G.R. No.

172509, February 04, 2015

CHINA BANKING CORPORATION, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
Tax Law; Statute of Limitations. A request for reinvestigation alone will not
suspend the statute of limitations. Two things must concur: there must be a
request for reinvestigation and the CIR must have granted it.
SERENO, C.J.
FACTS:
Petitioner CBC is a universal bank duly organized and existing under
the laws of the Philippines. For the taxable years 1982 to 1986, CBC was
engaged in transactions involving sales of foreign exchange to the Central
Bank of the Philippines (now Bangko Sentral ng Pilipinas), commonly known
as SWAP transactions. Petitioner did not file tax returns or pay tax on the
SWAP transactions for those taxable years. Thus, CBC received an
assessment from BIR of deficiency documentary stamp tax on the amount of
P11,383,165.50 plus increments accruing thereto.
The petitioner, through its vice-president, sent a letter of protest to
the BIR. CBC raised the following defenses: (1) double taxation, as the bank
had previously paid the DST on all its transactions involving sales of foreign
bills of exchange to the Central Bank; (2) absence of liability, as the liability
for the DST in a sale of foreign exchange through telegraphic transfers to
the Central Bank falls on the buyer and in this case, the Central Bank;
(3) due process violation, as the banks records were never formally
examined by the BIR examiners; (4) validity of the assessment, as it did not
include the factual basis therefore; (5) exemption, as neither the tax-exempt
entity nor the other party was liable for the payment of DST before the
effectivity of Presidential Decree Nos. (PD) 1177 and 1931 for the years
1982 to 1986. In the protest, the taxpayer requested a reinvestigation so as
to substantiate its assertions. On 11 March 2002, the CIR filed an Answer
with a demand for CBC to pay the assessed DST. More than 12 years after
the filing of the protest, the Commissioner of Internal Revenue (CIR)
rendered a decision reiterating the deficiency DST assessment and ordered
the payment thereof plus increments within 30 days from receipt of the
Decision. CBC filed a petition for review before the CTA, but the same was
denied, ruling that a SWAP arrangement should be treated as a telegraphic
transfer, and thus subject to documentary stamp tax. The subsequent
Motion for Reconsideration of CBC was denied. The CTA En Banc likewise
dismissed the appeal of CBC, and the subsequent MR. Hence, this petition.
ISSUE:

Whether or not the right of the BIR to collect the assessed DST from
CBC is already barred by prescription
HELD:
AFFIRMATIVE. The petition is granted on the ground that the right
of the BIR to collect the assessed DST is barred by the statute of limitations.
The BIRs Answer in the case filed before the CTA could not, by any means,
have qualified as a collection case as required by law. Under the rule
prevailing at the time the BIR filed its Answer, the regular courts, and not
the CTA, had jurisdiction over judicial actions for collection of internal
revenue taxes. It was only on 23 April 2004, when Republic Act Number
9282 took effect, that the jurisdiction of the CTA was expanded to include,
among others, original jurisdiction over collection cases in which the
principal amount involved is one million pesos or more.
Furthermore, the fact that the taxpayer in this case may have
requested a reinvestigation did not toll the running of the three-year
prescriptive period.
Under Section 320 of the 1977 Tax Code, a request for reinvestigation
alone will not suspend the statute of limitations. Two things must concur:
there must be a request for reinvestigation and the CIR must have granted
it. Also, in the case of Republic vs. Gancayco, the Court ruled that (t)he act
of requesting a reinvestigation alone does not suspend the period. The
request should first be granted, in order to effect suspension.
There is no showing from the records that the CIR ever granted the
request for reinvestigation filed by CBC. That being the case, it cannot be
said that the running of the three-year prescriptive period was effectively
suspended.

