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A. General Principles CONCEPT, NATURE AND CHARACTERISTICS OF TAXATION AND TAXES CIR v. Cebu Portland Cement Co. The Court of Tax Appeals ordered the Commission of Internal Revenue (CIR) to refund to Cebu Portland Cement Co. about P350k+, w/c represented overpayments of ad valorem taxes on cement produced and sold by it. CIR opposed the ruling, claiming that it had a right to apply the overpayment to another tax liability of Cebu Portland sales tax on a manufactured product (the cement). CIR said that cement is a manufactured and NOT a mineral product and therefore NOT exempt from sales taxes. (mineral = exempt; manufactured = not exempt) On the other hand, Cebu Portland said that it is exempt from sales tax under the Tax Code because cement is a mineral product and NOT a manufactured product. Court of Tax Appeals held that the alleged sales tax liability of Cebu Portland was still being questioned and therefore could not be set-off against the refund. A petition for review was filed by CIR. I: W/n CIR must refund the overpayment of the ad valorem tax R: NO. CIR has the right to apply the overpayment to Cebu Portlands sales tax deficiency. The sales tax was properly imposed upon the company for the reason that cement has always been considered a manufactured product and NOT a mineral product. (CIR v Republic Cement) o Cement was never considered a mineral product w/in the meaning of the Tax Code, despite it being composed of 80% mineral, because cement is a PRODUCT of the manufacturing process. o Reliance cannot be made on Cebu Portland v CIR saying that cement = mineral because this case has been overruled. The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as the lifeblood of the government. If the payment of taxes could be postponed by simply questioning their validity, the government would be paralyzed. Thus, the Tax Code provides that no court shall have authority to grant an injunction or restrain the collection of taxes, except when in the opinion of the Court of Tax Appeals, the collection by the BIR or the Bureau of Customs may jeopardize the interest of the Government and/or the taxpayer. o In such a case, the Court, at any stage of the proceeding may suspend the collection and require the taxpayer to either: 1. deposit the amount claimed OR 2. file a surety bond for not more than double the amount with the Court. The exception does not apply in this case. In fact, there is all the more reason to enforce the rule given that even after crediting of the refund against the tax deficiency, a balance of more than P4 million was still due from the company. To require the Commissioner to actually refund to the company the amount of the judgment debt, which he will later have the right to distrain for payment of its sales tax liability is an idle ritual. CLASSIFICATIONS AND DISTINCTIONS Esso Standard Eastern Inc. v. CIR ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. The Commissioner on Internal Revenue (CIR) disallowed the claim on the ground that the expenses should be capitalized and might be written off as a loss only when a dry hole should result. Hence, ESSO filed an amended return where it asked for the refund of P323,270 by reason of its abandonment, as dry holes, of several of its oil wells. It also claimed as ordinary and necessary expenses in the same return amount representing margin fees it had paid to the Central Bank on its profit remittances to its New York Office. I: W/n the margin fees are taxes OR necessary expenses which are deductible from its gross income R: No, they are neither taxes nor necessary expenses. 1) Margin fees are NOT taxes because they are NOT imposed as a revenue measure but as a police measure whose proceeds are applied to strengthen the countrys international reserves. Thus, the fee was imposed by the State in the exercise of its POLICE POWER and NOT taxation power. 2) Neither are they necessary and ordinary business expenses. An expense is considered NECESSARY where the expenditure is helpful in the development of the taxpayers business. It is ORDINARY when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. The expenditure being ordinary and necessary is determined based on its nature the extent and permanency of the work accomplished by the expenditure. In this case, ESSO was unable to show that the remittance to the head office of part of its profits was made in furtherance of its own trade or business. It merely presumed that all corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra vires; which is erroneous. Claims for deductions are a matter of legislative grace and do not turn on mere equitable considerations.
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PAL v. Edu Under a legislative franchise, Philippine Airlines is exempt from all taxes except for the payment of 2% of its gross revenue to the National Government. On the strength of an opinion of the Secretary of Justice, PAL was determined not to have been paying motor vehicle registration fees since 1956. Eventually, the Land Transportation Commissioner required all tax exempt entities, including PAL, to pay motor vehicle registration fees. PAL protested. I: W/n PAL is exempt from the payment of motor vehicle registration fees R: YES, PAL is exempt. The motor vehicle registration fee is a tax, to which PAL is exempt. Taxes are for revenue, while fees are exactions for purposes of regulation and inspection. Thus, fees are limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the OBJECT of the charge, and NOT the name, that determines whether a charge is a tax or a fee. In this case, the money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle Office but for the construction and maintenance of public roads, streets and bridges.
