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THE MANILA BANKING CORPORATION petitioner

Versus Isssue: Is petitioner covered by the four year grace


period hence not required to pay ACITR? Is it entitled
COMMISSIONER INTERNAL REVENUE respondent to a refund?
GR no. 168118
Ruling: Yes but not under the above law.
2006
Significantly, on February 23, 1995, Congress enacted
R.A. No. 7906, otherwise known as the Thrift Banks
Act of 1995. It took effect on March 18, 1995. This law
The Manila banking corporation, petitioner was provides for the regulation of the organization and
engaged in the commercial banking industry since operations of thrift banks.Under Section 3, thrift banks
1961. On 1987, the Monetary Board of the BSP include savings and mortgage banks, private
pursuant to Section 29, of RA 265 prohibited petitioner development banks, and stock savings and loans
from engaging in business due to insolvency. associations organized under existing laws.
It ceased operations that year. On June 15, 1999, the BIR issued Revenue Regulation
No. 4-95 implementing certain provisions of the said
Ra 8424 known as the COMPREHENSIVE TAX
R.A. No. 7906. Section 6 provides:
REFORM ACT of 1997 introduced the impostion of a
minimum corporate income tax to domestic and foreign Sec. 6. Period of exemption. All thrift banks created
corporations. The law allows a four year period from and organized under the provisions of the Act shall be
the time the corporation were REGISTERED with the exempt from the payment of all taxes, fees, and charges
BIR during which the minimum will not be imposed. of whatever nature and description, except the
corporate income tax imposed under Title II of the
On 1999, 12 years after it ceased operations, BSP
NIRC and as specified in Section 2(A) of these
authorized petitioner to operate as a thrift bank. It
regulations, for a period of five (5) years from the date
filed its ACITR and paid 33million+ for the tax year
of commencement of operations; while for thrift banks
1999.
which are already existing and operating as of the date
It also filed a letter to the BIR regarding petitioner’s of effectivity of the Act (March 18, 1995), the tax
entitlement to the 4 year grace period given by the exemption shall be for a period of five (5) years
RA8424. The BIR said that yes it is and so, its reckoned from the date of such effectivity.
minimum corporate income tax may not be imposed For purposes of these regulations, date of
earlier than 2002. commencement of operations shall be understood to
mean the date when the thrift bank was registered
Hence a request for refund was made. But due to te with the Securities and Exchange Commission or the
inaction of the BIR a petitioner for review was filed date when the Certificate of Authority to Operate was
before the CTA. issued by the Monetary Board of the Bangko Sentral
The court denied the petitioner contending that the ng Pilipinas, whichever comes later.
MCIT for the year 1999 is in order and it cnnot benefit petitioner bank was registered with the BIR in
from the 4 year grace period since the law applies to 1961. However, in 1987, it was found insolvent by the
new corporations. Monetary Board of the BSP and was placed under
The CA affirmed, hence the petition for review on receivership. After twelve (12) years, or on June 23,
certiorari. 1999, the BSP issued to it a Certificate of Authority to
Operate as a thrift bank. Earlier, or on January 21,
For his part, the Commissioner of Internal Revenue 1999, it registered with the BIR. Then it filed with the
(CIR), respondent, maintains that pursuant to R.A. No. SEC its Articles of Incorporation which was approved
8424, petitioner should pay its minimum corporate on June 22, 1999.
income tax beginning January 1, 1998 as it did not
close its business operations in 1987 but merely It is clear from the above-quoted provision of Revenue
suspended the same. Even if placed under Regulations No. 4-95 that the date of commencement
receivership, its corporate existence was never of operations of a thrift bank is the date it was
affected. Thus, it falls under the category of an existing registered with the SEC or the date when the
corporation recommencing its banking business Certificate of Authority to Operate was issued to it by
operations. the Monetary Board of the BSP, whichever comes later.
Let it be stressed that Revenue Regulations No. 9-98, retirement benefits. Petitioner claimed that it was
implementing R.A. No. 8424 imposing the minimum mandated to withhold the income tax due from the
corporate income tax on corporations, provides that for retirement benefits of said complainants.
purposes of this tax, the date when business operations
commence is the year in which the domestic Petitioner countered that the retirement benefits
received by the complainants were based on the CBA
corporation registered with the BIR. However, under
between it and its bargaining units.
Revenue Regulations No. 4-95, the date of
commencement of operations of thrift banks, such as The LA and the NLRC ruled in favor of repondents.
herein petitioner, is the date the particular thrift bank
was registered with the SEC or the date when the The NLRC held that the benefits of the retirement plan
Certificate of Authority to Operate was issued to it by under the CBAs between petitioner and its union
the Monetary Board of the BSP, whichever comes later. members were subject to tax as the scheme was not
approved by the BIR. However, it had also been the
Clearly then, Revenue Regulations No. 4-95, not practice of petitioner to give retiring employees their
Revenue Regulations No. 9-98, applies to petitioner, retirement pay without tax deductions and there was
being a thrift bank. It is, therefore, entitled to a grace no justifiable reason for the respondent to deviate from
period of four (4) years counted from June 23, such practice. The NLRC concluded that petitioner was
1999 when it was authorized by the BSP to operate as deemed to have assumed the tax liabilities of the
a thrift bank. Consequently, it should only pay its complainants on their retirement benefits, hence, had
minimum corporate income tax after four (4) years no right to deduct taxes from their salary differentials.
from 1999.
Hence the petition. The respondent’s history reveals
INTERCONTINENTAL BROADCASTING that it was paying retirement pays to its retiring
CORPORATION (IBC), represented by ATTY. employees without tax deductions as a matter of
RENATOQ. BELLO, in his capacity as CEO and practice. There is no justifiable reason for the
President, petitioner, respondent to deviate from that practice now. It is
vs. deemed to have assumed the tax liabilities of the
NOEMI B. AMARILLA, CORSINI R. LAGAHIT, complainants
ANATOLIO G. OTADOY, and CANDIDO C.
QUIÑONES, JR.,respondents. Petitioner insists that respondents are liable for taxes
on their retirement benefits because the retirement
G.R. No. 162775 October 27, 2006 plan under the CBA was not approved by the BIR. It
Facts insisted that it failed to comply with the requisites of
Section 32 of the NIRC and Rule II, Section 6 of the
The four retirees herin repsondents were refused their Rules Implementing the New Retirement Law which
salary increases because according to petitioner these provides that retirement pay shall be tax exempt upon
would be used tooffset the taxes due on their compliance with the requirements under Section 2(b)
retirement benefits in accordance to the NIRC. of Revenue Regulation No. 12-86 dated August 1, 1986.