G.R. No. 198756

January 13, 2015
BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING
CORPORATION, METROPOLITAN BANK & TRUST COMPANY,
PHILIPPINE BANK OF COMMUNICATIONS, PHILIPPINE NATIONAL
BANK,
PHILIPPINE
VETERANS
BANK
AND
PLANTERS
DEVELOPMENT
BANK,
RIZAL
COMMERCIAL
BANKING
CORPORATION AND RCBC CAPITAL CORPORATION, CAUCUS OF
DEVELOPMENT NGO NETWORKS, vs. REPUBLIC OF THE
PHILIPPINES, THE COMMISSIONER OF INTERNAL REVENUE,
BUREAU OF INTERNAL REVENUE, SECRETARY OF FINANCE,
DEPARTMENT OF FINANCE, THE NATIONAL TREASURER AND
BUREAU OF TREASURY
Taxation; Deposit substitute; Requirement in Borrowing Funds. In deposit
substitutes, the borrowing of funds must be obtained from twenty (20) or
more individuals or corporate lenders at any one time. Here, at any one
time for purposes of determining the 20 or more lenders would mean
every transaction executed in the primary or secondary market in
connection with the purchase or sale of securities.
LEONEN, J.:
FACTS:
The Caucus of Development NGO Networks (CODE-NGO) requested
an approval from the Department of Finance for the issuance by the Bureau
of Treasury of 10-year zero-coupon Treasury Certificates (T-notes). These Tnotes would initially be purchased by a special purpose vehicle on behalf of
CODE-NGO, repackaged and sold at a premium to investors as the PEACe
Bonds.
The Bureau of Internal Revenue, in reply to CODE-NGO, issued a
ruling on the tax treatment of the proposed PEACe Bonds confirming that
the said bonds would not be classified as deposit substitutes and would not
be subjected to the corresponding withholding tax reiterating that in order
for the bond to be classified as deposit substitutes, the borrowing of funds
must be obtained from twenty (20) or more individuals or corporate lenders
at any one time. The said PEACe Bonds will be issued only to Code NGO as
one entity, thus the same cannot be considered as deposit substitutes since
it did not satisfy the said requirement. Hence, the withholding tax on
deposit substitutes will not apply.
The tax treatment of the proposed PEACe Bonds in BIR Ruling No.
020-2001 was subsequently reiterated in BIR Ruling No. 035-2001and BIR
Ruling No. DA-175-01 pronouncing that to be able to determine whether the

financial assets, i.e., debt instruments and securities are deposit substitutes,
the 20 or more individual or corporate lenders rule must apply. Moreover,
the determination of the phrase at any one time for purposes of
determining the 20 or more lenders is to be determined at the time of the
original issuance. Such being the case, the PEACe Bonds were
not to be treated as deposit substitutes.
Subsequently, the Bureau of Treasury announced that P30.0B worth
of 10-year Zero Coupon Bonds would be auctioned .The notice stated that
the Bonds shall be issued to not more than 19 buyers/lenders hence, the
necessity of a manual auction for this maiden issue. Lastly, it stated that
the issue being limited to 19 lenders and while taxable shall not be subject
to the 20% final withholding tax.
The Bureau of Treasury also released a memo on the Formula for the
Zero-Coupon Bond. The memo stated in part that the formula in
determining the purchase price and settlement amount is only applicable to
the zeroes that are not subject to the 20% final withholding due to the 19
buyer/lender limit.
The Bureau of Treasury held an auction for the 10-year zero-coupon
bonds and issued another memorandum quoting excerpts of the ruling
issued by the Bureau of Internal Revenue concerning the Bonds exemption
from 20% final withholding tax and the opinion of the Monetary Board on
reserve eligibility.
After the auction, RCBC which participated on behalf of CODE-NGO
was declared as the winning bidder. The Bureau of Treasury issued P35
billion worth of Bonds at yield-to-maturity of 12.75% to RCBC for
approximately P10.17 billion resulting in a discount of approximately
P24.83
billion.
RCBC Capital entered into an underwriting agreement with CODENGO, whereby RCBC Capital was appointed as the Issue Manager and Lead
Underwriter for the offering of the PEACe Bonds. RCBC Capital agreed to
underwrite on a firm basis the offering, distribution and sale of the P35
billion Bonds at the price of P11,995,513,716.51. In Section 7(r) of the
underwriting agreement, CODE-NGO represented that all income derived
from the Bonds, are exempt from all forms of taxation as confirmed by
Bureau of Internal Revenue letter rulings.
RCBC Capital sold the Government Bonds in the secondary market for
an issue price of P11,995,513,716.51. Petitioners purchased the PEACe
Bonds on different dates.
ISSUE: Whether the PEACe Bonds are deposit substitutes and thus
subject to 20% final withholding tax under the 1997 National Internal
Revenue Code.
HELD: NEGATIVE. Under the 1997 National Internal Revenue Code, a
final withholding tax at the rate of 20% is imposed on interest on any

currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements.
This tax treatment of interest from bank deposits and yield from
deposit substitutes was first introduced in the 1977 National Internal
Revenue Code. The NIRC considered the following borrowings as deposit
substitutes:
(a) All interbank borrowings by or among banks and non-bank
financial institutions authorized to engage in quasi-banking
functions evidenced by deposit substitutes instruments, except
interbank call loans to cover deficiency in reserves against
deposit liabilities as evidenced by interbank loan advice or
repayment transfer tickets.
(b) All borrowings of the national and local government and its
instrumentalities including the Central Bank of the Philippines,
evidenced by debt instruments denoted as treasury bonds, bills,
notes, certificates of indebtedness and similar instruments.
(c) All borrowings of banks, non-bank financial intermediaries,
finance companies, investment companies, trust companies,
including the trust department of banks and investment houses,
evidenced by deposit substitutes instruments.
The definition of deposit substitutes was amended under the 1997
National Internal Revenue Code with the addition of the qualifying phrase
for public borrowing from 20 or more individual or corporate lenders at
any one time. Under the 1997 National Internal Revenue Code, Congress
specifically defined public to mean twenty (20) or more individual or
corporate lenders at any one time. Hence, the number of lenders is
determinative of whether a debt instrument should be considered a deposit
substitute and consequently subject to the 20% final withholding tax.
Petitioners contend that there is only one lender (i.e. RCBC) to whom
the BTr issued the Government Bonds. On the other hand, respondents
theorize that the word any indicates that the period contemplated is the
entire term of the bond and not merely the point of origination or issuance
such that if the debt instruments were subsequently sold in secondary
markets and so on, in such a way that twenty (20) or more buyers
eventually own the instruments, then it becomes indubitable that funds
would be obtained from the public as defined in Section 22(Y) of the
NIRC.
The SC explained that the phrase at any one time for purposes of
determining the 20 or more lenders would mean every transaction
executed in the primary or secondary market in connection with the
purchase or sale of securities.

From the factual background, it may seem that there was only one
lender RCBC on behalf of CODE-NGO to whom the PEACe Bonds were
issued at the time of origination. However, a reading of the underwriting
agreement and RCBC term sheet reveals that the settlement dates for the
sale and distribution by RCBC Capital (as underwriter for CODE-NGO) of
the PEACe Bonds to various undisclosed investors at a purchase price of
approximately P11.996 would fall on the same day, October 18, 2001, when
the PEACe Bonds were supposedly issued to CODE-NGO/RCBC. In reality,
therefore, the entire P10.2 billion borrowing received by the Bureau of
Treasury in exchange for the P35 billion worth of PEACe Bonds was sourced
directly from the undisclosed number of investors to whom RCBC
Capital/CODE-NGO distributed the PEACe Bonds all at the time of
origination or issuance.
PEACe Bonds, therefore are not deposit substitutes. Respondent
Bureau of Treasury is hereby ORDERED to immediately release and pay to
the bondholders the amount corresponding to the 20% final withholding tax
that it withheld.

G.R. No. 173241

March 25, 2015

SILICON PHILIPPINES, INC. (FORMERLY INTEL PHILIPPINES

MANUFACTURING, INC.) VS COMMISSIONER OF INTERNAL
REVENUE
Taxation; 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 application. The taxpayer can file an appeal in one of two ways: (1)
file the judicial claim within thirty days after the Commissioner denies the
claim within the 120-day period, or (2) file the judicial claim within thirty
days from the expiration of the 120-day period if the Commissioner does not
act within the 120-day period.
Same; Strict Construction of Tax Credit or Tax Exemption against Taxpayer.
The taxpayer claiming the tax credit or refund has the burden of proving
that he is entitled to the refund by showing that he has strictly complied
with the conditions for the grant of the tax refund or credit. Strict
compliance with the mandatory and jurisdictional conditions prescribed by
law to claim such tax refund or credit is essential and necessary for such
claim to prosper.
LEONARDO-DE CASTRO, J.:

FACTS:
Silicon Philippines Inc. (SPI), formerly known as Intel Philippines
Manufacturing, Inc., is a corporation duly organized and existing under
Philippine laws, and engaged in the business of designing, developing,
manufacturing, and exporting advance and large-scale integrated circuit
components, commonly referred to in the industry as Integrated Circuits or
ICs. It is registered with the Bureau of Internal Revenue (BIR) as a VAT
taxpayer.
SPI filed on May 6, 1999 with the One-Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center of the Department of Finance an