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Osmea v. Orbos Pres. Marcos issued PD 1956 creating the Oil Price Stabilization Fund (OPSF), which was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from: o exchange rate adjustments AND o increases in the world market prices of crude oil A portion of the OPSF was taken from collections of ad valorem taxes levied on oil companies. Subsequently, by virtue of an EO, the OPSF was reclassified into a trust liability account and ordered released from the NATIONAL TREASURY to the MINISTRY of Energy. Said EO also authorized the investment of the fund in government securities, with the earnings accruing to the fund. Aquino then amended PD 1956 by promulgating EO 137, w/c expanded the grounds for reimbursement to oil companies for possible COST UNDERRECOVERY inccured resulting from the reduction of domestic prices on petroleum products. The said cost underrecovery was left to the determination of the Ministry of Finance. Osmena then questioned the creation of the trust fund, saying that it violates the Constitution. This is because the money collected pursuant to PD 1956 is a special fund, and under the Constitution, if a special tax is collected for a specific purpose, the revenue generated from it shall be treated as a SPECIAL FUND to be used only for the indicated purpose. It must not be channeled to another government objective. I: W/n the creation of the trust fund is violative of the Constitution R: NO, creation of the trust fund was valid. In order for the funds to fall under the prohibition, it must be shown that they were collected as TAXES as a form of revenue While the funds collected may be referred to as taxes, they are exacted in the exercise of the POLICE POWER of the State . The main objective was NOT revenue but to stabilize the price of oil and petroleum. The OPSF is actually a SPECIAL FUND, as seen from the special treatment given to it by EO 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. These measures thus comply with the constitutional description of a "special fund." What is here involved is not so much the power of taxation as police power. For a valid delegation of power, it is essential that the law delegating the power must be: o 1) complete in itself -- must set forth the policy to be executed by the delegate o 2) it must fix a standard limits of whichare sufficiently determinate or determinable to which the delegate must conform. Such was fulfilled in this case.
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Planters Products Inc v Fertiphil Marcos issued LOI 1465, imposing a capital recovery component of Php10.00 per bag of fertilizer. The levy was to continue until adequate capital was raised to make PPI financially viable Fertiphil remitted to the Fertilizer and Pesticide Authority (FPA), which then remitted said amount to Far East Bank and Trust Company, the depository bank of PPI. P6k+ was remitted from 1985 to 1986. After EDSA, Fertiphil demanded from PPI a refund of the amount it remitted; PPI refused. Fertiphil filed a complaint for collection and damages, questioning the constitutionality of LOI 1465. They claimed it was unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of due process FPA on the other hand said that the issuance of LOI 1465 was a valid exercise of police power of the state in insuring the fertilizer industry, and that Fertiphil did not sustain any damage because the burden imposed by the levy fell on the ultimate consumer, not the seller I: 1. W/m the issuance of LOI 1465 was an exercise of the police power of the state - NO 2. W/n the levy was for a public purpose - NO R: 1. The imposition of the levy was a exercise of the taxation power of the state. While it is true that the power to tax can be used as an implement of police power, the primary purpose of the levy was revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. In this case, the imposition of Php10 per bag is too excessive to serve a mere regulatory purpose. Even if it was an exercise of the police power of the state, the LOI would still be invalid as it did not comply with the test of lawful subjects and lawful means -- specifically, that the interest of the public, generally, requires its exercise, and that the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2. LOI 1465 is not for a public purpose. The purpose for the issuance of LOI 1465 was to support a private company: o First, it is expressly provided that the levy be imposed to benefit a private company PPI. o Second, the levy was conditional and dependent on PPI becoming financially viable. o Third, the levies were directly remitted and deposited in FEBTC, the bank of PPI, which used said remittances to pay of PPIs debts.
Tiu v. CA: Equal Protection of the Laws Congress passed RA 7227 which created the Subic Special Economic Zone, granting tax and duty incentives (tax and duty-free importations of raw materials, capital and equipment) to businesses and residents within the area encompassed by the zone. The law provides that no local and national taxes shall be imposed within the zone. In lieu of taxes, 3% of the gross income of enterprises operating within the zone shall be remitted to the National Government, 1% to the local government units, and 1% to a development fund to be utilized for the development of municipalities outside Olangapo and Subic. Pres. Ramos later issued an EO specifying a secured area area within the zone in which the privileges were operative. o EO97 tax and duty-free importations will only apply to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for import tax and duties, all business are required to pay the specified taxes in Section 12(c) of RA7227. o EO97-A the tax incentives are only applicable to business enterprises and individuals residing within the secured area. Petitioners outside the secured area challenged the constitutionality of this EO for allegedly being violative of their right to equal protection of the laws.
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John Hay Peoples Alternative Coalition v. Lim RA No. 7227 created the Bases Conversion and Development Authority (BCDA), which also created the Subic Special Economic Zone (Subic SEZ). Aside from granting incentives to Subic SEZ, RA 7227 also granted the President is an express authority to create other SEZs in the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay through executive proclamations.
