TANADA VS.

ANGARA

Facts:

This is a petition seeking to nullify the Philippine ratification of the World Trade
Organization (WTO) Agreement. Petitioners question the concurrence of herein
respondents acting in their capacities as Senators via signing the said agreement.

The WTO opens access to foreign markets, especially its major trading partners,
through the reduction of tariffs on its exports, particularly agricultural and
industrial products. Thus, provides new opportunities for the service sector cost
and uncertainty associated with exporting and more investment in the country.
These are the predicted benefits as reflected in the agreement and as viewed by the
signatory Senators, a free market espoused by WTO.

Petitioners on the other hand viewed the WTO agreement as one that limits,
restricts and impair Philippine economic sovereignty and legislative power. That
the Filipino First policy of the Constitution was taken for granted as it gives
foreign trading intervention.

Issue:

Whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the Senate in giving its concurrence of the said
WTO agreement.

Ruling

In its Declaration of Principles and state policies, the Constitution adopts the
generally accepted principles of international law as part of the law of the land, and
adheres to the policy of peace, equality, justice, freedom, cooperation and amity ,
with all nations. By the doctrine of incorporation, the country is bound by
generally accepted principles of international law, which are considered
automatically part of our own laws. Pacta sunt servanda international agreements
must be performed in good faith. A treaty is not a mere moral obligation but
creates a legally binding obligation on the parties.
Through WTO the sovereignty of the state cannot in fact and reality be considered
as absolute because it is a regulation of commercial relations among nations. Such
as when Philippines joined the United Nations (UN) it consented to restrict its
sovereignty right under the concept of sovereignty as auto limitation. What
Senate did was a valid exercise of authority. As to determine whether such exercise
is wise, beneficial or viable is outside the realm of judicial inquiry and review. The
act of signing the said agreement is not a legislative restriction as WTO allows
withdrawal of membership should this be the political desire of a member. Also, it
should not be viewed as a limitation of economic sovereignty. WTO remains as the
only viable structure for multilateral trading and the veritable forum for the
development of international trade law. Its alternative is isolation, stagnation if not
economic self-destruction. Thus, the people be allowed, through their duly elected
officers, make their free choice. The court has also held that the declaration of
principles are not self-executory but are guidelines for legislation.
Petition is DISMISSED for lack of merit

MITSUBISHI CORP. VS. CIR

Facts:
This case involves a claim for refund of erroneously paid income tax and branch
profit remittance tax for the fiscal year ended March 31, 1998 amounting to
P44,288 ,712 and P8,324, 100, respectively, arising from petitioner's Overseas
Economic Cooperation Fund - funded Batangas Coal-Fired Thermal Power Plant
Project. Petitioner is the Philippine Branch of Mitsubishi Corporation, a
corporation duly organized and existing under the laws of Japan and duly licensed
to engage in business in the Philippines. Through an Exchange of Notes between
the Government of Japan and the Government of the Philippines dated June 11,
1987 (Exhibit "J" ), it was agreed that a loan amounting to Forty Billion Four
Hundred Million Japanese Yen (Y40,400,000,000) will be extended to the
Republic of the Philippines by the then Overseas Economic Cooperation Fund for
the implementation of the Calaca II Coal-Fired Thermal Power Plant Project.
On June 21, 1991, the National Power Corporation and Mitsubishi entered into a
contract for the engineering, supply, construction, installation, testing and
commissioning of one (1 ) x 300 MW Batangas Coal-Fired Thermal Power Project
II at Calaca, Batangas. Thus, a second loan agreement (loan Agreement No. PH-
P141) dated December 20, 1994 for the amount of Five Billion Five Hundred
Thirteen Million Japanese Yen (Y5,513,000,000.00) was entered into between the
OECF and the Government of the Republic of the Philippines for the additional
funding of the Calaca II Pmject (Exhibit "P" ).