A claim before the Labor arbiter was filed for unfair Issue
labor practice and non payment of backwages
1.WON respondents benefits are part of their gross
The complainants averred that their retirement income
benefits are exempt from income tax under Article 32
of the NIRC. 2. WON petitioner can use the salary differentials to
offset the tax liabilities of respondents
petitioner averred that under Section 21 of the NIRC,
Ruling:
the retirement benefits received by employees from
their employers constitute taxable income. While Yes. We agree with petitioner’s contention that, under
retirement benefits are exempt from taxes under the CBA, it is not obliged to pay for the taxes on the
Section 28(b) of said Code, the law requires that such respondents’ retirement benefits. We have carefully
benefits received should be in accord with a reasonable reviewed the CBA and find no provision where
retirement plan duly registered with the Bureau of petitioner obliged itself to pay the taxes on the
Internal Revenue (BIR) after compliance with the retirement benefits of its employees.
requirements therein enumerated. Since its retirement
plan in the 1993 CBA was not approved by the BIR,
complainants were liable for income tax on their
We also agree with petitioner’s contention that, under them to avail of the optional retirement scheme is not
the NIRC, the retirement benefits of respondents are contrary to law or to public morals. Petitioner had
part of their gross income subject to taxes. agreed to shoulder such taxes to entice them to
voluntarily retire early, on its belief that this would
Thus, for the retirement benefits to be exempt from the prove advantageous to it. Respondents agreed and
withholding tax, the taxpayer is burdened to prove the
relied on the commitment of petitioner. For petitioner
concurrence of the following elements: (1) a reasonable
to renege on its contract with respondents simply
private benefit plan is maintained by the employer; (2)
because its new management had found the same
the retiring official or employee has been in the service
disadvantageous would amount to a breach of contract.
of the same employer for at least 10 years; (3) the There is even no evidence that any "new management"
retiring official or employee is not less than 50 years of was ever installed by petitioner after respondents’
age at the time of his retirement; and (4) the benefit retirement; nor is there evidence that the Board of
had been availed of only once.
Directors of petitioner resolved to renege on its contract
Respondents were qualified to retire optionally from with respondents and demand the reimbursement for
their employment with petitioner. However, there is no the amounts remitted by it to the BIR.
evidence on record that the 1993 CBA had been CYANAMID PHILIPPINES, INC., petitioner, vs. THE
approved or was ever presented to the BIR; hence, the COURT OF APPEALS, THE COURT OF TAX
retirement benefits of respondents are taxable.
APPEALS and COMMISSIONER OF INTERNAL
Under Section 80 of the NIRC, petitioner, as employer, REVENUE, respondents.
was obliged to withhold the taxes on said benefits and [G.R. No. 108067. January 20, 2000]
remit the same to the BIR.
Facts
2. NO.
Petitioner, Cyanamid Philippines, Inc., a corporation
However, we agree with respondents’ contention that organized under Philippine laws, is a wholly owned
petitioner did not withhold the taxes due on their subsidiary of American Cyanamid Co. based in Maine,
retirement benefits because it had obliged itself to pay USA. It is engaged in the manufacture of
the taxes due thereon. This was done to induce pharmaceutical products and chemicals, a wholesaler
respondents to agree to avail of the optional retirement of imported finished goods, and an importer/indentor.
scheme. Thus, in its petition in this case, petitioner
averred that: On February 7, 1985, the CIR sent an assessment
letter to petitioner and demanded the payment of
While it may indeed be conceded that the previous
deficiency income tax of one hundred nineteen
dispensation of petitioner IBC-13 footed the bill for the
thousand eight hundred seventeen (P119,817.00) pesos
withholding taxes, upon discovery by the new for taxable year 1981
management, this was stopped altogether as this was
grossly prejudicial to the interest of the petitioner IBC- Petitioner protested the assessment in particular the
13. surtax for the undue accumulation of earnings was not
proper because the said profits were retained to
Respondents received their retirement benefits from
INCREASE petitioners working capital and it would be
the petitioner in three staggered installments without used for reasonable business needs of the company.
any tax deduction for the simple reason that petitioner
had remitted the same to the BIR with the use of its Petitioner appealed to the Court of Tax Appeals.
own funds conformably with its agreement with the During the pendency of the case, however, both parties
retirees. It was only when respondents demanded the agreed to compromise the 1981 deficiency income tax
