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REPUBLIC versus - PAL

THIRD DIVISION
G.R. No. 1798
!ACTS AS TO PETITIONER
Revenue [CIR] is the duly authorized government official empowered, among others, to
refund erroneously collected taxes under the 199 !"IRC#$ %n &e'ruary (), (**), CIR
received from +,- a claim for refund representing the total amount of 1*. %C/ paid to
+-0/ from 1anuary to 0ecem'er (**($ 0ue to the Commissioner2s inaction on its claim for
refund, +,- appealed 'efore the C/, on ,pril ((, (**)$
!ACTS AS TO RESPONDENT
+,- availed [of] the communication services of !+-0/#$ &or the period 1anuary 1, (**( to
0ecem'er 31, (**(, +,- allegedly paid +-0/ the 1*. %C/ in on its overseas telephone
calls$ &or the %C/ it paid, it file claim for refund with the CIR which failed to ta4e action
hence the claim was elevated to the C/,$ Respondent +,- argued that since it incurred
negative taxa'le income
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for fiscal years (**( and (**3 and opted for zero 'asic corporate
income tax, which was lower than the (. franchise tax, respondent +,- had complied with
the 6in lieu of all other taxes6 clause !+$0$# "o$ 179*$

/hus, it was no longer lia'le for all


other taxes of any 4ind, nature, or description, including the 1*. %C/, and the erroneous
payments thereof entitled it to a refund pursuant to its franchise$
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+etitioner firmly contends that the law uses the mandatory terms 6shall pay9 whichever9
will result in a lower tax6: and while these words clearly envision the payment of a lower tax,
petitioner asserts that they mandate payment, nonetheless$ ;ence, petitioner argues that
since respondent +,- has not paid taxes during the fiscal years su'<ect of the refund,
respondent +,- cannot claim exemption from paying other taxes under the 6in lieu of all
taxes6 provision$
ISSUE RAISE B" PETITIONER
+etitioner argues that +,- cannot claim exemption from paying other taxes under the 6in lieu
of all taxes6 provision$
ISSUE RAISE B" RESPONDENT
Respondent argues that it 'e exempted from paying other taxes under the 6in lieu of all
taxes6 provision having opted for zero 'asic corporate income tax$
RULING O! THE SUPRE#E COURT
/he =C ruled in favor of respondent$
/his Court ruled the 'asis for the tax rate is +,-2s annual net taxa'le income$ >y 'asing the
tax rate on the annual net taxa'le income, +$0$ "o$ 179* necessarily recognized the
situation in which taxa'le income may result in a negative amount and, thus, translate into a
zero tax lia'ility$
((
In this scenario, respondent +,- operates at a loss and no taxes are due$
Conse?uently, the first option entails a lower tax lia'ility than the second option$ ,lso,
=ection 13 of the franchise of respondent leaves no room for interpretation$ Its franchise
exempts it from paying any tax other than the option it chooses@ either the 6'asic corporate
income tax6 or the two percent gross revenue tax$1avvphi 1
PERSONAL END NOTES
It is clear that +0 179* intended to give respondent the option to avail itself of =u'section !a#
or !'# as consideration for its franchise$ Aither option excludes the payment of other taxes
and dues imposed or collected 'y the national or the local government$ /he taxpayer has the
option to choose the alternative that results in lower taxes$ It is not the fact of tax payment
that exempts it, 'ut the exercise of its option$

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