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Big investors lured into secured areas -billion-peso investments & thousand of new jobs -national economic impact -
Present biz operators outside the are -no such magnitude -only local economic impact -biz activities outside secured areas are not likely to have any impact in achieving purpose of law which is to turn former military base to productive use for the benefit of the Phil economy There is, then, hardly any reasonable basis to extend to them the benefits and incentives accorded in RA 7227
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COCONUT OIL REFINERS ASSOCIATION INC. V. BCDA RA 7227 was enacted providing for the sound and balanced conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of special economic zones. President Ramos issued EO 80 which declared that Clark (CSEZ) shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone (SSEZ) under RA 7227. Petitioners claim that the said E.O as well as RA 7227 are replete with constitutional infirmities and must be declared invalid and void. Petitioner assail: o EO 80 and BCDA Board Resolution: allowing the tax and duty-free sale at retail of consumer goods imported via clark for consumption outside CSEZ. o EO 97, EO 97-A: granting $100 monthly and $200 yearly tax-free shopping privileges to SSEZ residents living outside secured area of SSEZ and to Filipinos aged 15 and over residing outside SSEZ Petitioners argue that the Executive Department, by allowing thru questioned issuances the setting up of tax and duty free shops and the removal of consumer ggoods and items from the zones without payment of correspondning duties and taxes arbitrarily provided additional exemptions to the limitations imposed by RA 7227. I: (other issues: equal protection clause, preferential use of Filipino labor, prohibition against unfair competition) W/N assailed issuances amounts to violation of the rule on separation of powers being executive legislation. R: Petitioners claim that the wording of RA 7227 clearly limits the grant of tax incentives to the importation of raw materials and capital equipment only, hence they claim that assailed issuances constitute executive legislation for invalidly granting tax incentives in importation of consumer goods. The court however said that to limit the tax-free importation privilege of enterprises to those located inside the special zone only to raw materials clearly runs counter to the intention of the legislature to create a free port where free flow of goods or capital within, into and out of the zones is insured. The records of the Senate containing the discussion of the concept of SEZ in Sec 12a RA 7227 show the legislative intent that consumer goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance with Philippine laws. According to Senator Guingona: The SEZ could embrace the needs of tourism, servicing, financing and other investment aspects. However with regard to the executive order issued by President Ramos concerning Clark as being a SEZ (and thus enjoy tax exemptions and incentives) the court declared that such was an invalid exercise of executive legislation. As was decided in the case of Camp John
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Sison v. Ancheta BP 135 amended Section 21 of the National Internal Revenue Code. The amendment provided a different schedule of tax rates for compensation income and net income. It provided that: o The tax base for those earning compensation income at fixed rates would be GROSS INCOME, o The tax base for the income of businesses and professionals would be NET INCOME Sison, as taxpayer, challenged the validity of the amendment on the ground that he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession as compared to those which are imposed upon fixed income or salaried individual taxpayers. He claims that it amounts to class legislation, in violation of EPC, due process and the rule on uniformity in taxation. I: W/n it is violative of EPC, dp and the rule on uniformity in taxation R: NO! 1) Due process clause may only be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. (ie. When it amounts to confiscation of property / not used for a public purpose) 2) As for EPC, the Constitution does not require things which are different be treated the same. It is inherent in the power to tax that a state be free to select the subjects of taxation and 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation. *Thus, there was no violation of due process or EPC. 3) There was also no violation of uniformity.
