January 2011 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; section 76; option to carry-over excess income tax payments to succeeding taxable years; option irrevocable. Under section 76 of the National Internal Revenue Code (Tax Code) in case of overpayment of income taxes, a corporation may either file a claim for refund or carry-over the excess payments to the succeeding taxable year and the availment of one remedy precludes the other. However, unlike section 69 of the previous Tax Code, the carry-over of excess income tax payments is no longer limited to the succeeding taxable year but is carried over to the succeeding taxable year until fully utilized. Moreover, the option to carry-over excess income tax payments is not irrevocable. Hence; unutilized excess income tax payments may no longer be refunded. Belle Corporation vs Commissioner of Internal Revenue, G.R. No. 181298, January 10, 2011.

National Internal Revenue Code; value-added tax; claim for credit or refund of input value-added tax; requirements. In its section 112 (A), the National Internal Revenue Code sets down the following requirements in a claim for credit or refund of input value-added tax (VAT): (1) the taxpayer must be VAT registered, (2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated, (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made, and (4) the creditable input VAT due or paid must be attributable to such sales, except the transitional input VAT, to the extent that such input VAT has not been applied against the output VAT.  Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) vs Commissioner of Internal Revenue, G.R. No. 172378, January 17, 2011.

National Internal Revenue Code; value-added tax; claim for credit or refund of input value-added tax; authority to print. The authority to print (ATP) need not be reflected or indicated in the invoices or receipts because there is no law or regulation requiring it. In the absence of such law or regulation, failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund. However, section 238 of the National Internal Revenue Code (Tax Code) expressly requires persons engaged in business to secure an ATP from the Bureau of Internal Revenue prior to printing invoices or receipts. Under section 112 (A) of the Tax Code, a claimant must be engaged in sales which are zero-rated or effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or receipts would have no probative value for the purpose of refund.  Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) vs Commissioner of Internal Revenue, G.R. No. 172378, January 17, 2011.

November 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected November 2010 rulings of the Supreme Court of the Philippines on tax law:

Court of Tax Appeals; jurisdiction; other matters. The jurisdiction of the Court of Tax Appeals (CTA) over “other matters” is found in number 1 of Section 7 of Republic Act No. 1125, as amended. Under this provision, the CTA exercises exclusive appellate jurisdiction to review by appeal decisions of the Commissioner of Internal Revenue (CIR) in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC) or other law as part of law administered by the Bureau of Internal Revenue (BIR). The term “other matters” is limited only by the qualifying phrase that follows it. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. It covers other cases that arise out of the NIRC or related laws administered by the BIR. The issue of whether or not the BIR’s right to collect taxes had already prescribed is a subject matter falling under the NIRC. In connection therewith, the NIRC also states that the collection of taxes is one of the duties of the BIR. Thus, from the foregoing, the issue of prescription of the BIR’s right to collect taxes may be considered as covered by the term “other matters” over which the CTA has appellate jurisdiction. Commissioner of Internal Revenue vs Hambrecht & Quist Philippines, Inc., G.R. No. 169225, November 17, 2010.

Court of Tax Appeals; petition for review with Court of Tax Appeals en banc; motion for reconsideration mandatory.   Rule 8, Section 1 of the Revised Rules of Court of Tax Appeals (CTA) requiring that “the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Decision” is mandatory. The word “must” clearly indicate the mandatory- not merely directory- nature of a requirement. The rules are clear. Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned CTA division. Procedural rules are not to be trifled with or be excused simply because their non-compliance may have resulted in prejudicing a party’s substantive rights. Rules are meant to be followed. They may be relaxed only for very exigent and persuasive reasons to relieve a litigant of an injustice not commensurate to his careless non-observance of the prescribed rules. Commissioner of Customs vs. Marina Sales, Inc., G.R. No. 183868, November 22, 2010.