On July 15, 1998, petitioner filed its Income Tax Return for the fiscal year ended
March 31 , 1998 with the Bureau of Internal Revenue. In the return, petitioner
(being the Manila Branch of Mitsubishi Corporation) reported an income tax due
of P90,481 , 711 .00. In computing the P90,481 , 711.00 income tax due for fiscal
year ended March 31, 1998, petitioner included as part of its taxable income, all
revenues earned and cost incurred for its Calaca II Project, in accordance with the
completed contract method of reporting income

Likewise, on July 15, 1998, petitioner filed its Monthly Remittance Return of
Income Taxes Withheld (Exhibit "C") and remitted the amount of P8,324, 100
representing its branch profit remittance tax (BPRT) for branch profits remitted to
the Head Office (in Japan) out of its income for the fiscal year ended March 31,
1998. The tax rate used was 10% in accordance with the Philippines-Japan Tax
Treaty.
On September 7, 1998, the respondent issued Bureau of Internal Revenue Ruling
No. DA-407-98 (Exhibit K) where it held that "Mitsubishi has no liability for
income tax and other taxes and fiscal levies, including VAT, xxx on the 100% of its
foreign currency portion of the Calaca II Project since the said taxes were
assumed by the Philippine Government" (par. 5,
Stipulation of Facts, Joint Stipulation of Facts and Issues).
Of the P1,416,829,241.00 (Exhibit "8-16") total revenue from the Calaca II Project,
P640, 907,792 or 45.24% represents that portion which was not OECF-funded
considering that this amount represents the Philippine Peso component of the
project, while P775, 921,449 or 54.76% represents the OECF funded portion
(Exhibit N). Since petitioner paid P82,444,208.00 income tax for its income from
the entire Calaca II Project (inclusive of the OECF-funded and non-OECF funded
portions) and P8,324100.00 BPRT for the remittance of its \ petitioner now seeks a
tax refund/credit of the P44,288,712 erroneously paid income tax and the P8,324,
100.00 erroneously paid
On June 30, 2000, petitioner filed an administrative claim for refund and/or tax
credit with respondent in the amount of P52,612,812.00, representing its
erroneously paid income taxes in the amount of P44,288, 712 and erroneously paid
branch profit remittance tax in the amount of P8,324, 100.00 corresponding to the
OECF-funded portion of its Calaca II Project

Issue:
Whether petitioner has erroneously paid income and branch profit remittance taxes
for the fiscal year ended March 31, 1998, which is a proper claim for refund
pursuant to Sections 204 and 229 of the Tax Code; and

Ruling:
Records reveal that petitioner anchored its claim for refund on BIR Ruling No.
DA-407- 98, dated September 7, 1998 (Exhibit K) interpreting Item 5, paragraph 2
of the Exchange of Notes. (2) The Government of the Republic of the Philippines
will, itself or through its executing agencies or instrumentalities, assume all fiscal
levies or taxes imposed in the Republic of the Philippines on Japanese firms and
nationals operating as suppliers, contractors or consultants on and/or in connection
with any income that may accrue from the supply of products of Japan and/or
services of Japanese nationals to be provided under the Loan. It is likewise
represented that on June 21, 1991, Mltsubishi entered into a contract with the
National Power Corporation (NPC) for the supply of equipment and services,
engineering, construction, testing and commissioning of equipment in connection
with the Calaca II Project; that funding of the project is made through a grant from
the Japanese Government through the OECF and pursuant to an Exchange of Notes
dated June 11, 1987 (Notes-Calaca); that under the Notes-Calaca, a loan up to
Y40,400,000,000.00 was extended expressly to implement the Calaca II Project;

It is further represented that the above contributions of the Japanese Government

through the OECF represents 75% of the NAIA II Projects and 100% of the
foreign currency portion of the Calaca II project both of which will benefit not
Japan but the Philippines; and that under Notes-NAIA and Notes-Calaca, any
income, value added tax or the other fiscal levies that may arise therefrom should
not be made the obligation of Japanese firms engaged in the Projects.