British American Tobacco v Camacho R.A. 8240 was passed recodifying the NIRC where Sec 142 was renumbered Sec 145. British American Tobacco assailed the validity of Sec. 145 of the NIRC (amended by RA 8240), arguing that the said provisions are violative of the equal protection and uniformity clause of the Constitution. Section 145 provides for a four-tier tax rate based on net retail price per pack of cigarettes: (1) low-priced, (2) medium-priced, (3) high-priced, and (4) premiumpriced. Section 145 further provides that NEW BRANDS (registered after January 1, 1997) of cigarettes shall be taxed at their current retail price. If the current net retail price has not been established, the suggested net retail price shall be used to determine the specific tax classification. On the other hand, old or existing brands (registered before January 1, 1997) shall be taxed at their net retail price as of October 1, 1996. o Net retail price = price @ which cigarettes are sold on retail in 20 supermarkets in MM o Suggested net retail price = net retail price @ which brands of cigarettes are intended by the manufacturer to be sold To implement RA 8240, BIR issued a Revenue Regulation (RR No. 1-97) classifying existing brands of cigarettes as those existing or active (old) brands prior to January 1, 1997, while new brands of cigarettes are those registered after January 1, 1997. Another Revenue Regulation was issued amending the first (RR No. 9-2003) by providing BIR with the power to periodically review every two years / earlier the current net retail price of new brands to ESTABLISH / UPDATE their tax classification. In June 2001, British American Tobacco introduced the Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights. Lucky Strike was taxed based on its suggested gross retail price from the time of its introduction in the market in 2001 until the BIR market survey in 2003. The brands were sold at P22.54, P22.61 and P21.23 so the
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ABAKADA v Purisima RA 9335 (Attrition Act of 2005) was enacted to optimize the revenue-generation capability and collection of the BIR and BOC by providing a system of rewards and sanctions. This is done through the creation of a Rewards and Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board). It covers all officials and employees of the BIR and the BOC with at least six months of service, regardless of employment status. The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for the year. Any incentive or reward is taken from the fund and allocated to the BIR and the BOC in proportion to their contributions. Petitioners including ABAKADA, invoking their right as taxpayers, challenged the constitutionality of RA 9335: They claimed that limiting the scope of the system of rewards and incentives only to officials and employees of the BIR and the BOC violates the constitutional guarantee of equal protection. There is no reason why such system should NOT apply to OTHER officials and employees of all other government agencies. They assert that the law unduly delegates the power to fix revenue targets to the President as it lacks a sufficient standard on that matter. I: 1) W/n limiting the scope of the system of rewards and incentives only to officials and employees of the BIR and the BOC violates the constitutional guarantee of equal protection 2) Whether or not the law unduly delegates the power to fix revenue targets to the President. R: NO, it does not violate EPC and does NOT unduly delegate power to the President 1) The equal protection clause recognizes a valid and reasonable classification. RA 9335 has an expressed public policy, w/c is the optimization of the revenue-generation capability and collection of the BIR and the BOC. Since the subject of the law is the revenue- generation capability and collection of the BIR and the BOC, the incentives and/or sanctions provided in the law should logically pertain to the said agencies. Since the BIR and BOC perform the special function of taxation, such substantial distinction is germane and intimately related to the purpose of the law. Hence, the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal protection. 2. Two tests determine the validity of delegation of legislative power: 1) the completeness test 2) the sufficient standard test
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CIR v CA and YMCA YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, YMCA, among others, an amount of income (about P700k+) from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and from parking fees collected from non-members. The CIR thus issued an assessment to YMCA totaling about P415k+ including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA protested the assessment and filed a letter. In reply, the CIR denied the claims of YMCA. YMCA thus filed a petition to the CTA to take out the taxes and CTA ruled in favor of YMCA.
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Cassanovas v. Hord: Impairment Clause In 1897, the Spanish Gov granted Cassanovas certain mines in Ambos Camarines. The Internal Revenue Act imposes on all mining concessions granted prior to 1899 a property tax of P100 + an ad valorem tax of 3% of the actual market value of the output of the mines. The CIR thus considered Cassanovas to fall under such. Cassanovas assailed the validity of this provision on the ground that it impairs the obligations of contracts. Under the decree of the Spanish Government, the mining claim was subject only to P20 property tax + ad valorem tax of 3%. The decree provided that no other taxes except those mentioned shall be imposed upon mining industries. I: W/n there was a violation of the impairment clause R: Yes. Therefore, the provision is void. 1) There was a contract between the Spanish Government and Cassanovas, the obligation of which contract was impaired by the Internal Revenue Law. A State may by contract based on consideration exempt the property of an individual or corporation from taxation either for a specified period or permanently. And it is equally well settled that the exemption is presumed to be on sufficient consideration, and binds the State if the charter containing it is accepted. Such contract can be enforced against the State at the instance of the corporation. 2) Also, the provision conflicts with Section 60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by reason of ILLEGALITY in the procedure by which they were obtained, or for FAILURE to comply with the conditions prescribed. The grounds were not shown or claimed in the case. The important distinction in this case is that there was consideration between both parties for entering into the contract. From the provisions of the deed, it was not a unilateral grant of a privilege by the Spanish Government. Cassanovas undertook to perform some things with respect to the mining claim in consideration of the privilege. Hence, there was a binding contract with reciprocal obligations, which the State cannot abrogate.
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NOTE (if Sir asks about how this differs with OTHER cases): The cases relied on by YMCA do not support its cause. YMCA of Manila v. CIR and Abra Valley College, Inc. v. Aquino are not applicable, because the controversy in both cases involved exemption from the payment of property tax, not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City is not in point either, because it involves a claim for exemption from the payment of regulatory fees, specifically electrical inspection fees, imposed by an ordinance of Pasay City -- an issue not at all related to that involved in a claimed exemption from the payment if income taxes imposed on property leases. In Jesus Sacred Heart College v. Com. Of Internal Revenue, the party therein, which claimed an exemption from the payment of income tax, was an educational institution which submitted substantial evidence that the income subject of the controversy had been devoted or used solely for educational purposes. On the other hand, YMCA in the present case had not given any proof that it is an educational institution, or that of its rent income is actually, directly and exclusively used for educational purposes. Lung Center of the Phils v QC The Lung Center of the Philippines, a non-stock and non-profit entity established by virtue of PD 1823, was the owner of a parcel of land in QC. In the middle of the lot was a hospital known as the Lung Center of the Philippines.
