February 2013 Philippine Supreme Court Decisions on Tax Law

Here are select February 2013 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code; documentary stamp tax; issuance of promissory notes; persons liable for the payment of DST; acceptance. Under Section 173 of the National Internal Revenue Code, the persons primarily liable for the payment of DST are the persons (1) making; (2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable documents, instruments or papers. Should these parties be exempted from paying tax, the other party who is not exempt would then be liable. In this case, petitioner Philacor is engaged in the business of retail financing. Through retail financing, a prospective buyer of home appliance may purchase an appliance on installment by executing a unilateral promissory note in favor of the appliance dealer, and the same promissory note is assigned by the appliance dealer to Philacor. Thus, under this arrangement, Philacor did not make, sign, issue, accept or transfer the promissory notes. It is the buyer of the appliances who made, signed and issued the documents subject to tax while it is the appliance dealer who transferred these documents to Philacor which likewise indisputably received or “accepted” them. Acceptance, however, is an act that is not even applicable to promissory notes, but only to bills of exchange. Under the Negotiable Instruments Law, the act of acceptance refers solely to bills of exchange. In a ruling adopted by the Bureau of Internal Revenue as early as 1995, “acceptance” has been defined as having reference to incoming foreign bills of exchange which are accepted in the Philippines by the drawees thereof, and not as referring to the common usage of the word as in receiving. Thus, a party to a taxable transaction who “accepts” any documents or instruments in the plain and ordinary meaning does not become primarily liable for the tax. Philacor Credit Corporation vs. Commissioner of Internal Revenue, G.R. No. 169899.  February 6, 2013.

National Internal Revenue Code; documentary stamp tax; issuance of promissory notes; persons liable for the payment of DST; Revenue Regulations No. 26 Revenue Regulations No. 26.  Section 42 of Revenue Regulations (RR) No. 26 issued on March 26, 1924 provides that the person using a promissory note can be held responsible for the payment of documentary stamp tax (DST). The rule uses the word “can” which is permissive, rather than the word “shall,” which would make the liability of the persons named definite and unconditional. In this sense, a person using a promissory note can be made liable for the DST if the person is: (a) among those persons enumerated under the law – i.e., the person who makes, issues, signs, accepts or transfers the document or instrument; or (2) if these persons are exempt, a non-exempt party to the transaction. Such interpretation would avoid any conflict between Section 173 of the 1997 National Internal Revenue Code and section 42 of RR No. 26 and make it unnecessary for the latter to be struck down as having gone beyond the law it seeks to interpret. However, section 42 of RR No. 26  cannot be interpreted to mean that anyone who “uses” the document, regardless of whether such person is a party to the transaction, should be liable, as this reading would go beyond section 173 of the 1986 National Internal Revenue Code, the law it seeks to implement. Implementing rules and regulations cannot amend a law for they are intended to carry out, not supplant or modify, the law. To allow RR No. 26 to extend the liability for DST to persons who are not even mentioned in the relevant provisions of the tax codes (particularly the 1986 National Internal Revenue Code which is the relevant law at that time) would be a clear breach of the rule that a statute must always be superior to its implementing regulations.  Philacor Credit Corporation vs. Commissioner of Internal Revenue, G.R. No. 169899. February 6, 2013.

National Internal Revenue Code; documentary stamp tax; assignment or transfer of evidence of indebtedness. Under Section 198 of the then 1986 National Internal Revenue Code, an assignment or transfer becomes taxable only in connection with mortgages, leases and policies of insurance. The list does not include the assignment or transfer of evidence of indebtedness; rather it is the renewal of these that is taxable. The present case does not involve a renewal, but a mere transfer or assignment of the evidence of indebtedness or promissory notes. A renewal would involve an increase in the amount of indebtedness or an extension of a period, and not the mere change in the person of the payee. The law has set a pattern of expressly providing for the imposition of documentary stamp tax on the transfer and/or assignment of documents evidencing certain transactions. Where the law did not specify that such transfer and/or assignment is to be taxes, there would be no basis to recognize an imposition. Philacor Credit Corporation vs. Commissioner of Internal Revenue, G.R. No. 169899. February 6, 2013.

National Internal Revenue Code; value added tax; 120-day period given by law to the Commissioner of Internal Revenue to grant or deny application for tax refund or credit mandatory and jurisdictional. Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the Court of Tax Appeals (CTA) does not acquire jurisdiction over the taxpayer’s petition. The charter of the CTA expressly provides that its jurisdiction is to review on appeal “decisions of the Commissioner of Internal Revenue (CIR) in cases involving xxx refunds of internal revenue taxes.” When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the CIR, there is no “decision” of the CIR to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the CIR fails to decide within “a specific period” required by law, such inaction shall be deemed a denial” of the application for a tax refund or credit. It is the CIR’s decision or inaction “deemed a denial,” that the taxpayer can take to the CTA for review. Without a decision or an “inaction xxx deemed a denial” of the CIR, the CTA has no jurisdiction over a petition for review. Commissioner of Internal Revenue vs. San Roque Power Corporation/Taganito Mining Corporation vs. Commissioner of Internal Revenue/Philex Mining Corporation vs. Commissioner of Internal Revenue, G.R. No. 187485/G.R. No. 196113/G.R. No. 197156. February 12, 2013.

