February 2009 Decisions on Tax and Labor Laws

Here are some decisions promulgated by the Supreme Court in February 2009 on tax and labor laws.


Lending Investors.  Pawnshops are not lending investors that are subject to the 5% lending investors tax imposed under the National Internal Revenue Code.   Agencia Exquisite of Bohol, Inc. vs. Commissioner of Internal Revenue, G.R. No. 150141, February 10, 2009.

Local Government Code

Local taxes.  Under its franchise, SMART is not exempt from local business and franchise taxes. Moreover, Section 23 of the Public Telecommunications Act does not provide legal basis for Smart’s exemption from local business and franchises taxes. The term “exemption” in Section 23 of the Public Telecommunications Act does not mean tax exemption; rather, it refers to exemption from certain regulatory or reporting requirements imposed by government agencies such as the National Telecommunications Commission. The thrust of the Public Telecoms Act is to promote the gradual deregulation of entry, pricing, and operations of all public telecommunications entities, and thus to level the playing field in the telecommunications industry. The language of Section 23 and the proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all telecommunications entities. Intent to grant tax exemption cannot therefore be discerned from the law; the term “exemption” is too general to include tax exemption and runs counter to the requirement that the grant of tax exemption should be stated in clear and unequivocal language too plain to be beyond doubt or mistake.  The City of Iloilo, Mr. Romeo V. Manikan etc. Vs. Smart Communications Inc., G.R. No. 167260, February 27, 2009.

Tarriff and Customs Code

Fraud;  importation.  Section 2301 of the Tariff and Customs Code of the Philippines (TCCP) states that seized articles may not be released under bond if there is prima facie evidence of fraud in their importation. Fraud is a “generic term embracing all multifarious means which human ingenuity can devise and which are resorted to by one individual to secure an advantage and includes all surprise, trick, cunning, dissembling and any unfair way by which another is cheated.” Since fraud is a state of mind, its presence can only be determined by examining the attendant circumstances.

Under Section 1202 of the TCCP, importation takes place when merchandise is brought into the customs territory of the Philippines with the intention of unloading the same at port.

An exception to this rule is transit cargo entered for immediate exportation. For an entry for immediate exportation to be allowed under this provision, the following must concur:  (a)   there is a clear intent to export the article as shown in the bill of lading, invoice, cargo manifest or other satisfactory evidence;  (b)  the Collector must designate the vessel or aircraft wherein the articles are laden as a constructive warehouse to facilitate the direct transfer of the articles to the exporting vessel or aircraft;  (c)  the imported articles are directly transferred from the vessel or aircraft designated as a constructive warehouse to the exporting vessel or aircraft and (d)  an irrevocable domestic letter of credit, bank guaranty or bond in an amount equal to the ascertained duties, taxes and other charges is submitted to the Collector (unless it appears in the bill of lading, invoice, manifest or satisfactory evidence that the articles are destined for transshipment).   Commissioner of Customs vs. Court of Tax Appeals, Las Islas Filipinas Food Corp. & Pat-Pro Overseas Co. Ltd., G.R. 171516, February 13, 2009.

Labor Code

Probationary employment;  acting appointment;  resignation.  The Supreme Court ruled that: (a) the employment of the respondent as teacher was probationary in character, as she has not completed the requisite three-year period of probationary employment for teachers: (b) the respondent’s appointment as acting principal was merely temporary, or one that is good until another appointment is made to take its place; as such, the appointment is revocable at will; and (c) the resignation of the respondent is not valid, not only because there was no express acceptance thereof by the employer, but because there is a cloud of doubt as to the voluntariness of respondent’s resignation. According to the Supreme Court, resignation is inconsistent with the filing of a complaint for illegal dismissal. To be valid, the resignation must be unconditional, with the intent to operate as such; there must be a clear intention to relinquish the position. In this case, respondent actively pursued her illegal dismissal case against petitioner, such that she cannot be said to have voluntarily resigned from her job. Magis Young Achievers’ Learning Center/Mrs. Violeta T. Carino Vs. Adelaida P. Manalo,G.R. No. 178835, February 13, 2009.

Labor-only contracting.  The law clearly establishes an employer-employee relationship between the principal employer and the contractor’s employee upon a finding that the contractor is engaged in “labor-only” contracting.   Article 106 of the Labor Code categorically states: “There is ‘labor-only’ contracting where the person supplying workers to an employee does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer.” Thus, performing activities directly related to the principal business of the employer is only one of the two indicators that “labor-only” contracting exists; the other is lack of substantial capital or investment.   Coca-Cola Bottlers Phils., Inc. Vs. Alan M. Agito Regolo S. Oca III, et al, G.R. No. 179546, February 13, 2009.