TAX ALERT

October 31, 2005 A TAXPAYER IS ESTOPPED FROM QUESTIONING THE VALIDITY OF AN ASSESSMENT IF IT HAS ALREADY MADE AN ADMISSION OF TAX LIABILITIES. A review of the records reveals that petitioner was prepared to settle its tax obligations to the government. In several instances, petitioner even offered initial payments for the partial settlement of the assessment then under review. In fact, in its letter to herein respondent, petitioner categorically admitted its tax obligations due the government, and even proposed a payment scheme to be able to fully settle its tax deficiencies. From the letter, it is clear that petitioner admits its tax liabilities owing to the government. Having admitted its tax liability, petitioner is now estopped from further contesting the validity of the assessment. Union Refinery Corporation vs. Commissioner of Customs, CTA Case No. 5917, September 7, 2005. COURT OF TAX APPEALS (CTA) INTERPRETS SECTION 76 OF THE TAX CODE IN GRANTING A CLAIM FOR REFUND OF A DISSOLVING CORPORATION. Facts: In the case at bar, petitioner carried over its excess quarterly income tax payment for the year 1998 to the succeeding taxable years 1999 and 2000. There remained an unapplied 1998 income tax payment of P608,621 as of December 31, 2000. In the same manner, the 1999 quarterly income tax payment of P35,681,956 was carried over by petitioner in its 2000 income tax return (ITR) forming part of the prior years excess credit in the sum of P37,247,350. Thus, for calendar year 2000, petitioner has a total unapplied income taxes in the amount of P36,290,577 representing the remaining excess quarterly income tax payment for 1998 in the amount of P608,621 and the undiminished 1999 quarterly income tax payment in the amount of P35,681,956 or an aggregate amount of P36,290,577 to which petitioner opted to be issued a tax credit certificate. For the year 2000, petitioner manifested its intention to be issued a tax credit certificate. In April 2001, petitioner shortened its corporate term. In December 2001, petitioner filed an administrative claim for refund of the amount representing income tax overpayment shown in its 2000 ITR. Held: The CTA held that the remaining 1998 claim of petitioner is already barred by prescription because under Sec. 229 of the Tax Code, the filing of a claim for refund should be made within two years from the date of the payment of tax. For the 1999 claim, the Court stated that if it were to apply strictly Section 76, petitioners application for refund could no longer be allowed. However owing to the peculiar circumstance of the case, the Court stated that it deems it proper to rule equitably for the petitioner. True that petitioner carried over the 1999 excess payment to the succeeding taxable year 2000 as reflected in its 2000 ITR, yet it would be grossly unfair

2 for the petitioner not to be refunded thereof. Foremost, petitioner has dissolved its corporate existence. Therefore, there is no possible way by which petitioner can utilize the excess payment because petitioner will no longer incur future income tax liability. Financial Marketing Services Corporation vs. CIR, CTA Case No. 6443, September 7, 2005. THE ISSUANCE AND THE SUBSEQUENT ASSIGNMENT OF A PROMISSORY NOTE ARE SUBJECT TO DST ON EACH TRANSACTION. Since DST is intended to be a tax on the privilege to enter into a transaction, then it must attach on the first issue, as well as its subsequent negotiation. Thus, under normal circumstances, the party who originally issued the note and the party who transferred the note must pay the DST attached to negotiated promissory notes. Since it was not shown that the subject notes were previously subjected to DST, then petitioner, as the subsequent transferee who accepted the note, could be held liable to pay the unpaid DST on the document pursuant to Section 173 of the Tax Code. It cannot be said that the promissory note was taxed twice for the same transaction. Imposition of the DST on each and every taxable transaction is warranted