Application for Tax Credit/Refund of Value-Added Tax Paid covering the

Third Quarter of 1998 amounting to a sum of P25,531,312.83.
When respondent Commissioner of Internal Revenue (CIR) failed to
act upon its aforesaid Application for Tax Credit or Refund, SPI filed on
September 29, 2000 a Petition for Review before the CTA Division.
The CTA Division rendered a Decision on November 24, 2003 only
partially granting the claim of SPI for tax credit or refund. The CTA
Division disallowed the claim of SPI for tax credit/refund of input VAT in the
amount of P23,105,548.83 for failure of SPI to properly substantiate the
zero-rated sales to which it attributed said taxes. The CTA Division
particularly pointed out the failure of SPI to comply with invoicing
requirements under Sections 113, 237, and 238 of the National Internal
Revenue Code of 1997 (1997 Tax Code). As for the claim of SPI for tax
credit/refund of input VAT on its purchases of capital goods in the amount of
P2,425,764.00, the CTA Division held that Section 112(B) of the 1997 Tax
Code did not require that such a claim be attributable to zero-rated sales;
and that SPI was able to comply with all the requirements under said
provision.
SPI sought recourse from the CTA en banc by filing a Petition for
Review assailing the Decision but it was dismissed for lack of merit.
ISSUE: Whether or not SPI can claim its tax credit or refund.
HELD:
NEGATIVE. In the case of Commissioner of Internal Revenue v.
Mindanao II Geothermal Partnership, the Court, construing Section 112 of
the 1997 Tax Code in a series of cases, summarized the rules on
prescriptive periods for claiming credit or refund of input VAT, to wit:
For the two-year prescriptive period:
1. It is only the administrative claim that must be filed within the twoyear prescriptive period.
2. The proper reckoning of the date for the two-year prescriptive
period is the close of the taxable quarter when the relevant sales were
made.
3. The only other rule is the Atlas ruling, which applied only from June
8, 2007 to September 8, 2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of the unutilized input VAT
payments should be counted from the date of filing of the VAT return and
payment of the tax.
For the 120+30 day period:

1. The taxpayer can file an appeal in one of the two ways: (1) file the
judicial claim within thirty days after the Commissioner denies the claim
within the 120 day period, or; (2) file the judicial claim within thirty days
from the expiration of the 120-day period if the Commissioner does not act
within the 120-day period.
2. The 30-day period always apply, whether there is a denial or
inaction on the part of the CIR.
3. As a general rule, the 30-day period to appeal is both mandatory
and jurisdictional.
4. As an exception to the general rule, premature filing is allowed only
if filed between December 10, 2003 and October 5, 2010 when BIR Ruling
No. DA-489-03 was still in force.
5. Late filing is absolutely prohibited, even during the time when BIR
Ruling No. DA-489-03 was in force.
In the present case, SPI filed on May 6, 1999 its administrative claim
for tax credit/refund of the input VAT attributable to its zero-rated sales and
on its purchases of capital goods for the Third Quarter of 1998. The twoyear prescriptive period for filing an administrative claim, reckoned from
the close of the taxable quarter, prescribed on September 30, 2000.
Evidently, SPI belatedly filed its judicial claim. It filed its Petition for
Review with the CTA 391 days after the lapse of the 120-day period without
the CIR acting on its application for tax credit/refund, way beyond the 30day period under Section 112 of the 1997 Tax Code.
Applying the said rules in the case at bar, Because the 30-day period
for filing its judicial claim had already prescribed by the time SPI filed its
Petition for Review with the CTA Division, the CTA Division never acquired
jurisdiction over the said Petition.
The Court stresses that the 120/30-day prescriptive periods are
mandatory and jurisdictional, and are not mere technical requirements.
The Court should not establish the precedent that noncompliance with
mandatory and jurisdictional conditions can be excused if the claim is
otherwise meritorious, particularly in claims for tax refunds or credit. Such
precedent will render meaningless compliance with mandatory and
jurisdictional requirements.
The SC also emphasized that a tax credit or refund, like tax
exemption, is strictly construed against the taxpayer. The taxpayer claiming
the tax credit or refund has the burden of proving that he is entitled to the
refund by showing that he has strictly complied with the conditions for the
grant of the tax refund or credit. Strict compliance with the mandatory and
jurisdictional conditions prescribed by law to claim such tax refund or credit
is essential and necessary for such claim to prosper. Noncompliance with
the mandatory periods, non-observance of the prescriptive periods, and
non-adherence to exhaustion of administrative remedies bar a taxpayers
claim for tax refund or credit, whether or not the CIR questions the
numerical correctness of the claim of the taxpayer. For failure of Silicon to

comply with the provisions of NIRC, its judicial claims for tax refund or
credit should have been dismissed by the CTA for lack of jurisdiction.

G.R. No. 183531

March 25, 2015

EASTERN
TELECOMMUNICATIONS
PHILIPPINES,
COMMISSIONER OF INTERNAL REVENUE

INC.

VS

Taxation; Tax Claims; Failure to Comply with the Invoicing Requirements.

