February 2014 Philippine Supreme Court Decisions on Tax Law

Here are select February 2014 rulings of the Supreme Court of the Philippines on tax law:

Tax laws

National Internal Revenue Code; Doctrine of Exhaustion of Administrative Remedies. Taxpayer submits that the requirement to exhaust the 12-day period under Section 112 (c) of the National Internal Revenue Code prior to filing the judicial claim with the Court of Tax Appeals (CTA) is a doctrine of “exhaustion of administrative remedies” and that the non-observance of the same merely results in lack of cause of action which may be waived for failure to timely invoke the same. As the Court opined in San Roque, a petition for review that is filed with the CTA without waiting for the 120-day mandatory period renders the same void. A person committing a void act cannot claim or acquire any right from such void act. Accordingly, taxpayer’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. It is a mere scrap of paper from which taxpayer cannot derive or acquire any right notwithstanding the supposed failure on the part of the Commissioner to raise the issue of non-compliance with the 120-day period in the proceedings before the CTA First Division. Commissioner of Internal Revenue vs. Team Sual Corporation (Formerly Mirant Sual Corporation),  G.R. No. 194105. February 5, 2014

National Internal Revenue Code; excise tax; pacta sunt servanda; Section 135.  Under the basic international law principle of pacta sunt servanda, the state has the duty to fulfill its treaty obligations in good faith. This entails harmonization of national legislation with treaty provisions. Section 135 (a) of the National Internal Revenue Code embodies the country’s compliance with its undertakings under the 1944 Chicago Convention on International Aviation (Chicago Convention), Article 24 (9) of which has been interpreted to prohibit taxation of aircraft fuel consumed for international transport, and various bilateral air service agreements not to impose excise tax on aviation fuel purchased by international carriers from domestic manufacturers or suppliers. In the previous decision of the Court in this case, the Court interpreted Section 135 (a) as prohibiting domestic manufacturer or producer to pass on to international carriers the excise tax it had paid on petroleum products upon their removal from the place of production. Thus, the Court found that there was no basis to refund the excise taxes paid on petroleum products sold to tax-exempt international carriers as “erroneously or illegally paid” tax. The Court maintains that Section 135 (a) prohibits the passing of the excise tax to international carriers who buys petroleum products from local manufacturers/sellers such as the respondent taxpayer. However, there is a need to reexamine the effect of denying the domestic manufactures/sellers’ claim for refund of the excise taxes they already paid on petroleum products sold to international carriers, and its serious implications on the Government’s commitment to the goals and objectives of the Chicago Convention. With the process of declining sales of aviation jet fuel sales to international carriers on account of major domestic oil companies’ unwillingness to shoulder the burden of excise tax, or of petroleum products being sold to said carriers by local manufacturers or sellers at still high prices, the practice of “tankering” (i.e., carriers filling their aircraft as full as possible whenever they landed outside a jurisdiction that imposes tax on fuel to avoid paying tax) would not be discouraged. This does not augur well for the Philippines’ growing economy and the booming tourism industry. Worse, the Government would be risking retaliatory action under several bilateral agreements with various countries. Evidently, construction of the tax exemption provision in question should give primary consideration to its broad implications on the country’s commitment under international agreements. In view of the foregoing the Court held that respondent, as the statutory taxpayer who is directly liable to pay the excise tax on its petroleum products is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to international carriers, the latter having been granted exemption from the payment of said excise tax under Section 135 (a) of the NIRC. Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497. February 19, 2014.

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January 2014 Philippine Supreme Court Decisions on Tax Law

Here are select January 2014 rulings of the Supreme Court of the Philippines on tax law:

Court of Tax Appeals; findings of fact. The Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. Factual findings made by the CTA can only be disturbed on appeal if they are supp1ied by substantial evidence or there is a showing of gross error or abuse on the part of the CTA. In the absence of any clear and convincing proof to the contrary, the Court must presume that the CTA rendered a decision which is valid in every respect. Commissioner of Internal Revenue v. Toledo, Power, Inc., G.R. No. 183880, January 20, 2014.

Refund; solutio indebiti; elements. There is solutio indebiti when: (1) Payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) Payment is made through mistake, and not through liberality or some other cause. Solutio indebiti does not apply in this case because there exists a binding relation between petitioner and the CIR, the former being a taxpayer obligated to pay VAT and the payment of input tax was not made through mistake since petitioner was legally obligated to pay for that liability. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT system. At the time of payment of the input VAT, the amount paid was correct and proper. CBK Power Company Limited vs. Commissioner of Internal Revenue, G.R. No. 198729-30, January 15, 2014.