by expressed provision of law. Philacor Credit Corporation vs. Commissioner of Internal Revenue, CTA EB Case No. 19 (CTA Case No. 5674). INFUSION OF ADDITIONAL PAID-IN CAPITAL TO A CORPORATION IS IN THE NATURE OF ADDITIONAL FUNDS THAT FORM PART OF THE WORKING CAPITAL. Section 56 of Revenue Regulations No. 2 provides that where a corporation requires additional funds for the conduct of its business and obtains said funds through voluntary payments by its shareholders, the amounts so received being credited to its surplus account or a special capital account will not be considered income, although there is no increase in the outstanding shares of stock of the corporation. The payments in such circumstances are in the nature of voluntary assessments upon, and represent an additional price paid for, the shares of stock held by individual shareholders and will be treated as an addition to, and as part of the operating capital of, the company. BIR Ruling No. DA-376-2005 dated September 1, 2005. IF THE COST OF SERVICES FORMS PART OF THE COST OF A CAPITAL ASSET, IT IS WITHIN THE SCOPE AND MEANING OF CAPITAL GOODS. The courts will look to the origin and character of the expenditure to determine whether it is a capital asset. Payment for services, such as consultancy fee, contractors fee and construction management fee, being necessary for the building of, say, a power plant, can be considered as capital goods. San Roque Power Corporation vs. Commissioner of Internal Revenue, CTA Case No. 6372, September 7, 2005. A FOREIGN CORPORATION DEEMED TO HAVE CREATED A PERMANENT ESTABLISHMENT IS LIABLE TO PAY INCOME TAXES TO THE PHILIPPINE GOVERNMENT BUT IT IS NOT DEEMED TO HAVE CONVERTED ITS STATUS TO A RESIDENT FOREIGN CORPORATION.

3 Facts: M Corp. filed a claim for refund on behalf of non-resident E Corp. that provided their computerized inventory system. M Corp. alleged that E Corp. created a permanent establishment under the RP-UK Tax Treaty when one of its employees furnished services for 185 days. Since E Corp. created a permanent establishment, M Corp. should have subjected their payments to 5% creditable withholding tax only and not to 32% final withholding tax. Held: The CTA held that E Corp. had indeed established a permanent establishment but denied the claim for refund. The CTA held that as a resident foreign corporation, E Corp. should have filed an annual tax return but M Corp. failed to prove this. Furthermore, the CTA held that if E Corp. was indeed a resident foreign corporation then it should have filed the instant claim for refund. Moreover, M Corp. and E Corp. failed to comply with the provisions of RMO No. 1-2000 which required that an application for tax treaty relief must be made before any party can avail of preferential treatment under any tax treaty. Mirant Sual Corporation v. Commissioner of Internal Revenue, CTA Case No. 6388, August 22, 2005. THE CTA DEFINES RELATED PARTIES FOR PURPOSES OF CLAIMING INTEREST EXPENSE. Petitioners interest expense was disallowed on the ground that petitioner and lender are related parties as defined under Section 36(B)(3) of the Tax Code. The court held that petitioner and the creditor should not be treated as related parties because no individual owns, directly or indirectly, more than 50% of the outstanding capital stock of petitioner and the lender. L, M and P who are brothers and sister, together own only 38.62% of the lender and 38.54% of petitioner. Sky Internet, Inc. vs. CIR, CTA Case No. 6587, August 10, 2005. INTEREST PAYMENTS TO A UNITED STATES RESIDENT WITH NO PERMANENT ESTABLISHMENT IN THE PHILIPPINES IS TAXED AT A PREFERENTIAL RATE NOT EXCEEDING 10% OF THE GROSS AMOUNT OF INTEREST IF SUCH INTEREST PAYMENTS ARE WITH RESPECT TO PUBLIC ISSUES OF BONDED INDEDTEDNESS, AND A TAX RATE NOT EXCEEDING 15% OF THE GROSS AMOUNT OF INTEREST IN ALL OTHER CASES. BIR Ruling DA-ITAD No. 96-05 dated September 2, 2005. THE BUREAU OF INTERNAL REVENUE (BIR) RULES ON THE TAXABILITY OF INTEREST INCOME UNDER THE PHILIPPINES-JAPAN TAX