Court of Tax Appeals; petition for certiorari; requisites. In order for a petition for certiorari to succeed, the following requisites must concur: (a) the writ is directed against a tribunal, a board, or any officer exercising judicial or quasi-judicial functions, (b) such tribunal, board or officer has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and (c) there is no appeal, or any plain, speedy and adequate remedy in the ordinary course of law. “Without jurisdiction” denotes that the tribunal, board or officer acted with absolute lack of authority. There is “excess of jurisdiction” when the public respondent exceeds its power or acts without any statutory authority. “Grave abuse of discretion” connotes such capricious and whimsical exercise of judgment as to be equivalent to lack or excess of jurisdiction; otherwise stated, power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal hostility; and such exercise is so patent or so gross as to amount to an evasion of a positive duty or to a virtual refusal either to perform the duty enjoined or to act at all in contemplation of law. The grant or denial of a motion for postponement is addressed to the sound discretion of the court which should always be predicated on the consideration that more than the mere convenience of the courts or of the parties, the ends of justice and fairness should be served thereby. Furthermore, this discretion must be exercised intelligently. In this case, the taxpayer was given more than ample time to collate and gather its evidence. Accordingly, its right to due process was not transgressed.  Milwaukee Industries Corporation vs. Court of Tax Appeals and Commissioner of Internal Revenue, G.R. No. 173815, November 24, 2010.

October 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected October 2010 rulings of the Supreme Court of the Philippines on tax law:

Assessment; validity of assessment notice; lack of control number.  The formality of a control number in the assessment notice is not a requirement for its validity; rather the contents thereof should inform the taxpayer of the declaration of deficiency tax against the taxpayer. Both the formal letter of demand and the notice of assessment shall be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, which is a mandatory requirement under section 228 of the National Internal Revenue Code. Commissioner of Internal Revenue vs Hon. Raul M. Gonzalez, Secretary of Justice, L.M. Camus Engineering Corporation (represented by Luis M. Camus and Lino D. Mendoza), G.R. No. 177279, October 13, 2010.

Income tax; irrevocability of option to carry-over of excess income tax credits; prospective application. Section 76 (on irrevocability of option to carry-over excess income tax credit) of the 1997 National Internal Revenue Code (1997 NIRC) and its companion provisions should be applied following the general rule on the prospective application of laws such that they operate to govern the conduct of corporate taxpayers the moment the 1997 NIRC took effect on January 1, 1998. At the time the taxpayer filed its final adjustment return for 1997 on April 15, 1998, the 1997 NIRC was already in force. Thus, section 76 of the same is controlling . Commissioner of Internal Revenue vs McGeorge Food Industries, Inc., G.R. No. 174157, October 20, 2010.

Income tax; irrevocability of option to carry-over of excess income tax credits; changes from previous provision. Section 76 (on irrevocability of option to carry-over excess income tax credit) of the 1997 National Internal Revenue Code (1997 NIRC) wrought two changes to its predecessor,  section 69 of the 1977 National Internal Revenue Code: (i) it mandates that the taxpayer’s exercise of its option to either seek refund or crediting is irrevocable and (ii) the taxpayer’s decision to carry-over and apply its current overpayment to future tax liability continues until the overpayment has been fully applied, no matter how many cycles it takes. Commissioner of Internal Revenue vs McGeorge Food Industries, Inc., G.R. No. 174157, October 20, 2010.

Value-added tax; refund or credit of unutilized input value-added tax; start of prescriptive period. Section 112 (A) of the National Internal Revenue Code (NIRC) is the applicable provision in determining the start of the two-year period for claiming a refund or credit of unutilized input value-added tax (VAT). Sections 204 (C) and 229 of the NIRC are inapplicable as both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made. Commissioner of Internal Revenue vs Aichi Forging Company of Asia, Inc., G.R. No. 184823, October 6, 2010.

August 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected August 2010 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code

Appeal; right to appeal. The right to appeal is not a natural right and is also not part of due process. It is merely a statutory privilege and may be exercised only in the manner and in accordance with the provisions of law. One who seeks to avail of the right to appeal must comply with the requirements for the Rules of Court and failure to do so often leads to the loss of the right to appeal. The failure to timely perfect an appeal is not a mere technicality for it is jurisdictional. The claim that the government would suffer loss of substantial amount if not allowed to recover the tax refund in the amount of more than fifteen million pesos has been caused by petitioner’s own doing or undoing. While the Court understands petitioner’s counsel’s predicament of being burdened with a heavy case load, it cannot always rule in favor of the government. In this case, the dismissal of the petition for review and denial of the amended petition for review were premised on: (1) the late filing of the original petition for review by the petitioner; (2) the absence of a motion of reconsideration of the January 29, 2002 resolution (which dismissed the petition for review); and (3) lack of authority of the legal officer of the Bureau of Internal Revenue Region 8, Makati City, to pursue the case on behalf of the petitioner Commissioner of Internal Revenue.  Commissioner of Internal Revenue vs Fort Bonifacio Development Corporation, G.R. No. 167606, August 11, 2010.

