September 2011 Philippine Supreme Court Decisions on Tax Law

Here are selected September 2011 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code; Civil Code; waiver of statute of limitations; estoppel. Taxpayer assails the validity of the waivers of the statute of limitations on the ground that the waivers were merely attested to by the coordinator for the Commissioner of Internal Revenue (CIR) and he failed to indicate the acceptance or agreement of the CIR, as required under Section 223 of the National Internal Revenue Code. Taxpayer argues that the principle of estoppel cannot be used against it because its payment of the other tax assessment does not signify a clear intention on its part to give up its right to question the validity of the waivers. The Court ruled that estoppel applied to the taxpayer. Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that “an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” Thus, a party is precluded from denying his own acts, admissions or representation to the prejudice of the other party in order to prevent fraud and falsehood. In this case, taxpayer, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had taxpayer believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment. Its subsequent action effectively believes its insistence that its waivers are invalid. The records show that taxpayer immediately made payment on the uncontested taxes immediately upon receipt of the revised assessment. It is thus estopped from questioning the validity of the waivers. To hold otherwise and allow a party to gainsay its own act of deny rights which it had previously recognized would run counter to the principle of equity which the Court holds dear.  Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 170257, September 7, 2011998.

July 2011 Philippine Supreme Court Decisions on Tax Law

Here are selected July 2011 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code; income tax; advances to affiliates; ; imputation of interest income; power of Commissioner of Internal Revenue. Section 43 [now Section 50] of the 1993 National Internal Revenue Code (NIRC) provides that. “(i)n case of two or more organizations, trades or businesses (whether or not incorporated and whether or not organized in the Philippines) owned or controlled directly or indirectly by the same interests, the Commissioner of Internal Revenue [(CIR)] is authorized to distribute, apportion or allocate gross income or deductions between or among such organization, trade of business, if he determines that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization, trade or business,” Section 179 of Revenue Regulations No. 2 provides in part that “(i)n determining the true net income of a controlled taxpayer, the [CIR] is not restricted to the case of improper accounting, to the case of a fraudulent, colorable, or sham transaction, or to the case of a device designed to reduce of avoid tax by shifting or distorting income or deductions. The authority to determine true net income extends to any case in which either by inadvertence or design the taxable net income in whole or in part, of a controlled taxpayer, is other than it would have been had the taxpayer in the conduct of his affairs been an uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer.” Despite the broad parameters provided, however, the CIR’s power of distribution, apportionment or allocation of gross income and deductions under the NIRC and Revenue Regulations No. 2 do not include the power to impute “theoretical interests” to the taxpayer’s transactions.  Pursuant to Section 28 [now Section 32] of the NIRC, the term “gross income” is understood to mean all income from whatever source derived, including, but not limited to certain items. While it has been held that the phrase “from whatever source derived” indicates a legislative policy to include all income not expressly exempted within the class of taxable income under Philippine laws, the term “income” has been variously interpreted to mean “cash received or its equivalent,” the amount of money coming to a person within a specific time” or something distinct from principal or capital.” Otherwise stated, there must be proof of the actual or, at the very least, probable receipt or realization by the controlled taxpayer of the item of gross income sought to be distributed, apportioned or allocated by the CIR. In this case, there is no evidence of actual or possible showing that the advances taxpayer extended to its affiliates had resulted to interests subsequently assessed by the CIR. Even if the Court were to accord credulity to the CIR’s assertion that taxpayer had deducted substantial interest expense from its gross income, there would still be no factual basis for the imputation of theoretical interests on the subject advances and assess deficiency income taxes thereon. Further, pursuant to Article 1959 of the Civil Code of the Philippines, no interest shall be due unless it has been expressly stipulated in writing. Commissioner of Internal Revenue vs. Filinvest Development Corporation, G.R. No. 163653, July 19, 2011; Commissioner of Internal Revenue vs. Filinvest Development Corporation, G.R. No. 167689, July 19, 2011.

June 2011 Philippine Supreme Court Decisions on Tax Law

Here are selected June 2011 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code

National Internal Revenue Code; irrevocability of option to carry-over excess income tax payments. The last sentence of Section 76 of the National Internal Revenue Code, stating that “[o]nce the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor,” is clear in its mandate. Once the corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment. Commissioner of Internal Revenue vs. Mirant (Philippines) Operations, Corporation, G.R. No. 171742; Mirant (Philippines) Operations, Corporation vs. Commissioner of Internal Revenue, G.R. No. 176165; June 15, 2011.