TREATY. Facts: M, a Japanese corporation with a branch in the Philippines, agreed to grant loans to C, a Philippine corporation. N, a Japanese export credit agency, the capital of which is wholly owned and fully funded by the Japanese government, insured the amounts extended by M to C. M expects to receive interest income from Cs payments. Held: The Philippines-Japan Tax Treaty provides that interest arising in a Contracting State and derived by a resident of the other Contracting State with respect to debt-claims guaranteed or indirectly financed by the Government of that other Contracting State or any financial institution wholly owned by that Government shall be exempt from tax in the first-mentioned Contracting State. Therefore, Ms interest income is exempt from

4 Philippine income tax and consequently, to withholding tax. BIR Ruling DA-ITAD No. 99-05 dated September 7, 2005. ROYALTIES ARISING IN THE PHILIPPINES AND PAID TO A SINGAPORE RESIDENT MAY BE SUBJECT TO PHILIPPINE INCOME TAX AT A RATE NOT TO EXCEED 15% OF THE GROSS AMOUNT OF THE ROYALTIES WHERE SUCH ROYALTIES ARE PAID BY AN ENTERPRISE ENGAGED IN PREFERRED AREAS OF ACTIVITIES AND ALSO WHERE SUCH ROYALTIES ARE PAID IN RESPECT OF CINEMATOGRAPHIC FILMS OR TAPES FOR TELEVISION OR BROADCASTING, OR 25% OF THE GROSS AMOUNT OF ROYALTIES IN ALL OTHER CASES. BIR Ruling DA-ITAD No. 101-05 dated September 15, 2005. BIR RULES THAT INCOME RECEIVED FOR THE COST OF RESEARCH AND DEVELOPMENT ACTIVITIES LEADING TO DEVELOPMENT OF INTELLECTUAL PROPERTY RIGHT/TECHNOLOGY IS NOT CONSIDERED ROYALTIES. Facts: An agreement was executed between A-US and affiliates to provide mechanisms for the sharing of costs, risks and rights among the participants therein with respect to certain research and development activities. Under the agreement, A-US will develop intellectual property rights and that the participants shall retain all beneficial and economic title and interest to all developed technology. Issue: Whether the cost-sharing payments to A-US for the cost of the research and development activities are not considered royalties under Article 13 of the RP-US tax treaty. Ruling: In the instant case, no transfer of technology of which A-US has proprietary interest or know-how or any undivulged technical information will take place but rather a development thereof, with the corresponding rights and interest being retained by all participants in the venture. The participating corporations will own all beneficial and economic title and interest to all developed technology. Thus, if as a result of the venture, A-US develops new intellectual property right/technology, the contributing corporations shall have the beneficial and economic title and interest to such newly developed technology. Such being the case, the said cost-sharing payments by corporations cannot be considered royalties under the RP-US tax treaty. BIR Ruling No. ITAD-86-05 dated August 26, 2005. INCOME DERIVED BY A THAI RESIDENT FROM THE PHILIPPINES SHALL BE TAXED ONLY IN THAILAND IF ALL THE CONDITIONS UNDER ARTICLE 15(2) OF THE PHILIPPINES-THAILAND TREATY APPLY. Facts: Mr. A, a resident of Thailand, was hired by Q-Philippines as its Vice-President. Subsequently, he went to Q-Thailand to assist in the development of its portfolio. To maintain its client base, Q-Philippines wanted to continue retaining Mr. As services. Thus, Q-Philippines and Q-Thailand entered into a Service Agreement where both parties agreed to share the cost of Mr. As salary on the basis of a 50%-50% allocation. Held: Under Article 15(2) of the Philippines-Thailand Tax Treaty, remuneration derived by a resident of a Contracting State for personal services performed in the other Contracting State shall be taxable only in the first-mentioned Contracting State if: (a) the recipient is