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SITUS OF TAXATION AND DOUBLE TAXATION Proctor & Gamble v Municipality of Jagna The Municipal Council of Jagna, Bohol, enacted Municipal Ordinance 4 w/c imposed STORAGE FEES on all exportable copra deposited in the bodega w/in the jurisdiction of Jagna, Bohol at the rate of 10 cents PER 100 kilos. It also provides that all exportable copra deposited in the bodega within the Municipality of Jagna Bohol, is part of the surveillance and lookout of the Municipal Authorities. In this light, P&G, a domestic corp engaged in the manufacture of oil, soap and others, w/c maintained a bodega in the municipality where it stored COPRA (purchased from the municipality and shipped for its manufacturing ops), paid storage fees for 6 yrs from 1958 to 1963. The fees totalled P1M+. P&G then filed a suit in the CFI of Manila, praying: o to declare Ordinance 5 INAPPLICABLE Tto it or, that it be pronounced ultra-vires and void for being beyond the power of the Municipality to enact and o that defendant Municipality be ordered to refund to it the amount of P42k+ which it paid under protest; and costs P&G argues that the tax imposed in the said ordinance is an EXPORT TAX on EXPORTABLE COPRA and thus, the said levy was inapplicable to their business because they are store copra for their EXCLUSIVE USE in connection w/ the manufacture of soap, edible
Province of Bulacan v CA
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FORMS OF ESCAPE FROM TAXATION Delpher Trades Corp v IAC Pacheco and his sister owned a parcel of real estate land identified that was registered in Bulacan. They then leased the land to Construction Components Inc, and providing that during the existence or after the term of the lease, the lessor (Pacheco,sister) should he decide to sell the property leased, shall first offer the same to the lessee(Construction) and the lessee has the priority to buy under similar conditions. Construction then assigned its rights and obligations to Hydro Pipes w/ the consent of the Pachecos. A deed of exchange was executed between the Pachecos and Delpher Trades where Pachecos conveyed to Delpher the leased property together w/ another parcel of land also located in Malinta Estate, Valenzuela for 2,500 shares of stock of Delpher w/ a total value of P1.5M. On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, Hydro Pipes filed an amended complaint for
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CIR v Toda CIC authorized Benigno Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90M. Toda purportedly sold the property for P100 million to Rafael Altonaga, who, in turn, sold the same property on the same day to Royal Match for P200M. For the sale of the property to Royal Match (RMI), Altonaga paid capital gains tax in the amount of P10M.
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EXEMPTION FROM TAXATION Phil Acetylene v CIR Philippine Acetylene Co. Inc (PAC). is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. From 1953 to 1958, it made various sales of its products to the NAPOCOR, a Phil gov agency, and the VOICE OF AMERICA, a US gov agency. The CIR assessed deficiency sales tax and surcharge on the sales, w/c amounted to about P12k+, pursuant to the NIRC. The company denied liability for the payment of the tax on the ground that both NAPOCOR and the VOA are exempt from taxation. It asked for a reconsideration of the assessment and, failing to secure one, appealed to the CTA. The CTA ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the MANUFACTURER and NOT the BUYER. PAC, being a manufacturer, CANNOT claim exemption from the payment of sales tax simply because its buyer, Napocor, is exempt. With respect to the sales made to the VOA, CTA held that goods purchased by the American Government or its agencies from manufacturers or producers are exempt from the payment of the sales tax under the agreement between the Government of the Philippines and that of the United States, provided the purchases are supported by certificates of exemption. I: W/n PAC should be exempt from sales tax R: NO. PAC should pay P12k+ deficiency tax. Statutes which impose a tax on sales, have been described as acts with schizophrenic symptoms, as they apparently have two faces one that of a vendor tax, the other, a vendee tax. HOWEVER, this is clarified by the NIRC W/c provides that the sales tax shall be paid by the MANUFACTURER or producer, who must make a true and complete return of the amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and within Sec 186, NIRC provides that a tax = to 7% of the gross selling price shall be levied on articles sold, to be paid by the manufacturer or producer. Sec 183 further provides that it persons conducting businesses should pay the percentage tax, because otherwise, the amount of the tax shall be increased by 25%, the increment to be a part of the tax. When the economic burden of the tax finally falls on the purchaser, the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts
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CIR v CA and Ateneo de Manila Ateneo de Manila University, is a non-stock, non-profit educational institution, was conducting research through an auxiliary unit, the Institute of Philippine Culture. In 1983, Ateneo received from CIR a demand letter assessing Ateneo of the the sum of about P170k+ for alleged deficiency contractors tax, and an assessment in the sum of about P1M+ for alleged deficiency income tax for the fiscal year of March 1978. Denying said tax liabilities, Ateneo sent CIR a letter-protest contesting the validity of the assessments. CIR rendered a letter-decision canceling the assessment for deficiency income tax but modified the assessment for deficiency contractors tax by increasing the amount due to P190k+. Ateneo requested for a reconsideration or reinvestigation of the modified assessment. At the same time, it filed in the CTA a petition for review of the said letter-decision. While the petition was pending before the CTA, CIR issued a final decision reducing the assessment for deficiency contractors tax from P190k+ to P46k+, exclusive of surcharge and interest. CTA canceled the deficiency contractors tax assessment, w/c was affirmed by the CA. CIR filed a petition for review before the SC. I: W/n Ateneo should pay the 3% contractors tax under Sec 205 of the Tax Code R: NO. 1) In case of doubt, statutes on tax imposition are to be construed strongly against the GOV and in favor of citizens, because burdens are NOT to be imposed nor presumed beyond what is expressed. Ateneos IPC NEVER sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university. Funds received by Ateneo are technically not a fee. They may however fall as gifts or donations which are tax-exempt as shown by Ateneos compliance w/ the NIRC requirement providing for the exemption of such gifts to an educational institution. 2) The term independent contractors include persons whose activity consists essentially of the sale of all kinds of services for a fee.
National Development Company v CIR The NDC entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. The purchase price was to come from the proceeds of bonds issued by the Central Bank. Initial payments were made in cash and through irrevocable letters of credit. 14 promissory notes were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the Philippines. The remaining payments and the interests thereon were remitted in due time by the NDC to Tokyo. The vessels were eventually completed and delivered to the NDC in Tokyo. NDC remitted to the shipbuilders in Tokyo the total amount of about US$4M+ as interest on the balance of the purchase price. No tax was withheld. The Commissioner then held the NDC liable on such tax in the total sum of P5k+. Negotiations followed but failed. The BIR thereupon served on the NDC a warrant of distraint and levy to enforce collection of the claimed amount. The NDC went to the CTA, w/c ruled in favor of the BIR, except for a slight reduction of the tax deficiency in the sum of P900, representing the compromise penalty. I: W/n NDC should be held liable for for withholding taxes on the interest remitted to the Japanese corporation R: YES. The interest remitted to the Japanese shipbuilders in Japan on the UNPAID BALANCE of the purchase price of the vessels acquired by NDC is interest derived from sources within the Philippines and therefore subject to income tax under the NIRC. The law, however, does not speak of activity but of the SOURCE. The Governments right to levy and collect income tax on interest received by foreign corporations not engaged in trade or business within the Philippines is NOT based on the condition that the ACTIVITY be in the Philippines. Instead, it is the RESIDENCE of the obligor who pays the interest that is material in determining the source of interest. It is not the physical location of the securities, bonds or notes or the place of payment.
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Maceda v Macaraig Since May 27, 1976 (when PD 938 was issued) until June 11, 1984 when PD 1931 was promulgated (abolishing the tax exemptions of all GOCCs), oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to the NPC. This non-payment of taxes spanned for 8 years. The oil companies started to pay specific and ad valorem taxes on their sales of oil products to NPC only after the promulgation of PD 1931 w/c withdrew all exemptions granted in favor of GOCCs and empowering the Fiscal Incentives Review Board (FIRB) to recommend to the President or to the Minister of Finance the restoration of the exemptions which were withdrawn. FIRB issued Resolution 10-85 w/c restored the tax exemption privileges of NPC effective retroactively to June 11, 1984 up to June 30, 1985. Thus, the NPC applied with the BIR for a refund of Specific Taxes paid on petroleum products in the total amount of about P58k+. Maceda, Senate member, introduced Resolution 22 w/c was aimed at conducting an inquiry in aid of legislation in line w/ the reported tax manipulations and evasions by oil companies (particularly Caltex, Shell and Petrophil) by availing of their non-existing exemption of NPC from indirect taxes, w/c resulted in obtaining a tax refund totaling P 1.55 Billion from the Department of Finance The Blue Ribbon Committee conducted a lengthy formal inquiry on the matter and recommended that the tax refund to NPC be cancelled, and also to cancel the approval of deed of Assignment by NPC to Caltex, and collect from Caltex its tax liabilities which were erroneously treated as paid or settled with the use of the tax credit certificate that NPC assigned to said firm. Maceda contended that the exemption of NPC from INDIRECT TAXATION was revoked and repealed by the latest amendment to the NPC charter by PD 938, by the deletion of the
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Maceda v Macaraig MR Unfazed by the Decision that the SC decision, Maceda filed a motion for reconsideration. In the process, a hearing was held on July 9, 1992 where all parties presented their respective arguments. However, the MR was denied.