National Internal Revenue Code; requisites for claiming tax credit or refund of creditable withholding taxes. The requisites for claiming a tax credit or a refund of creditable withholding tax are as follows: (1) the claim must be filed with the Commissioner of Internal Revenue within the two-year period from the date of the payment of the tax; (2) it must be shown on the return that the income received was declared as part of the gross income; and (3) the fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld. Commissioner of Internal Revenue vs. Mirant (Philippines) Operations, Corporation, G.R. No. 171742; Mirant (Philippines) Operations, Corporation vs. Commissioner of Internal Revenue, G.R. No. 176165; June 15, 2011.

April 2011 Philippine Supreme Court Decisions on Tax Law

Here are selected April 2011 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code; irrevocability of option to carry-over excess income tax payments. When the taxpayer opted to carry over its unutilized creditable withholding tax from 1997 to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the National Internal Revenue Code of 1997. Thereby, the taxpayer became barred from claiming the refund. Commissioner of Internal Revenue vs. PL Management International Philippines, Inc., G.R. No. 160949, April 4, 2011.

National Internal Revenue Code; carrying-over excess income tax payments; prescription.  In view of its irrevocable choice, taxpayer remained entitled to utilize that amount of excess creditable withholding tax as tax credit in succeeding taxable years until fully exhausted. In this regard, prescription did not bar it from applying the amount as tax credit considering that there was no prescriptive period for the carrying over of the amount as tax credit in subsequent taxable years. Commissioner of Internal Revenue vs. PL Management International Philippines, Inc., G.R. No. 160949, April 4, 2011.

March 2011 Philippine Supreme Court Decisions on Tax Law

Here are selected March 2011 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code; irrevocability of option to carry-over excess income tax payments; utilization of excess income tax payments. In the previous decision, the Court denied taxpayer’s claim for refund because it has earlier opted to carry over its 1997 excess income tax payments by marking the tax credit option box in its 1997 income tax return. However, while taxpayer may no longer file a claim for refund, it properly carried over its 1997 excess income tax payments by applying portions thereof to its 1998 and 1999 minimum corporate income tax. Taxpayer may apply the unutilized excess income tax payments as a tax credit to the succeeding taxable years until fully utilized. Belle Corporation vs. Commissioner of Internal Revenue, G.R. No. 181298, March 2, 2011.

Rules of Court; motion to withdraw petition before Supreme Court; effect on Court of Tax Appeals decision. Under Section 1, Rule 13 of the Internal Rules of the Supreme Court a case is deemed submitted for decision or resolution upon the filing of the last pleasing, brief or memorandum that the Court or its Rules require. In this case, the Court required petitioner taxpayer to file a reply; however, petitioner taxpayer opted to file a motion to withdraw. Clearly, by requiring petitioner taxpayer to file its reply, the Court has not yet deemed the case submitted for decision or resolution. The Court granted petitioner taxpayer’s motion to withdraw. By withdrawing the appeal, petitioner taxpayer is deemed to have accepted the decision of the Court of Tax Appeals (CTA). And since the CTA had already denied petitioner taxpayer’s request for the issuance of a tax credit certificate for insufficiency of evidence, it may no longer be included in petitioner taxpayer’s future claims. Petitioner taxpayer cannot be allowed to circumvent the denial of its request for a tax credit by abandoning its appeal and filing a new claim. As stated in a previous case, n appellant who withdraws his appeal must face the consequences of his withdrawal, such as the decision of the court a quo becoming final and executory. Central Luzon Drug Corporation vs. Commissioner of Internal Revenue, G.R. No. 181371, March 2, 2011.

February 2011 Philippine Supreme Court Decisions on Tax Law

Here are selected February 2011 rulings of the Supreme Court of the Philippines on tax law:

Local Government Code; real property tax; tax delinquency sale; writ of possession; premature issuance. A writ of possession is mere incident in the transfer of title. In this case, it stemmed from the exercise of alleged ownership by respondent city over EDSA MRT III properties by virtue of a tax delinquency sale. The issue of whether the auction sale should be enjoined is still pending before the Court of Appeals. Pending determination, it is premature for the respondent city to have conducted the auction sale and caused the transfer of title over the real properties to its name. The denial by the Regional Trial Court (RTC) to issue an injunction or a temporary restraining order does not automatically give the respondent city the liberty to proceed with the actions sought to be enjoined, especially so in this case where a certiorari petition assailing the denial is still being deliberated in the Court of Appeals (CA). All the more it is premature for the RTC to issue a writ of possession where the ownership of the subject properties is derived from an auction sale, the validity of which is still being threshed out in the CA. The RTC should have held in abeyance the issuance of a writ of possession. At this juncture, the writ issued is premature and has no force and effect. Republic of the Philippines (Department of Transportation and Communications) vs City of Mandaluyong, G.R. No. 184879, February 23, 2011.