5 present in the other Contracting State for a period or periods not exceeding the aggregate 90 days in the case of professional services and 183 days in other cases in the calendar year concerned; (b) the remuneration or income is paid by, or on behalf of, a person who is a resident of the first-mentioned Contracting State; and c) the remuneration or income is not borne by a permanent establishment which the person has in the other Contracting State. Since Mr. As salary is paid in part by Q-Philippines, not all the conditions laid down in Article 15(2) are met. Consequently, that share of the salary paid by QPhilippines is subject to income tax in the Philippines under Section 25(A)(1) or Section 25(B) of the Tax Code. BIR Ruling No. DA-ITAD No. 94-05 dated September 2, 2005. THE PROFITS OF A CORPORATION, WHICH IS A RESIDENT OF THE UNITED KINGDOM (UK) IS TAXABLE ONLY IN THE UK, UNLESS THE UK CORPORATION CARRIES ON BUSINESS IN THE PHILIPPINES THROUGH A PERMANENT ESTABLISHMENT. A UK corporation may be deemed to have a permanent establishment in the Philippines if, among other things, the furnishing of services of that corporation in the Philippines through its employees or other personnel in connection with a building site or a construction or assembly project is for a period or periods aggregating more than 183 days within any twelve-month period. BIR Ruling No. DA-ITAD No. 93-05 dated September 1, 2005. THE TAX BASE FOR THE WITHHOLDING TAX ON INTEREST PAYMENTS TO A NON-RESIDENT BANK WHICH DOES NOT OPERATE AN OBU OR FCDU IN THE PHILIPPINES SHOULD BE THE ACTUAL AMOUNT OF THE INTEREST PAYMENTS AND NOT THE GROSSED-UP AMOUNT OF SUCH PAYMENTS. A Corp. is a domestic corporation engaged in the business of purchasing, subscribing, acquiring, owning, exchanging or otherwise disposing of real and personal property, including but not limited to shares of stock, debentures, notes, evidences of indebtedness and other securities. On the other hand, C Bank is a commercial bank organized under the laws of the Netherlands, which does not have a FCDU or OBU in the Philippines. A Corp. issued to C Bank-Singapore Branch a Note with a face value of US$60 million. Under the agreement between the said parties, A Corp. will shoulder the applicable withholding tax on the interest payments to be made to C Bank-Singapore Branch. A Corp. sought the opinion of the BIR on the proper tax base for the withholding tax payments. Held: The BIR held that the withholding tax on the interest payments should be based on the actual amount of interest payments and not the grossed-up amount in order to place foreign creditor banks not having OBUs or FCDUs at par with foreign creditor banks having FCDUs and OBUs, and also to reduce the tax burden of local borrowers. BIR Ruling No. 015-2005 dated August 23, 2005. BIR INTERPRETS WHAT IS CONSIDERED PUBLICLY-HELD CORPORATION FOR PURPOSES OF EXEMPTION FROM THE IMPROPERLY ACCUMULATED EARNINGS TAX. Facts: P Phil. is a domestic corporation. 98.3% of its shares are owned by P Ltd., a Singapore corporation. P Ltd., in turn is 100% owned by P Intl. Ltd. also a corporation

6 organized in Singapore. P Intl. Ltd is 100% owned by a US corporation PII Inc., which is in turn 100% owned by another US corporation, P Inc. Issue: Whether P Phil. is a publicly-held corporation exempt from the improperly accumulated earnings tax. Ruling: The ownership of a domestic corporation for purposes of determining whether it is a closely held corporation or a publicly-held corporation is ultimately traced to the individual shareholders of the parent company. Since P Phil. is practically a wholly owned subsidiary of P Inc., the shares of P Phil. will be considered as being owned proportionately by P Inc.s shareholders. Applying the foregoing principle, P Phil is considered a publicly held corporation. While P Inc. is not a publicly listed corporation, its shares of stock are widely dispersed and held by numerous individuals by reason of its Key Employee Stock option Plan. P Inc. has 1,127 individual shareholders of record and only 18.2% of the total issued and outstanding shares of stock of P Inc. in the aggregate are owned by its 20 largest individual shareholders. BIR Ruling No. DA-383-2005 dated September 