Value-added tax; refund of input value-added tax;; prescriptive period for judicial and administrative claims. Under Section 112 of the National Internal Revenue Code (NIRC), it is only the administrative claim for refund of input value-added tax (VAT) that must be filed within the two-year prescriptive period; the judicial claim need not fall within the two-year prescriptive period. Subsection (A) of the said provision states that “any VAT-registered person whose sales are zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.” The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” refers to applications for refund/credit filed with the Commissioner of Internal Revenue (CIR) and not to appeals made to the Court of Tax Appeals (CTA). This is apparent in the first paragraph of subsection (D) of the same provision which states that the CIR has “120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)” within which to decide on the claim. Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014.

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December 2013 Philippine Supreme Court Decisions on Tax Law

National Internal Revenue Code; value-added tax; claim for input value-added tax refund; prescriptive period. Taxpayer filed its monthly and quarterly value-added tax (VAT) returns for the period beginning January 1, 2003 and ending on June 30, 2003. On August 9, 2004, it filed a claim for refund for its unutilized input VAT attributable to its zero-rated sales. Due to the failure of the Commissioner of Internal Revenue (CIR) to act on the claim, the taxpayer filed a petition for review with the Court of Tax Appeals (CTA) on May 5, 2005. The CIR argued that the period within which to file the petition for review had prescribed based on Section 112(D) (now 112 (C)) of the National Internal Revenue Code (NIRC). The taxpayer, on the other hand, argued that the period had not yet prescribed based on Section 229 of the NIRC.The Court ruled that Section 112(D) (now 112 (C)) of the NIRC is the applicable provision. Section 229 applies only to erroneously or excessively collected taxes and input VAT is not an erroneously or excessively collected tax.  Therefore, Section 112(D) (now 112 (C))  prevails. In accordance with the case of  Commissioner of Internal Revenue vs. San Roque Power Corporation, the taxpayer’s judicial claim for refund must be denied for having been filed late. Although taxpayer filed its administrative claim with the Bureau of Internal Revenue before the expiration of the two-year period in Section 112 (A) of the NIRC, it failed to comply with the 120 + 30 day period in Section 112 (D) (now 112 (C)) which requires that upon the inaction of the CIR for 120 days after the submission of the documents in support of the claim, the taxpayer has to file its judicial claim within 30 days from the lapse of the said period. In this case, the 120 days granted to the CIR to decide the case ended on December 7, 2004. Thus, taxpayer had 30 days therefrom, or until January 6, 2005 to file a petition for review with the CTA. Unfortunately, taxpayer only sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CTA. Thus, CTA did not properly acquire jurisdiction over the claim. Commissioner of Internal Revenue vs. Dash Engineering Philippines, Inc., G.R.No. 184145, December 11,2013. 

(Caren thanks Carlos P. Garcia for assisting in the preparation of this post.)

November 2013 Philippine Supreme Court Decisions on Tax Law

Here are select rulings of the Supreme Court of the Philippines on tax laws:

Merger; concept.  The term “merger” or “consolidation”, when used shall be understood to mean: (i) the ordinary merger or consolidation, or (ii) the acquisition by one corporation of all or substantially all the properties of another corporation solely for stock: Provided, [t]hat for a transaction to be regarded as a merger or consolidation, it must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation. In case of a merger, two previously separate entities are treated as one entity and the remaining entity may be held liable for both of their tax deficiencies. In the agreement between Traders Royal Bank and Bank of Commerce, it was explicitly provided that they shall continue to exist as separate entities. Since the purchase and sale of identified assets between the two companies does not constitute a merger under the foregoing definition, the Bank of Commerce is considered an entity separate from petitioner. Thus, it cannot be held liable for the payment of the deficiency documentary stamp tax assessed against petitioner. Commissioner of Internal Revenue v. Bank of Commerce, G.R. No. 180529. November 13, 2013.

Newly discovered evidence; concept; applicability. Ordinarily, the concept of newly discovered evidence is applicable to litigations in which a litigant seeks a new trial or the re-opening of the case in the trial court. Seldom is the concept appropriate when the litigation is already on appeal, because appellate courts, in general, are not triers of facts. Facts have to be proven while the case is still pending with the lower courts. The taxpayer has to convince the CTA that the quasi-judicial agency a quo should not have denied the claim, and to do so the taxpayer should prove every minute aspect of its case by presenting, formally offering and submitting its evidence to the CTA, including whatever was required for the successful prosecution of the administrative claim as the means of demonstrating to the CTA that its administrative claim should have been granted in the first place. In order that newly discovered evidence may be a ground for allowing a new trial, it must be fairly shown that: (a) the evidence is discovered after the trial; (b) suchevidence could not have been discovered and produced at the trial even with the exercise of reasonable diligence; (c) such evidence is material, not merely cumulative, corroborative, or impeaching; and (d) such evidence is of such weight that it would probably change the judgment if admitted. The first two requisites are not present here. First, the proposed evidence was plainly not newly discovered considering the taxpayer’s submission that its former Finance and Accounting Manager had misplaced the VAT official receipts. Second, the receipts, had they truly existed, could have been sooner discovered and easily produced at the trial with the exercise of reasonable diligence. Luzon Hydro Corporation v. Commissioner of Internal Revenue, G.R. No. 188260. November 13, 2013.