Failure by the supplier to comply with the invoicing requirements on the
documents supporting the sale of goods and services will result to the
disallowance of the claim for input tax by the purchaser-claimant.
REYES, J.:
FACTS:
Eastern Telecommunications Philippines, Inc. (ETPI) is a domestic
corporation located at the Telecoms Plaza Building, No. 316, Sen. Gil Puyat
Avenue, Salcedo Village, Makati City. It registered with the Bureau of
Internal Revenue (BIR) as a VAT taxpayer with Certificate of Registration.
As a telecommunications company, ETPI entered into various
international service agreements with international telecommunications
carriers and handles incoming telecommunications services for non-resident
foreign telecommunication companies and the relay of said international
calls within and around other places in the Philippines.
ETPI seasonably filed its Quarterly VAT Returns for the year 1998
which were, however, simultaneously amended to correct its input VAT on
domestic purchases of goods and services and on importation of goods and
to reflect its zero-rated and exempt sales for said year.
ETPI then filed an administrative claim with the BIR for the refund of
the amount of P9,265,913.42 representing excess input tax attributable to
its effectively zero-rated sales in 1998 pursuant to Section 11 of the
Republic Act (R.A.) No. 8424, also known as the National Internal Revenue
Code of 1997 (NIRC).
Pending review by the BIR, ETPI filed a Petition for Review before the
CTA. In its Decision, the CTA denied the petition because the VAT official
receipts presented by ETPI to support its claim failed to imprint the word
zero-rated on its face in violation of the invoicing requirements under
Section 4.108-1 of RR No. 7-95 which reads:
Sec. 4.108-1.Invoicing Requirements. All VAT-registered
persons shall, for every sale or lease of goods or properties

1.
2.
3.
4.
5.
6.

or services, issue duly registered receipts or sales or

commercial invoices which must show:
the name, TIN and address of seller;
date of transaction;
quantity, unit cost and description of merchandise or nature
of service;
the name, TIN, business style, if any, and address of the VATregistered purchaser, customer or client;
the word zero-rated imprinted on the invoice
covering zero-rated sales; and
the invoice value or consideration.

Undaunted, ETPI filed a petition before the Court of Appeals (CA)

which referred the case to the CTA en banc rendering a Decision declaring
that VAT-registered persons must comply with the invoicing requirements.
Moreover, the invoicing requirements enumerated in Section 4.108-1 of
RR No. 7-95 are mandatory due to the word shall and not may. Hence,
non-compliance with any thereof would disallow any claim for tax credit or
VAT refund.
Hence, this petition.
ISSUE: Whether or not the CTA erred in denying ETPIs claim for refund of
input taxes resulting from its zero-rated sales.
HELD:
NEGATIVE. The word zero-rated is required on the invoices or
receipts issued by VAT-registered taxpayers. VAT invoicing requirements
provided by tax laws and regulations is mandatory. A claim for unutilized
input taxes attributable to zero-rated sales will be given due course;
otherwise, the claim should be struck off for failure to do so, such as what
ETPI
did
in
this
case.
An applicant for a claim for tax refund or tax credit must not
only prove entitlement to the claim but also compliance with all the
documentary and evidentiary requirements. Consequently, the old CTA, as
affirmed by the CTA en banc, correctly ruled that a claim for the refund of
creditable input taxes must be evidenced by a VAT invoice or official receipt
in accordance with Section 110(A)(1) of the NIRC. Sections 237 and 238 of
the same Code as well as Section 4.108-1 of RR No. 7-95 provide for the
invoicing requirements that all VAT-registered taxpayers should observe,
such as: (a) the BIR Permit to Print; (b) the Tax Identification Number of the
VAT-registered purchaser; and (c) the word zero-rated imprinted
thereon. Thus, the failure to indicate the words zero-rated on the
invoices and receipts issued by a taxpayer would result in the denial of
the claim for refund or tax credit.
Revenue Memorandum Circular No. 42-2003 pointed that the failure
by the supplier to comply with the invoicing requirements on the documents

supporting the sale of goods and services will result to the disallowance of
the
claim
for
input
tax
by
the
purchaser-claimant.
If the claim for refund/TCC is based on the existence of zero-rated
sales by the taxpayer but it fails to comply with the invoicing requirements
in the issuance of sales invoices (e.g. failure to indicate the TIN), its claim
for tax credit/refund of VAT on its purchases shall be denied considering
that the invoice it is issuing to its customers does not depict its being a VATregistered taxpayer whose sales are classified as zero-rated sales.