6, 2005. EXISTING BIR ZONAL VALUES SHALL PREVAIL FOR PURPOSES OF DETERMINING THE PROPER TAX LIABILITIES. Facts: Taxpayer X purchased office condominium units in Makati. It filed with the Asset Valuation Division a request to re-value the zonal values of the units. It averred that the zonal values provided under the Department of Finance Order No. 64-97, dated June 6, 1997, were no longer reflective of the actual market value of the units purchased. Without waiting for a response from the BIR, Taxpayer X paid the capital gains taxes (CGT) and documentary stamp taxes (DST) on its purchase of the units. The taxes were computed based on the units zonal value. Thereafter, it filed a claim for refund for the allegedly overpaid DST. Held: The zonal values adopted by the BIR at the time of the purchase of the units, unless revised or amended in accordance with law by the Commissioner, should still be used for purposes of arriving at the DST to be paid by Taxpayer X. This is in accordance with the provisions of Section 6(E) of the 1997 Tax Code. In computing any internal revenue taxes, the value of the real property shall be appraised, according to either the fair market value as determined by the Commissioner; or the fair market value as shown in the schedules of the Provincial and City Assessors, whichever is higher. Absent an appropriate determination by competent appraisers that the said zonal valuations of the property are highly unrealistic, the valuations may not be arbitrarily disturbed. Siguion Reyna Montecillo & Ongsiako vs. Commissioner of Internal Revenue, CTA Case No. 6613, August 18, 2005. THE COMMISSIONER REVOKED REGIONAL REVENUE MEMORANDUM CIRCULAR NO. 2-2002 (RRMC 2-2002) ON THE TAXABILITY OF CONDOMINIUM CORPORATIONS. RRMC 2-2002 issued on June 19, 2002 by Regional Director Antonio I. Ortega of Revenue Region 8, Makati City was declared void for being contrary to existing laws, regulations, rulings, and jurisprudence. Moreover, Regional Directors do not have the delegated power and jurisdiction to issue Revenue Memorandum Circulars as the same lies within the exclusive jurisdiction of the Office of the Commissioner of Internal Revenue. BIR Ruling No. 18-2005 dated September 16, 2005.

7 NONETHELESS, THE COMMISSIONER CLARIFIED THE TAXABILITY OF CONDOMINIUM CORPORATIONS AS FOLLOWS: (1) Condominium dues and assessments are not taxable income of the Condominium Corporations; (2) Condominium Corporations are not subject to VAT when they collect association dues from unit owners pursuant to their corporate purpose as trustees of the fund; and (3) Unless the Condominium Corporation engages in activities for profit, it is not subject to VAT. Id. THE BIR ISSUES GUIDELINES FOR THE TAXATION OF COMPUTER SOFTWARE PAYMENTS. Revenue Memorandum Circular No. 44-2005 dated September 1, 2005. ONLY THOSE SERVICES THAT ARE PERFORMED IN THE PHILIPPINES ARE SUBJECT TO VAT. Facts: F, a non-resident foreign corporation organized and existing under the laws of the U.S., authorized FF, a domestic corporation to have access to its computer program capable of computing commissions earned by distributors of F and its affiliates. F shall provide FF the continued use of its U.S. computer system for the purpose of processing and computing the commission earned by FFs distributors. Only the encoding of the data is done in the Philippines. The data is transmitted to the U.S. Only F employees can enter the necessary commands in the computer system to compute for the commissions. The processing and computing is done in the U.S. by F. Held: Section 108(A) of the Tax Code states that the sale or exchange of services subject to VAT include only those services that are performed in the Philippines. Since the services will not be performed in the Philippines, the hosting fees in consideration for the services to be paid by FF to F are exempt from VAT. BIR Ruling No. DA-ITAD No. 97-05, dated September 2, 2005. CONVERSION FROM A SINGLE PROPRIETORSHIP TO A CORPORATION IS NOT A DEEMED SALE TRANSACTION