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Republic v IAC The BIR initiated an action in the CFI of Manila to collect deficiency income taxes from the Spouses Pastor for the years 1955 to 1959 in the amount of about P17k+ with 5% surcharge and 1% interest, with costs. After their Motion to Dismiss was denied, they filed an Answer, admitting that there was an assessment against them in the aforementioned amount but that they had availed of the TAX AMNESTY under PD Nos. 23, 213 and 370, paying the corresponding amnesty taxes to be able to remove their liabilities. The Government only filed the action against the spouses 10 years after the assessment on the deficient income taxes were made. The CFI ruled in favor of the spouses, saying that their tax liabilities were deemed settled under PD 213 (and not the other PDs) as shown in the Amnesty Income Tax Returns Summary Statement and the Tax Payment Acceptance Order which contain the assessment for the questioned years. By accepting payment, the Government has therefore WAIVED ITS RIGHT to recover further deficiency income taxes under existing assessments against them.
Republic v Caguioa In 1992, Congress RA No. 7227 or the BASES CONVERSION AND DEVELOPMENT ACT OF 1992 which, among other things, created the Subic Special Economic and Freeport Zone (SSEZ) and the Subic Bay Metropolitan Authority (SBMA). RA No. 7227 provided incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation from the SSEZ to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws. It also provided that in lieu of paying taxes, 3% of the gross income earned by all businesses and enterprises within the SSEZ shall be remitted to the National Government, 1% each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, it established a development fund of 1% of the gross income earned by all businesses and enterprises within the SSEZ to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to be base areas. Pursuant to the law, respondent companies (Indigo Distribution, Star Trading, etc) applied for and were granted Certificates of Registration and Tax Exemption by the SBMA. The Certificate entitled them to tax and duty-free importation of materials for use solely within the Subic Bay Freeport Zone. Congress, however, subsequently passed R.A. No. 9334 w/c stated that the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall apply to those brought directly into the freeports of the SSEZ, under RA No. 7227.
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NATURE, CONSTRUCTION, APPLICATION AND SOURCES OF TAX LAWS Hilado v CIR Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12k+ as a deductible item from his gross income pursuant to General Circular V-123 issued by the CIR. (This circular was issued pursuant to certain rules laid down by the Secretary of Finance.) On the basis of said return, an assessment notice demanding the payment of P9k+ was sent to Hilado, who paid the tax in monthly installments. Meanwhile, the Secretary of Finance, through the CIR issued General Circular V-139 which not only revoked and declared void his general Circular V- 123 but laid down the rule that losses of property which occurred during the period of World War II from
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Smart Communications, Inc. v City of Davao The Tax Code of the City of Davao imposes a tax on businesses enjoying a franchise in the amount of of 1% of the gross annual receipts for the preceding calendar year. This is based on the income / receipts realized within its territorial jurisdiction, notwithstanding any exemption granted by any law or other special law. SMART filed for declaratory relief, contending that: o Its telecenter in the aforementioned city was exempted from payment of such franchise taxes pursuant to its franchise under RA 7294
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Philippine Bank of Communications v CIR Philippine Bank of Communications (PBCom) filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5M+. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the BIR issued Tax Debit Memo for P3M+ and P1M+, respectively.
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CERTAIN DOCTRINES IN TAXATION POWER TO TAX INVOLVES POWER TO DESTROY CIR v Tokyo Shipping Co, Ltd. Tokyo Shipping is a foreign corporation (represented by Soriamont Steamship Agencies in the Philippines) which owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. Mr. Edilberto Lising, the operations supervisor of Soriamont Agency, paid the required income and common carrier's taxes totalling about P107k+ based on the expected gross receipts of the vessel. Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. NASUTRA and Soriamont mutually agreed to have the vessel sail for Japan without any cargo. Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was realized from the charter agreement, Tokyo Shipping instituted a claim for tax credit or refund of P107k+ before CIR. CIR failed to act promptly on the claim, so Tokyo filed a petition for review before CTA. CTA ruled in favour of Tokyo. CIR filed a petition contending that Tokyo had the burden of proof to support its claim of refund, Tokyo failed to prove that it did not realize any receipt from its charter agreement and it suppressed evidence when it did not present its charter agreement. I: W/n Tokyo is entitled to a refund or tax credit for amounts representing pre-payment of income and common carrier's taxes under the NIRC R: YES. CTA decision affirmed. Sec24 (b2) of the NIRC provides that a corporation organized under foreign law but doing business in the Phils shall be taxable upon the total net income derived in the preceding taxable year from all sources within the Philippines, PROVIDED that international carriers shall pay a tax of 2 1/2% on their gross Philippine billings. ("Gross Philippine Billings" include 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 gross revenue realized from the said cargo or mail include the gross freight charge up to final destination.) Pursuant to this, a resident foreign corporation engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources within the Philippines. THUS, before such a tax liability can be enforced, the taxpayer must be shown to have earned income sourced from the Philippines. A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. The taxpayer has the burden of proof to show that he is entitled to refund. IN THIS CASE, there was sufficient evidence shown by Tokyo that it derived no receipt from its charter agreement with NASUTRA..