Tax refund; relation between taxpayer and withholding agent; proper party-in-interest. A parent-subsidiary relation between the taxpayer and the withholding agent is a factor that increases the withholding agent’s legal interest to file a claim for refund but is not required for the withholding agent to have the right to file claim for refund. A withholding agent has a legal right to file a claim for refund for two reasons: (1) he is considered a “taxpayer” under the National Internal Revenue Code as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under the law; (2) as an agent of the taxpayer, his authority to file the necessary income tax return and to remit the tax withheld to the government impliedly includes the authority to file a claim for refund and to bring an action for recovery of such claim. Commissioner of Internal Revenue vs Smart Communication, Inc., G.R. No. 179045-46, August 25, 2010.

Tax refund; obligation of withholding agent to the taxpayer. While the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is the withholding agent’s duty to return what he has recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund. Commissioner of Internal Revenue vs Smart Communication, Inc., G.R. No. 179045-46, August 25, 2010.

Value-added tax; requirements for refund or issuance of unutilized input tax credit. A taxpayer engaged in zero-rated transactions may apply for tax refund or issuance of tax credit certificate for unutilized input value-added tax (VAT) subject to the following requirements: (1) the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim is filed within two years after the close of the taxable quarter when such sales were made; (4) the creditable input tax due or paid is attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax; and in case of zero-rated sales under Section 106 (A)(2)(a) (1) and (2), Section 106 (B) and Section 108 (B) (1) and (2) of the National Internal Revenue Code (Tax Code), the acceptable foreign currency exchange proceeds thereof have been duly accounted for in accordance with Bangko Sentral ng Pilipinas rules and regulations. AT & T Communications Services Philippines, Inc. vs Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010.

Regulations Update: BIR Regulations Implementing Expanded Senior Citizens Act

The Bureau of Internal Revenue recently issued Revenue Regulations No. 07-10 (the “Regulations”), which implement Republic Act No. 9994, otherwise known as the Expanded Senior Citizens Act of 2010.

The major provisions of the Regulations include the following:

A.      Income tax and other taxes

In general, Senior Citizens must file income tax returns and pay income tax. However, the Senior Citizen is exempt from paying income tax if his returnable income is in the nature of compensation income and he qualifies as a minimum wage earner under RA No. 9504. The Senior Citizen is also exempt from income tax if the aggregate amount of gross income earned by the Senior Citizen during the taxable year does not exceed the amount of his personal exemptions (basic and additional).

Under the Regulations, the Senior Citizen can avail of income tax exemption only upon compliance with certain requirements. These are:

1.     the Senior Citizen must first be qualified as such by the Commissioner of Internal Revenue or his duly authorized representative (i.e., the Revenue District Officer (RDO)) having jurisdiction over the place where the Senior Citizen resides), by submitting a certified true copy of his Senior Citizen Identification Card (OSCA ID) issued by the OSCA of the city or municipality where he resides;

2.     the Senior Citizen must file a Sworn Statement on or before January 31 of every year that his annual taxable income for the previous year does not exceed the poverty level as determined by the NEDA thru the NSCB; and

3.     if qualified, his name shall be recorded by the RDO in the Master List of Tax-Exempt Senior Citizens for that particular year, which the RDO is mandatorily required to keep.

April 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected April 2010 rulings of the Supreme Court of the Philippines on tax law:

Procedure; perfection of an appeal; when disregarded. The procedure for perfecting an appeal may be disregarded for strong compelling reasons such as when insisting on strict compliance therewith will allow the government to collect deficiency VAT that it has no right at all to collect or receive. In this instance, dismissing the case on a mere technicality would lead to the unjust enrichment of the government at the expense of petitioner. TFS, Incorporated vs. Commissioner of Internal Revenue, G.R. No. 166829, April 19, 2010.

VAT; pawnshops.  Since the imposition of VAT of pawnshops (which are non-bank financial intermediaries) was deferred for tax years 1996 to 2002, petitioner is not liable for VAT for tax year 1998.  TFS, Incorporated vs. Commissioner of Internal Revenue, G.R. No. 166829, April 19, 2010.