AND THEREFORE, THE TRANSFER OF ASSETS TO THE CORPORATION IS NOT SUBJECT TO VAT. G Enterprises is a single proprietorship. Later, G Enterprises adopted a new corporate name and became GSE, Inc. The owner of G Enterprises transferred its assets to GSE, Inc. in exchange for shares of stock in the latter thereby acquiring controlling interest in GSE, Inc. Held: The transfer of assets to GSE, Inc. is not considered a deemed sale transaction as the same is akin to VAT-exempt mergers or consolidations where the transferor gains control of the transferee. This ruling revoked earlier rulings issued on the same matter, namely VAT Rulings No. 451-88 and 009-93. VAT Review Committee Ruling No. 014-2005 dated August 26, 2005. SINCE A PEZA-REGISTERED EXPORT ENTERPRISE MAY NOT BE PASSED ON WITH, NOR CLAIM, INPUT VAT, ITS PAYMENT OF ROYALTIES TO A NON-RESIDENT LESSOR IS EXEMPT FROM VAT. BIR Ruling DA-ITAD No. 98-05 dated September 7, 2005; and BIR Ruling DA-ITAD No. 92-05 dated September 1, 2005.

8 INPUT TAX IS ALLOWED AS A TAX CREDIT ONLY UPON CONSUMMATION OF SALE OR UPON PAYMENT OF COMPENSATION. Input VAT on domestic purchases of goods or property shall be allowed as tax credit to the purchaser only upon consummation of sale, which means upon issuance by the seller of the VAT sales invoice evidencing the sale of goods/property. On the other hand, the input VAT on purchases of services shall be available as tax credit to the purchaser only upon payment of the compensation or fee, which is upon the issuance by the seller of the VAT official receipt evidencing payment for services performed or yet to be performed. It is imperative for the taxpayer to declare the input VAT on domestic purchases of goods and services at the end of the corresponding taxable quarter where purchases of goods were consummated or payment of services. AT&T Communications Services Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 6631, September 27, 2005. IN A CLAIM FOR REFUND OF EXCESS INPUT VAT ATTRIBUTABLE TO ZERO-RATED SALES, THE FAILURE TO PRESENT OFFICIAL RECEIPTS WITH THE IMPRINTED WORDS ZERO-RATED IS FATAL TO THE CLAIM FOR REFUND. The CTA first settled the issue of whether the petitioner in this case complied with the invoicing requirements for zero-rated sales. When the CTA found that the petitioners official receipts were not imprinted with the words zero-rated, the CTA denied the claim for refund solely on the basis of non-compliance with invoicing requirements. Tropitek International, Inc. v. Commissioner of Internal Revenue (CIR), CTA Case No. 6318, September 13, 2005. THE NAME OF THE VAT-REGISTERED TAXPAYER MUST BE INDICATED IN THE VAT RECEIPT OR INVOICE IN ORDER TO CLAIM INPUT VAT. R Corp. and A Corp. entered into a joint venture agreement (JVA) to undertake and develop 6 parcels of land. However, the project was dissolved for failure by the parties to execute a definitive agreement. O Corp. took over the role of A Corp. instead. As provided in the JVA, O Corp. paid all the pre-development expenses incurred by A Corp. including the input VAT thereon. The receipts and invoices of the said expenses are in the name of A Corp. O Corp. sought a ruling from the BIR asking whether O Corp. can claim the input VAT previously paid by A Corp. Held: The BIR held that O Corp. cannot utilize the input VAT of A Corp. because the VAT receipts and invoices are in the name of A Corp. Furthermore, the BIR held that A Corp. can utilize the input taxes from the expenses incurred for the development of the project. However, the BIR pointed out that the joint venture is a separate and distinct taxpayer from the co-venturers such that if the expense was incurred for the benefit of the joint venture and the official receipt/invoice was issued in the name of the joint venture then it is the joint venture that is entitled to claim the input VAT and not the co-venturers. VAT Review Committee Ruling No. 0152005 dated August 26, 2005. BELATEDLY PAID WITHHOLDING VAT MAY BE CLAIMED AS INPUT TAX IN THE YEAR OF PAYMENT.