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Reyes v Almanzor JBL, Edmundo and Milagros Reyes are owners of parcels of land in Manila which are leased and occupied as dwelling sites by tenants for monthly rentals not exceeding P300. In 1971, RA 6359 was passed prohibiting an increase of monthly rentals of dwelling units or of land on which another dwelling is located for one year after effectivity for rentals not exceeding P300 but allowing an increase of rent thereafter by not more than 10%. The Act also suspended the operation of Article 1673 of the Civil Code (ejectment of lessess). PD 20 amended RA 6359 by absolutely prohibiting the increase and indefinitely suspending Article 1673. The Reyeses, thus, were precluded from raising the rentals and from ejecting the tenants. In 1973, the City Assessor of Manila reclassified and reassessed the value of the properties based on the schedule of market values duly reviewed by the Secretary of Finance. As it entailed an increase of the corresponding tax rates, the Reyeses filed a memorandum of disagreement with the Board of Tax Assessment Appeals and averring that the reassessments were excessive, unwarranted, unequitable, confiscatory and unconstitutional inasmuch as the taxes imposed exceeded the annual income derived from their properties. They also argued that the income approach should have been used in determining land values instead of the comparative sales approach which the assessor adopted. I: W/n the assessment of the Board was proper R: NO. SC ruled in favor of Reyeses and board was askesd to make re-assessment. Taxation is equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depenfing on the resources of the person affected. Taxes are uniform when all taxable articles or kinds of property of the same class are taxed at the same rate.
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SET-OFF OF TAXES Philex Mining Corp v CIR BIR sent a letter to Philex asking it to settle its tax liabilities for 1991 to 1992 . Philex protested that it has pending claims for VAT input credit/refund for the taxes it paid for 1989 and that the refund should be applied against the tax liabilities. BIR replied that the pending claims have NOT yet been established so it follows that no legal compensation can take place, hence, the reiteration of the demand for payment. Philex raised the issue to the CTA. Pending proceeding in CTA, BIR issued a Tax Credit Certificate 13M which, when applied to the total tax liabilities of Philex of P123M effectively lowered the Philex's tax obligation. Despite the reduction, CTA denied Philexs petition for review and still ordered Philex to pay the remaining balance of P110M plus interest, saying that for legal compensation to take place, both obligations must be liquidated and demandable. The liquidated debt of the Philex to the government cannot, therefore, be set-off against the unliquidated claim which Philex conceived to exist in its favour. It also invoked the principle that "taxes cannot be subject to set-off on compensation since claim for taxes is not a debt or contract." Philex appealed to the CA, which denied such appeal and its MR. A few days after the denial of MR, Philex obtained its VAT input credit/refund not only for 1989 to 1991 but also for 1992 and 1994. THUS, Philex contended that the same should off-set its excise tax liabilities since both had already become "due and demandable, as well as fully liquidated and legal compensation can properly take place.
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TAXPAYER SUIT Anti-Graft League of the Phils v San Juan President Marcos issued PD No. 674, establishing the Technological Colleges of Rizal. The PD, among others, directed the Board to provide funds for the purchase of a site and the construction of the necessary structures thereon. Acting upon an authority granted by the office of the President, the Province was able to negotiate with Ortigas & Co., Ltd. (Ortigas) for the acquisition of 4 parcels of land in Ugong Norte, Pasig. The projected construction, however, never materialized because of the decimation of the Province's resources brought about by the creation of the Metro Manila Commission (MMC) in 1976. 12 yrs later, with the property lying idle and the Province needing funds to propel its 5-years Comprehensive Development Program, the then incumbent Board passed Resolution No. 87-205 authorizing the Governor to sell the same. The said property was eventually sold to Valley View Realty Development Corporation (Valley View) for P135M+, where P30M was given as downpayment. Because of this, Ortigas filed a case of rescission against the Province because the Province violated the provisions of their contract which was that the land would be used for the construction of the Rizal Technological Colleges and Rizal Provincial Hospital.
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