In reply, please be informed that the aforequoted provisions of Notes-NAIA and

Notes-Calaca are not grants of direct tax exemption privilege to the Japanese firms,
Mitsubishi in this case, and Japanese nationals operating as suppliers, contractors
or consultants involved in either of the two projects because the said provisions
state that it is the Government of the Republic of the Philippines that is obligated to
pay whatever fiscal levies or taxes they may be liable to. Thus there is no tax
exemption to speak of because the said taxes shall be assumed by the Philippine
Government; hence the said provision is not violative of the Constitutional
prohibition against grants of tax exemption without the concurrence of the majority
of the members of Congress
In view thereof, and considering that the estimated contribution of the Government
of Japan is Y18, 120,000,000.00 in the NAIA II Project and Y40,400,000,000.00
in the Calaca II Project and that the beneficiary is the Philippine Government, this
office is of the opinion and hereby holds that Mitsubishi has no liability for income
tax and other taxes and fiscal levies, including VAT, on the 75% of the NAIA II
Project and on the 100% of the foreign currency portion of the Calaca II Project
since the said taxes were assumed by the Philippine Government.
Petitioner now claims that its payment of the subject taxes was erroneous pursuant
to Section 229 of the Tax Code, to wit: Section 229. Recovery of Tax Erroneously
or Illegally Collected. No suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to have been excessively or
in any manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless on any supervening
cause that may arise after payment: Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly to
have been erroneously paid. The Court agrees with the petitioner
Notably, there was an erroneous payment of the subject taxes by petitioner for the
reason that said taxes are to be assumed by the Government of the Philippines
through its executing agency, the NPC, in connection with Item 5(2) of the
Exchange of Notes
This finds support under the provision of Article VII (B) (1) of the Contract
(Exhibit "/") executed between petitioner and NPC, to wit:
Article VII (B) (1)
"B. FOR ONSHORE PORTION
1.) CORPORATION (NPC) shall, subject to the provisions under the Contract
Documents on Taxes, pay any and all forms of taxes which are directly imposable
under the Contract including VAT, that may be imposed by the Philippine
Government, or any of its agencies and political subdivisions."

Under Article VII (B) of the original contract, the National Power Corporation
shall pay the taxes for the onshore portion of the contract. the income tax and
BPRT payments made by petitioner to respondent when such payments should
have been made by the NPC, undoubtedly, put petitioner's case in the operation of
Section 229 of the Tax Code as one involving erroneous payment.

the exchange of notes in this case was entered into in pursuance of a loan
agreement with Japan. Under the Constitution, in force at that time, the President
may contract and guarantee foreign and domestic loans on behalf of the Republic
of the Philippines subject to such limitations as may be provided by law (Art. II,
Section 11, 1973 Constitution, as amended). Therefore, having validly entered into
a loan agreement through the exchange of notes, the terms therein necessarily
govern the execution of the loan agreement. The contract, involved in this case
which was entered into pursuant to the loan merely embodies the exemption
provision in said exchange of notes."

The foregoing provisions of the Exchange of Notes mean that the Japanese
contractors or nationals engaged in OEC.F -funded projects in the Philippines shall
not be required to shoulder all fiscal levies or taxes associated with the project.
Instead, the taxes shall be shouldered and borne by the executing government
agencies.

ILOILO BOTTLERS, INC. VS. CITY OF ILOILO

Factcs:

Iloilo Bottlers Inc., a company in the business of bottling and selling soft drinks,
was demanded by the City of Iloilo to pay an amount of 59,505 in the form of an
license tax the city claims were due to it under an ordinance which was enacted on
January 11, 1960 known as Ordinance No. 5, Series of 1960; which provides that
manufacturers, bottlers, and distributers of soft drinks in Iloilo are subject to a
municipal license tax of 10 centavos per case of 24 bottles. Iloilo Bottling Inc
asserted however that since their plant base has moved to municipality of Pavia
shortly after the aforementioned ordinance was enacted, they are not liable for any
taxes. The city however, still demanded taxes and also demanded back taxes under
the claim that Iloilo Bottlers is still distributing in the city of Iloilo since its
transfer. Iloilo Bottlers paid the demanded license tax and back taxes under protest.
After bringing the case to court, the courts ruled in favor of Iloilo Bottlers and
declared that Iloilo Bottlers is free from liability. The city of Iloilo then appealed
this ruling, hence this case.

Issue:

Whether or not the courts were correct in their initial ruling that Iloilo Bottlers Inc.
is free from liability and directing the city of Iloilo to refund the tax money.