payment of their salary differentials that petitioner assessment of P119,817.00. Petitioner paid a reduced
alleged, for the first time, that it had failed to present amount --twenty-six thousand, five hundred seventy-
the 1993 CBA to the BIR for approval, rendering such seven pesos (P26,577.00) -- as compromise settlement.
retirement benefits not exempt from taxes; However, the surtax on improperly accumulated
consequently, they were obliged to refund to it the profits remained unresolved.
amounts it had remitted to the BIR in payment of their
taxes. Petitioner claimed that CIRs assessment representing
the 25% surtax on its accumulated earnings for the
Notes: year 1981 had no legal basis for the following reasons:
(a) petitioner accumulated its earnings and profits for
An agreement to pay the taxes on the retirement
reasonable business requirements to meet working
benefits as an incentive to prospective retirees and for
capital needs and retirement of indebtedness; (b) The tax on improper accumulation of surplus is
petitioner is a wholly owned subsidiary of American essentially a penalty tax designed to compel
Cyanamid Company, a corporation organized under corporations to distribute earnings so that the said
the laws of the State of Maine, in the United States of earnings by shareholders could, in turn, be taxed.
America, whose shares of stock are listed and traded in
The amendatory provision of Section 25 of the 1977
New York Stock Exchange. This being the case, no
NIRC, which was PD 1739, enumerated the
individual shareholder of petitioner could have evaded
corporations exempt from the imposition of improperly
or prevented the imposition of individual income taxes
accumulated tax: (a) banks; (b) non-bank financial
by petitioners accumulation of earnings and profits,
instead of distribution of the same. S intermediaries; (c) insurance companies; and (d)
corporations organized primarily and authorized by
The CTA denied the petition. "Petitioner contends that the Central Bank of the Philippines to hold shares of
it did not declare dividends for the year 1981 in order stocks of banks. Petitioner does not fall among those
to use the accumulated earnings as working capital exempt classes.
reserve to meet its "reasonable business needs". The
law permits a stock corporation to set aside a portion of If the CIR determined that the corporation avoided the
its retained earnings for specified purposes (citing tax on shareholders by permitting earnings or profits
Section 43, paragraph 2 of the Corporation Code of the to accumulate, and the taxpayer contested such a
determination, the burden of proving the
Philippines). In the case at bar, however, petitioners
determination wrong, together with the corresponding
purpose for accumulating its earnings does not fall
within the ambit of any of these specified purposes. burden of first going forward with evidence, is on the
taxpayer. This applies even if the corporation is not a
More compelling is the finding that there was no need mere holding or investment company and does not
for petitioner to set aside a portion of its retained have an unreasonable accumulation of earnings or
earnings as working capital reserve as it claims since profits.[27]
it had considerable liquid funds
In order to determine whether profits are accumulated
The CA affirmed. for the reasonable needs of the business to avoid the
surtax upon shareholders, it must be shown that the
Issue: Is petitioner liable for accumulated earnings tax
controlling intention of the taxpayer is manifested at
for the year 1981?
the time of accumulation, not intentions declared
Ruling: subsequently, which are mere
afterthoughts.[28] Furthermore, the accumulated
Section 25[9] of the old National Internal Revenue Code profits must be used within a reasonable time after the
of 1977 states: Sd-aad-sc close of the taxable year. In the instant case, petitioner
did not establish, by clear and convincing evidence that
"Sec. 25. Additional tax on corporation improperly
such accumulation of profit was for the immediate
accumulating profits or surplus -
needs of the business.
"(a) Imposition of tax. -- If any corporation is formed or
availed of for the purpose of preventing the imposition
of the tax upon its shareholders or members or the
shareholders or members of another corporation,
through the medium of permitting its gains and profits
to accumulate instead of being divided or distributed,
there is levied and assessed against such corporation,
for each taxable year, a tax equal to twenty-five per-
centum of the undistributed portion of its accumulated
profits or surplus which shall be in addition to the tax
imposed by section twenty-four, and shall be computed,
collected and paid in the same manner and subject to
the same provisions of law, including penalties, as that
tax.

The provision discouraged tax avoidance through


corporate surplus accumulation. When corporations do
not declare dividends, income taxes are not paid on the
undeclared dividends received by the shareholders.