National Internal Revenue Code; value added tax; 30-day period need not fall within the two-year prescriptive period. The 30-day period provided for under section 112 (C) of the National Internal Revenue Code (NIRC) within which to appeal the decision of the Commissioner of Internal Revenue  (CIR) to the Court of Tax Appeals  (CTA) need not necessarily fall within the two-year prescriptive period under section 112 (A) of the NIRC. First, section 112 (A) clearly states that the taxpayer may apply with the CIR for a refund or credit “within two (2) years,” which means at any time within two years. Thus, the application for refund or credit may be filed on the last day of the two-year prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription. Second, as held by the Court in the case of Commissioner of Internal Revenue v Aichi, the “phrase ‘within two years xxx apply for the issuance of a tax credit or refund’ refers to applications for refund/credit with the CIR and not to appeals made to the CTA.” Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day, the CIR, with his 120-day period, will have until the 731st day to decide the claim. If the CIR decides only on the 731st day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his administrative claim within the two-year prescriptive period. Commissioner of Internal Revenue vs. San Roque Power Corporation/Taganito Mining Corporation vs. Commissioner of Internal Revenue/Philex Mining Corporation vs. Commissioner of Internal Revenue, G.R. No. 187485/G.R. No. 196113/G.R. No. 197156. February 12, 2013.

National Internal Revenue Code; value added tax; “excess” input VAT and “excessively” collected tax. Under Section 229 of the National Internal Revenue Code (NIRC), the prescriptive period for filing a judicial claim for refund is two years from the date of payment of the tax “erroneously, xxx illegally, xxx excessively or in any  manner wrongfully collected.” However, in a claim for refund or credit of “excess” input value-added tax (VAT) under Section 110 (B) and Section 112 (A) of the NIRC, the input VAT is not “excessively” collected as understood under Section 229. At the time of payment of the input VAT, the amount paid is the correct and proper amount. Under the VAT system, there is no claim or issue that the input VAT is “excessively” collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an “excess” input VAT. The term “excess” input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as “excessively” collected under Section 229. Commissioner of Internal Revenue vs. San Roque Power Corporation/Taganito Mining Corporation vs. Commissioner of Internal Revenue/Philex Mining Corporation vs. Commissioner of Internal Revenue, G.R. No. 187485/G.R. No. 196113/G.R. No. 197156. February 12, 2013.

National Internal Revenue Code; value added tax; equitable estoppel under section 246; Bureau of Internal Revenue Ruling. Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under section 246 of the National Internal Revenue Code (NIRC). BIR Ruling No. DA-489-03 expressly states that the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.” Prior to this ruling, the BIR held that the expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed. There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are two exceptions to this rule. The first exception is if the CIR, through a specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer. The second exception is where the CIR, through a general interpretative rule issued under section 4 of the NIRC, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the CIR cannot be allowed to later on question the CTA’s assumption of jurisdiction over such claim since equitable estoppel has set in as expressly authorized under section 246 of the NIRC. A general interpretative rule issued by the CIR may be relied upon by taxpayers from the time the rule is issued up to its reversal by the CIR or the Court. Taxpayers should not be prejudiced by an erroneous interpretation by the CIR, particularly on a difficult question of law. BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. All taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its reversal by the Court in the case of Aichi on October 6, 2010, whether the Court held that the 120+30 day periods are mandatory and jurisdictional. Commissioner of Internal Revenue vs. San Roque Power Corporation/Taganito Mining Corporation vs. Commissioner of Internal Revenue/Philex Mining Corporation vs. Commissioner of Internal Revenue, G.R. No. 187485/G.R. No. 196113/G.R. No. 197156. February 12, 2013.

National Internal Revenue Code; documentary stamp tax; levied on the exercise of privileges not on obligations imposed by law. Documentary stamp tax (DST) is by nature an excise tax since it is levied on the exercise by persons of privileges conferred by law. These privileges may cover the creation, modification or termination of contractual relationships by executing specific documents like deeds of sale, mortgages, pledges, trust and issuance of shares of stock. The sale of Fort Bonifacio land was not a privilege but an obligation imposed by law which was to sell lands to fulfill a public purpose. To charge DST on a transaction which was basically a compliance with a legislative mandate would go against its very nature as an excise tax. Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, G.R. Nos. 164155 & 175543. February 25, 2013.

National Internal Revenue Code; gross receipts tax; final withholding tax forms part of gross receipts. The amount of interest income withheld, in payment of the 20% final withholding tax, forms part of a bank’s gross receipts in computing the gross receipts tax on banks. “Gross Receipts” comprise the “entire receipts without any deduction.” Otherwise, if deductions were to be made, it would have been considered as “net receipts.” Moreover, the exclusion of the final withholding tax from gross receipts operates as a tax exemption which the law must expressly grant. In this case, petitioner failed to point to any specific provision of law allowing deduction, exemption or exclusion from its taxable gross receipts, of the amount withheld as final tax. China Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 175108. February 27, 2013.

(Caren thanks Grace Ann C. Lazaro for assisting in the preparation of this post.)

 

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