Asian Bank ruling in succeeding cases involving the same issue. CTA reversed its ruling in Asia Bank. In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v. Commissioner,it ruled that the final withholding tax forms part of the banks gross receipts in computing the gross receipts tax. The tax court held that Section 4(e) of Revenue Regulations No. 12-80 did not prescribe the computation of the gross receipts but merely authorized the determination of the amount of gross

receipts on the basis of the method of accounting being used by the taxpayer. Section 121 of the Tax Code includes interest as part of gross receipts, it refers to the entire interest earned and owned by the bank without any deduction. Interest means the gross amount paid by the borrower to the lender as consideration for the use of the lenders money. This definition does not allow any deduction. The entire interest paid by the depository bank, without any deduction, is what forms part of the lending banks gross receipts. CBCs reliance of Collector of Internal Revenue v. Manila Jockey Club CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that the final withholding tax on interest income does not form part of a banks gross receipts because the final tax is earmarked by regulation for the government. Manila Jockey Club paid amusement tax on its commission in the total amount of bets called wager funds from the period November 1946 to October 1950. But such payment did not include the 5 % of the funds which went to the Board on Races and to the owners of horses and jockeys. We ruled that the gross receipts of the Manila Jockey Club should not include the 5 % because although delivered to the Club, such money has been especially earmarked by law or regulation for other persons. The Manila Jockey Club does not apply to the cases at bar because what happened there is earmarking and not withholding. Earmarking is not the same as withholding.

Amounts earmarked do not form part of gross receipts because these are by law or regulation reserved for some person other than the taxpayer, although delivered or received. On the contrary, amounts withheld form part of gross receipts because these are in constructive possession and not subject to any reservation In the instant case, CBC owns the interest income which is the source of payment of the final withholding tax. The government subsequently becomes the owner of the money constituting the final tax when CBC pays the final withholding tax to extinguish its obligation to the government. This is the consideration for the transfer of ownership of the money from CBC to the government. Thus, the amount constituting the final tax, being originally owned by CBC as part of its interest income, should form part of its taxable gross receipts. CBCs reliance on Asian Bank ruling CBC also relies on the Tax Courts ruling in Asian Bank that Section 4(e) of Revenue Regulations No. 12-80 authorizes the exclusion of the final tax from the banks taxable gross receipts. Section 4(e) states that the gross receipts shall be based on all items of income actually received. The Tax Court erred in interpreting Section 4(e) of Revenue Regulations No. 12-80. Income may be taxable either at the time of its actual receipt or its accrual, depending on the accounting method of the taxpayer. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net interest plus the amount withheld as final tax. CBCs claim amount to a tax exemption

CBCs contention that it can deduct the final withholding tax from its interest income amounts to a claim of tax exemption. The cardinal rule in taxation is exemptions are highly disfavored and whoever claims an exemption must justify his right by the clearest grant of organic or statute law. CBC must point to a specific provision of law granting the tax exemption. The tax exemption cannot arise by mere implication and any doubt about whether the exemption exists is strictly construed against the taxpayer and in favor of the taxing authority. CBC failed to cite any provision of law allowing the final tax as an exemption, deduction or exclusion Commissioner of Internal Revenue v. Solidbank Corp.

Facts:

For calendar year 1995, respondent filed its quarterly percentage tax returns reflecting gross receipts with corresponding gross receipts tax payments. It alleges that the total gross receipts included the gross receipts from passive income which was already subject to 20% final withholding tax (FWT). On January 1996, Court of Tax Appeals rendered a decision which held that the 20% FWT on a banks interest income should not form part of its taxable gross receipts for purposes of computing gross receipts tax (GRT) . Respondent filed with BIR a request for refund or issuance of tax credit certificate representing allegedly overpaid GRT. Court of Tax appeals ordered refund. CA affirmed.

Issue:

W/N the 20% FWT on a banks interest income forms part of the taxable gross receipts in computing the 5% GRT.

the amount redounded to banks benefit makes it part of the taxable gross receipts in computing the 5% GRT.

Ruling:

FWT and GRT are two different taxes. GRT is under Title V and is not subject to withholding. FWT is under Section 24(e)(1) of Title II. Its a tax on passive income, deducted and withheld.

YES. It is included.

PERCENTAGE TAX national tax measured by a certain percentage of gross selling price/gross receipts. Not subject to withholding. INCOME TAX national tax imposed on the net or gross income. Subject to withholding GROSS RECEIPTS total receipts before any deduction WITHHOLDING TAX SYSTEM payee is the taxpayer; payor, a separate entity, acts as no more than an agent of the government for the collection of tax to ensure payment. Possession is acquired by the payor as the withholding agent of the government because the taxpayer ratifies the very act of possession for the government. There is constructive receipt

RA 12-80 (basis of respondent. Says: tax rates to be imposed on the gross receipts of banks xxx shall be based on all items of income actually earned) has been superseded by RA 17-80 (makes no distinction and provides that ALL interests earned shall be included. Respondent argues that since there is no actual receipt, FWT is not included in the tax base for computing GRT. SC disagreed. Art 531 of the Civil Code provides that acquisition of the roght of possession is through the proper acts and legal formalities established therefor. The withholding process is one such act. There may not be actual receipt of the income withheld, however as provided in art, 532, possession by any person without any power shall be considered as acquired when ratifies by the person in whose name the act of possession is executed.

SC agreed with Petitioner saying that although the 20% FWT on banks interest income was not actually received by respondent because its remitted directly to the government, the fact that

Respondent claims that it is entitled to a refund on the basis of excess GRT payments. The SC disagreed. Tax refunds are in the nature of tax exemptions. Such exemptions are strictly construed against the taxpayer. Those who claim to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute.

There was no double taxation. Taxes here were imposed on 2 different subject maters. The subject matter of the FWT is the passive income generated. In GRT, it is the privilege of engaging in the business of banking. Taxing periods are also different. FWT is deducted and withheld as soon as the income is earned and is paid after every calendar quarter.

Assignment No. 4: Excise Taxes Missing Case: SilkAir Assignment No. 4: Documentary Stamp Tax Missing Cases: PHILAM BPI ANTAM