July 2013 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; excise tax; goods subject to excise tax; persons liable to pay.   Excise taxes are imposed on two (2) kinds of goods, namely: (a) goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition; and (b) things imported. With respect to the first kind of goods, Section 130 of the National Internal Revenue Code (the “Tax Code”) states that, unless otherwise specifically allowed, the taxpayer obligated to file the return and pay the excise taxes due thereon is the manufacturer/producer.On the other hand, with respect to the second kind of goods, Section 131 of the Tax Code states that the taxpayer obligated to file the return and pay the excise taxes due thereon is the owner or importer, unless the imported articles are exempt from excise taxes and the person found to be in possession of the same is other than those legally entitled to such tax exemption.While the Tax Code mandates the foregoing persons to pay the applicable excise taxes directly to the government, they may, however, shift the economic burden of such payments to someone else – usually the purchaser of the goods – since excise taxes are considered as a kind of indirect tax. Philippine Airlines, Inc. v. Commissioner of Internal Revenue, G.R. No. 198759, July 1, 2013.

National Internal Revenue Code; excise tax; statutory taxpayer as proper party to seek refund; exception. Since excise taxes are considered as a kind of indirect tax, the statutory taxpayer can transfer to its customers the value of the excise taxes it paid or would be liable to pay to the government by treating it as part of the cost of the goods and tacking it on to the selling price. This notwithstanding, pursuant to Section 204(c) of the Tax Code, the proper party to question, or seek a refund of, excise tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Accordingly, in cases involving excise tax exemptions on petroleum products under Section 135 of the Tax Code, the Court has consistently held that it is the statutory taxpayer who is entitled to claim a tax refund based thereon and not the party who merely bears its economic burden. However, the abovementioned rule should not apply to instances where the law clearly grants the party to which the economic burden of the tax is shifted an exemption from both direct and indirect taxes. In which case, the latter must be allowed to claim a tax refund even if it is not considered as the statutory taxpayer under the law.Thus, the propriety of a tax refund claim is hinged on the kind of exemption which forms its basis. If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic burden of the applicable tax. On the other hand, if the exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim. Philippine Airlines, Inc. v. Commissioner of Internal Revenue, G.R. No. 198759, July 1, 2013.

Philippine Airlines franchise; withdrawal of tax exemption. Letter of Instructions No. 1438 (LOI 1438) amended Philippine Airlines’s (PAL’s) franchise by withdrawing the tax exemption privilege granted to PAL on its purchase of domestic petroleum products for use in its domestic operations. Based on Section 13 of PAL’s franchise, PAL’s tax exemption privilege on all taxes on aviation gas, fuel and oil may be classified into three (3) kinds: (i) all taxes due on PAL’s local purchase of aviation gas, fuel and oil, (ii) all taxes directly due from or imposable upon the purchaser of the seller, producer, manufacturer, or importer of aviation gas, fuel and oil but are billed or passed on to PAL, and (iii) all taxes due on all importations by PAL of aviation gas, fuel, and oil. The phrase “purchase of domestic petroleum products for use in its domestic operations”- which characterizes the tax privilege withdrawn by LOI 1438- refers only to PAL’s tax exemptions on passed on excise tax costs due from the seller, manufacturer/producer of locally manufactured/produced goods for domestic sale and does not, in any way, pertain to any of PAL’s tax privileges concerning imported goods. Records disclose that Caltex imported aviation fuel from abroad and merely re-sold the same to PAL, tacking the amount of excise taxes it paid or would be liable to pay to the government on to the purchase price. The said petroleum products are in the nature of “things imported” and thus, beyond the coverage of LOI 1483.  Philippine Airlines, Inc. v. Commissioner of Internal RevenueG.R. No. 198759, July 1, 2013.

Local Government Code; double taxation; definition; elements. Double taxation means taxing the same property twice when it should be taxed only once; that is, “taxing the same person twice by the same jurisdiction for the same thing.” It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character. Petitioner is indeed liable to pay business taxes to the City of Manila; nevertheless, considering that the former has already paid these taxes under Section 14 of the Manila Revenue Code, it is exempt from the same payments under Section 21 of the same code. As held in The City of Manila v. Coca-Cola Bottlers Philippines, Inc., when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the Local Government Code (LGC), said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same code. Section 143(h) may be imposed only on businesses that are subject to excise tax, value-added tax, or percentage tax under the National Internal Revenue Code, and that are “not otherwise specified in preceding paragraphs.” Thus, business already subject to a local business tax under Section 14 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21 [which is based on Section 143(h) of the LGC]. Swedish Match Philippines Inc. v. The Treasurer of the City of Manila, G.R. No. 181277, July 3, 2013.

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

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2 thoughts on “July 2013 Philippine Supreme Court Decisions on Tax Law

  1. Commendable work. I tried to trace the ruling in Swedish Match Co. vs. Treasurer of the City of Manila, G.R, 181277 July 3, 2013 but it is not listed in the published Supreme Court decisions. Could there possibly be an unintentional error in the citation? This is an interesting case on double taxation.

    Atty, Jose T. Alberto

    • Thanks for your message. We checked the citation and it is correct. Note that clicking the G.R. number of Swedish Match will lead you to the full text of the ruling.

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