9 A Corp. belatedly paid and remitted withholding VAT on its payment of royalties to nonresidents in 2003. The withholding VAT was for royalties paid to non-residents in 2001 and 2002. A Corp. requested clarification from the BIR on whether it can claim as input VAT, the withholding VAT it remitted in 2003 (for the 2001 and 2002 royalty payments) in the same year (2003). Held: The BIR held that the input VAT may be recognized by A Corp. upon showing that the VAT on royalties has been paid and remitted to the BIR. The BIR further held that the withholding VAT may be claimed in the year it was paid (2003) as input tax excluding the surcharges and interests paid for late remittance. The BIR also held that A Corp. must show that the withholding VAT was not deducted as royalty expense in the taxable years 2001 and 2002. VAT Review Committee Ruling No. 016-2005 dated August 26, 2005. RULE ON PRESCRIPTIVE PERIOD IS MANDATORY. A Corp. withheld taxes for taxable year 1996 to 1998 on the income of G Inc., an Australian corporation, for services rendered outside the Philippines. On behalf of G Inc., A Corp. filed a request for refund of the erroneously withheld income tax. A Corp. asserts that since the services were rendered outside the taxing jurisdiction of the Philippines, the 2-year prescriptive period shall not apply. The BIR ruled that the taxes withheld by A Corp. on the income of G Inc. for taxable year 1996 and for some part of 1997 may no longer be refunded as prescription has set in. The BIR cited Supreme Court decisions stating that the provision on prescriptive periods as mandatory and not subject to qualification, regardless of the condition under which the payment has been made. BIR Ruling No. ITAD-91-05 dated August 30, 2005. THE COMMISSIONER OF INTERNAL REVENUE (COMMISSIONER) MUST INSTITUTE COLLECTION PROCEEDINGS WITHIN THE THREEYEAR PERIOD FROM ASSESSMENT. Facts: Taxpayer A failed to file its motion for reconsideration/re-investigation from the Commissioners assessment on time. Hence, the assessment became final and unappealable. Eight years later, Taxpayer A received a letter from the Commissioner advising it that a final decision had been rendered denying its protest against the disputed tax assessment. Taxpayer A brought the matter before the CTA. The Commissioner, on the other hand, contended that, since the assessment had become final and unappealable, the CTA had no jurisdiction over Taxpayer As appeal. Held: A tax assessment deals with how much taxes are due from a taxpayer while tax collection deals with the whole process of collecting the same from the taxpayers. It can happen that, while there may no longer be any dispute on the assessment, there is still an existing controversy pertaining to the right of the BIR to legally collect the assessed taxes. The CTA appropriately possesses jurisdiction to act on Taxpayer As case because BIR officers should not be allowed to benefit from their neglect in collecting taxes within the reglementary period. Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines, Inc., CTA E.B. No. 73 (CTA Case No. 6362), August 12, 2005. FOR FORFEITURE TO LIE AGAINST IMPORTATIONS, THERE MUST BE FRAUD ON THE PART OF THE IMPORTER/CONSIGNEE.