Ruling:

No, the courts were not correct. The ruling was reversed in favor of the City of
Iloilo and Iloilo Bottlers is deemed liable for the aforementioned taxes
Situs of taxation (place of taxation) depends on various factors including the nature
of the tax and subject matter thereof both of which must be scrutinized to reach a
fair decision. The tax ordinance enacted by the City of Iloilo imposes a tax on
persons, firms, and corporations engaged in the business of distribution of soft-
drinks, manufacture of soft-drinks, and bottling of soft drinks within the territorial
jurisdiction of the City of Iloilo. There is no question that Iloilo Bottlers has moved
out of Iloilo Citys jurisdiction and into the municipality of Pavia where its plant
now stands therefore, the latter two conditions for taxation are no longer
applicable. The ruling now depends upon whether or not Iloilo Bottlers can be
considered as distributing its products within Iloilo city. Iloilo Bottlers disclaims
liability, saying that it does not independently distribute but rather actively sells
directly to its consumers. Distribution is therefore only incidental to its business.
However, the courts find that Iloilo Bottlers is indeed considered as distributing
since while the manufacturing and bottling occurs outside of Iloilo city, the drinks
are sold in Iloilo city to consumers in a moving store fashion. The transactions
are considered to occur within the city. The tax imposed under Ordinance No. 5 is
an excise tax. By its nature, the power to levy an excise tax depends upon the place
where the business is done or the occupation is engaged in, or where the
transaction took place. In this case, it is a tax on the privilege of distributing,
manufacturing or bottling soft drinks. Even though the base of operations is at
Pavia, the areas of transactions where it conducts its business are within Iloilocity
limits. The Situs for excise tax is the area of transaction, not necessarily base of
operation. Since Iloilo Bottlers does distribute within city limits, it is therefore
subject to the ordinance and therefore should pay the pertinent amounts to the city
of Iloilo.

COMMISSIONER VS. BOAC

Facts:

BOAC us a 100% British government-owned corporation organized and existing

under United Kingdom law and is engaged in the international airline business. It
operates air transportation service and sells transportation tickets over routes Boac
had no landing rights for traffic purposes in the Philippines and was nt granted a
Certificate of public convenience and necessity to operate in the Ph. During the
period covered by the assessment BOAC has agents Warner Barnes and Company
and Qantas Airways which was responsible for selling BOAC tickets. On Jan 26
1983 the Tax Court held that the proceeds of sales of BOAC passage tickets in the
Philippines do not constitute BOAC income from the Philippine sources since no
service of carriage of passengers or freight was performed and is therefore not
subject to Philippine income tax

Issue:

Whether the revenue derived by private respondent BOAC from sale of tickets in
the Philippines for air transportation while no landing rights constitute income of
BOAC from Philippine sources?

Ruling:

Yes. BOAC, during the periods covered by the subject - assessments, maintained a
general sales agent in the Philippines, That general sales agent, from 1959 to 1971,
" BOAC was "engaged in" business in the Philippines through a local agent during
the period covered by the assessments. Accordingly, it is a resident foreign
corporation subject to tax upon its total net income received in the preceding
taxable year from all sources within the Philippines. The Tax Code defines "gross
income" thus: "Gross income" includes gains, profits, and income derived from
salaries, wages or compensation for personal service of whatever kind and in
whatever form paid, or from profession, vocations, trades, business,
commerce, sales, or dealings in property, whether real or personal, growing out of
the ownership or use of or interest in such property; also from interests, rents,
dividends, securities, or the transactions of any business carried on for gain or
profile, or gains, profits, and income derived from any source whatever (Sec.
29[3]; Emphasis supplied)

The source of an income is the property, activity or service that produced the
income. 8 For the source of income to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within the
Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity
that produces the income. BOAC, however, would impress upon this Court that
income derived from transportation is income for services, with the result that the
place where the services are rendered determines the source; and since BOAC's
service of transportation is performed outside the Philippines, the income derived
is from sources without the Philippines and, therefore, not taxable under our
income tax laws. Admittedly, BOAC was an off-line international airline at the
time pertinent to this case. The test of taxability is the "source"; and the source of
an income is that activity ... which produced the income. Presidential Decree No.
1355, promulgated on 21 April, 1978, provided a statutory definition of the term
"gross Philippine billings," thus:.. "Gross Philippine billings" includes gross
revenue realized from uplifts anywhere in the world by any international carrier
doing business in the Philippines of passage documents sold therein, whether for
passenger, excess baggage or mail provided the cargo or mail originates from the
Philippines. ...

The foregoing provision ensures that international airlines are taxed on their
income from Philippine sources. The 2- % tax on gross Philippine billings is an
income tax. If it had been intended as an excise or percentage tax it would have
been place under Title V of the Tax Code covering Taxes on Business.
WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby
SET ASIDE. Private respondent, the British Overseas Airways Corporation
(BOAC), is hereby ordered to pay the amount of P534,132.08 as deficiency income
tax.