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October 2013 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; income tax; creditable withholding tax; claims for tax credit or refund; requisites. A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites: (1) The claim must be filed with the Commissioner of Internal Revenue within the two-year period from the date of payment of the tax; (2) It must be shown on the return of the recipient that the income received was declared as part of the gross income; and (3) The fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld. The first requirement is based on section 229 of the National Internal Revenue Code of 1997 which provides that “no such suit or proceeding shall be filed after the expiration of two  years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment.” The second and third requirements are based on Section 10 of Revenue Regulation No. 6-85 which provides that a claim will prosper only “when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the Withholding Tax Statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom.” Commissioner of Internal Revenue v. Team [Philippines] Operations Corporation (formerly Mirant [Philippines] Operations Corporation), G.R. No. 185728. October 16, 2013.

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September 2013 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; tax refund. If the Bureau of Internal Revenue, or other government taxing agencies for that matter, expects taxpayers to observe fairness, honesty, transparency and accountability in paying their taxes, it must hold itself against the same standard in refunding excess payments or illegal exactions. As a necessary corollary, when the taxpayer’s entitlement to a refund stands undisputed, the State should not misuse technicalities and legalisms, however exalted, to keep money not belonging to it. The government is not exempt from the application of solutio indebiti, a basic postulate proscribing one, including the State, from enriching himself or herself at the expense of another. Commissioner of Internal Revenue v. Fortune Tobacco Corporation, Fortune Tobacco Corporation v. Commissioner of Internal Revenue, G.R. Nos. 167274-75/G.R. No. 192576, September 11, 2013.

Procedure; execution of judgment; fallo prevails over the body of the opinion; exceptions. It is established jurisprudence that “the only portion of the decision which becomes the subject of execution and determines what is ordained is the dispositive part, the body of the decision being considered as the reasons or conclusions of the Court, rather than its adjudication.” However, there are two (2) exceptions to this rule: [1] where there is ambiguity or uncertainty, the body of the opinion may be referred to for purposes of construing the judgment because the dispositive part of a decision must find support from the decision’s ratio decidendi; and [2] where extensive and explicit discussion and settlement of the issue is found in the body of the decision. Both exceptions apply in this case. There is an ambiguity in the fallo of the July 21, 2008 decision in G.R. Nos. 167274-75 considering that the propriety of the Court of Appeals holding in CA-G.R. SP No. 83165 formed part of the core issues raised in G.R. Case Nos. 167274-75 but was left out in the decretal portion of the judgment. The fallo of the Court’s July 21, 2008 decision should, therefore, be corresponding corrected.  Commissioner of Internal Revenue v. Fortune Tobacco Corporation, Fortune Tobacco Corporation v. Commissioner of Internal Revenue,  G.R. Nos. 167274-75/G.R. No. 192576, September 11, 2013.

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August 2013 Philippine Supreme Court Decisions on Tax Law

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

Tariff and Customs Code; Central Bank Circular No. 1389; Prohibited goods v. regulated goods. Central Bank Circular No. 1389 dated April 13, 1993 classified imports into three (3) categories, namely: (a) “freely importable commodities” or those commodities which are neither “regulated” nor “prohibited” and the importation of which may be effected without any prior approval of or clearance from any government agency; (b) “regulated commodities” or those commodities the importation of which require clearances/permits from appropriate government agencies; and (c) “prohibited commodities” or those commodities the importation of which are not allowed by law.  Under Annex 1 of the foregoing circular, rice and corn, which are subject goods in this case, are enumerated as “regulated” commodities. Regulated goods may be released in detention by the filing of a cash bond. Thus, the Court of Tax Appeals did not gravely abuse its discretion when it granted respondent’s motion to release since there lies cogent legal bases to support the conclusion that subject goods were merely “regulated” and not “prohibited” commodities. Secretary of the Department of Finance v. Court of Tax Appeals and Kutangbato Conventional Trading Multi-Purpose Cooperative, G.R. No. 168137, August 7, 2013

Grave abuse of discretion; concept. In order to be qualified as “grave,” the abuse of discretion must be so patent or gross as to constitute an evasion of a positive duty or a virtual refusal to perform the duty or to act at all in contemplation of law. Finding that this characterization does not fit the Court of Tax Appeal’s (CTA) exercise of discretion in this case, the Court held that no grave abuse of discretion attended CTA’s grant of respondent’s motion to release the subject goods. Secretary of the Department of Finance v. Court of Tax Appeals and Kutangbato Conventional Trading Multi-Purpose Cooperative, G.R. No. 168137, August 7, 2013

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