10 Under Section 2530(l)(3) and (4) of the Tariff and Customs Code of the Philippines, the requisites for forfeiture are: (i) the wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or false declaration or affidavit, or the wrongful making or delivery by the same persons of any invoice, letter or paper, all touching on the importation or exportation of merchandise; and (ii) that such declaration, affidavit, invoice, letter or paper is false. The fraud must be committed by an importer/consignee to evade payment of duties due. The fraud contemplated by law must be actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right. Fraud is never presumed. It must be proved. Failure to prove the existence of fraud is a bar to forfeiture. The reason is that forfeitures are not favored in law and equity. Gelmart Industries Philippines, Inc. vs. Commissioner of Customs, CTA Case No. 6518, August 15, 2005. A LETTER MERELY REQUESTING FOR AMPLE TIME TO CONSIDER THE VALIDITY OF AN ASSESSMENT CANNOT BE CONSIDERED A PROTEST THAT VALIDLY DISPUTES THE ASSESSMENT. FAILURE ON THE PART OF THE TAXPAYER TO PROTEST A LOCAL TAX ASSESSMENT WITHIN 60 DAYS FROM RECEIPT OF THE WRITTEN NOTICE OF ASSESSMENT RENDERS THE ASSESSMENT FINAL. California Manufacturing Company, Inc. vs. The City of Las Pias, CTA AC No. 4, September 28, 2005. CTA AFFIRMS DISMISSAL OF COMPLAINT FOR SUM OF MONEY BY THE REGIONAL TRIAL COURT (RTC) FOR THE REFUND OF REAL PROPERTY TAXES PAID UNDER PROTEST. Facts: A controversy arose between Taxpayer A and LGU X involving payment by the former to the latter under protest of real property taxes pursuant to Section 254 and 258 of the Local Government Code (LGC). Despite the protest, LGU X refused to grant the refund. Taxpayer A then filed a civil case with the RTC for a refund of sum of money. The RTC dismissed the complaint for failure of Taxpayer A to exhaust administrative remedy, stating that the action is still premature as the case is not yet ripe for judicial determination and, therefore, it has no cause of action to seek in court. Held: The dismissal by the RTC of the Complaint for Sum of Money was proper. If the local treasurer denies the protest or fails to act upon it within the 60-day period provided for in Section 252 of the LGC, the taxpayer/real property owner may then appeal or directly file a verified petition with the Local Board of Assessment Appeals (LBAA) within 60 days from denial of the protest or receipt of the notice of assessment, as provided for in Section 226 of the LGC. And if the taxpayer is not satisfied with the decision of the LBAA, he may elevate the same to the Central Board of Assessment Appeals. A perusal of the Complaint before the RTC shows that what is being assailed is the correctness of the assessment with respect to the imposition of real property tax on their machines. This involves questions of fact. Hence, the petition should have been brought to the LBAA. The arguments raised by the petitioner presume the existence of a fact, which it must first prove by competent and sufficient evidence before the administrative body concerned. China Banking Corporation vs. City Treasurer of Kalookan, CTA Case AC No. 12 dated August 31, 2005.

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ELIGIBILITY UNDER THE BARANGAY MICRO BUSINESS ENTERPRISES ACT OF 2002 IS DETERMINED IN THE FIRST INSTANCE BY THE LOCAL GOVERNMENT UNIT CONCERNED. HOWEVER, IT IS THE BIR THAT CONFIRMS THE TAX EXEMPTION. BIR Ruling No. DA-372-2005 dated August 30, 2005.

NOTE: The information provided herein is general and may not be applicable in all situations. It should not be acted upon without specific legal advice based on particular situations. If you have any questions, please feel free to contact any of the following at telephone number (632) 633-9418, facsimile number (632) 633-1911, or at the indicated e-mail address: Atty. Carlos G. Baniqued Atty. Laura Victoria A.S. Yuson-Layug Atty. Terence Conrad H. Bello Atty. Ma. Carlota Christina G. Laio-Santiago Atty. Suzette A. Celicious Atty. Madeline L. Zialcita-Villapando Atty. Kathleen L. Saga cgbaniqued@baniquedlaw.com lvyusonlayug@baniquedlaw.com thbello@baniquedlaw.com cglaino@baniquedlaw.com sacelicious@baniquedlaw.com mlzvillapando@baniquedlaw.com klsaga@baniquedlaw.com