HOPEWELL POWER. VS. CIR

Facts:

This is a judicial claim for the refund of P24,864,781.58 allegedly representing

erroneous payment of documentary stamp tax ("DST", for short) over loan and
security documents executed in Hong Kong on December 29, 1993.Petitioner is a
corporation organized and existing under Philippine laws, On December 29, 1993,
petitioner, together with Hopewell Energy International Limited, a company
organized under the laws of Hong Kong, entered into a Mortgage Trust Indenture
("MTI", for brevity) for the mortgage of their chattel and real estate assets with the
Bank America National Trust Company, a corporation organized under the laws of
New York, U.S.A. The execution of the MTI was done in Hong Kong. On even
date, petitioner paid under protest the above said amount of DST with respondent's
Bureau in order to facilitate the registration of the MTI with the Register of Deeds
of Lucena, Province of Quezon. On the same day, the respondent's Bureau received
from the petitioner a letter of request, dated July21, 1993, asking for confirmation
on the tax exemption from DST of mortgage documents executed abroad.
Consequently, on November 17, 1995, petitioner filed the requisite written claim
for refund with respondent's Bureau alleging erroneous payment on account of the
MTI's execution in Hong Kong. Due to the continued inaction of the respondent on
its claim for refund and on its request for confirmation, petitioner was constrained
to elevate its case before this Court. Hence, the instant petition for review. At bar,
petitioner contends, inter alia, that a DST, being an excise tax, does not attach to
the execution of the documents in Hong Kong following respondent's previous
rulings on the matter 1; that at the time the MTI was executed, the prevailing
provisions of Section 173 of the Tax Code did not cover documents executed
abroad; and that, the subsequent enactment of Republic Act No. 7660 which
became effective on January 14, 1994, specifically addressed such perceived
loophole in the law 2 by making the execution of loan agreements abroad subject
to DST when the obligation or right arises from Philippine sources or the property
is situated in the Philippines.

In her Answer, respondent admitted the existence of Authority to Accept Payment

No. 1140274 and its corresponding BIR Official Receipt No. 2319144L, both of
which are dated December 29, 1993, and in payment for DST in the amount of
P24,864,781.58.By way of special and affirmative defenses, however, respondent
asserts, among others, that the DST in question was paid in accordance with
Section 195 of the Tax Code and, therefore, not refundable; that petitioner failed to
show proof tha tthe documents subject of the DST were executed abroad; and that
claims for refund are construed strictly against the claimant, the same being in the
nature of exemption from taxes. During the trial, petitioner offered in evidence a
duly notarized copy of the MTI document, together with the authentication of the
Philippine consul in Hong Kong. Respondent admitted the same, without any
qualification, in her comment thereto.

Issue:

Whether or not the MTI document executed in Hong Kong is exempted from DST,
being an excise tax.

Ruling:

Court rules in favor of the petitioner. The power to levy an excise upon the
performance of an act or the engaging in an occupation does not depend upon the
domicile of the person subject to the excise, nor upon the physical location of the
property and in connection with the ct or occupation taxed, but depends upon the
place in which the act is performed or occupation engaged in. Thus, the gauge for
taxability . . . does not depend on the location of the office, but attaches upon the
place where the respective . . . transaction(s) is perfected and consummated. Thus,
inasmuch as the MTI was executed and signed in Hong Kong prior to the
effectivity of Republic Act No. 7660 on January 14, 1994, no DST is imposable on
the same in the Philippines. This conclusion is also in keeping with one of the
inherent limitations of taxation, namely, that it may be exercised only within the
territorial jurisdiction of the taxing authority. Court sees Section 173 of the Tax
Code, as amended by Republic Act No. 7660, as imposing DST, not directly
anymore upon the act or privilege of transacting documents, instruments, papers
and loan agreements per se, but rather on the act or privilege of simply transacting
on any obligation or right arising from Philippine sources, or on any property
situated int he Philippines. Unlike before the amendment where the execution of
the document, instrument, paper or loan agreement itself automatically gives rise to
the imposition of DST, such execution is now deemed to be merely incidental.
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby
GRANTED.