March 2010 Philippine Supreme Court Decisions on Tax Law

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

Constitutionality; justiciable controversy. A dispute ripens into a judicial controversy by the mere enactment of a questioned law or the approval of a challenged act, even without any other overt act. Thus, there is no need to wait until the concerned taxpayers have shut down their operations as a result of the questioned minimum corporate income tax (MCIT) or creditable withholding tax (CWT). Chamber of Real Estate and Builders’ Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.

Court of Tax Appeals; issues not raised. Failure by the Commissioner of Internal Revenue (CIR) to timely plead and prove before the CTA the defenses that Toshiba was VAT-exempt under Republic Act No. 7916 and that its export sales were VAT-exempt under the Tax Code is deemed a waiver of such defenses. Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010.

CTA; judicial admissions. An admission made in a stipulation of facts at pre-trial by the parties is considered a judicial admission and, under the Rules of Court, requires no proof. Such admission may be controverted only by a showing that it was made through a palpable mistake or that no such admission was made. Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010.

Creditable withholding tax (CWT); constitutionality; due process. Imposition of CWT does not constitute a deprivation of property without due process because seller may claim tax refund if net income is less than the taxes withheld. Practical problems in claiming tax refund do not affect the constitutionality and validity of CWT as a method of collecting tax. Chamber of Real Estate and Builders’ Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.

CWT; constitutionality; equal protection. The taxing power has authority to make reasonable classifications for purposes of taxation. Inequalities resulting from a singling out of one particular class for taxation or exemption do not infringe any constitutional limitation. The real estate industry is, by itself, a class and can be validly treated differently from other business enterprises. Chamber of Real Estate and Builders’ Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.

CWT; constitutionality; legality. The assailed provisions of Revenue Regulations No. 2-98, as amended, imposing CWT on sales of real property held as ordinary assets merely implements Section 57(B) of the Tax Code by specifying what income is subject to CWT. Where a statute does not require any particular procedure to be followed by an administrative agency, the agency may adopt any reasonable method to carry out its functions. Considering that the law uses the general term “income,” the Secretary of Finance and the Commissioner of Internal Revenue may apply the kinds of income the rules will apply to based on what is feasible. Chamber of Real Estate and Builders’ Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.

Minimum corporate income tax; constitutionality. The imposition of MCIT is not violative of due process. MCIT is imposed on gross income and not capital. Thus, it is not arbitrary or confiscatory. Moreover, it is not an additional tax imposition but is imposed in lieu of normal net income tax and only if said tax is suspiciously law. Finally, there is no legal objection to a broader tax base or taxable income resulting from the elimination of all deductible items and, at the same time, reduction of the applicable tax rate. Inasmuch as deductions are a matter of legislative grace, Congress has the power to condition, limit or deny deductions from gross income in order to arrive at the net that it chooses to tax. Chamber of Real Estate and Builders’ Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.

Tax refund; burden of proof. The burden of establishing the factual basis of a claim for a refund rests on the taxpayer. While the Commissioner of Internal Revenue has the power to make an examination of the returns and to assess the correct amount of tax, his failure to exercise such powers does not create a presumption in favor of correctness of the return. The taxpayer must still present substantial evidence to prove his claim for refund. There is no automatic grant of a tax refund. Commissioner of Internal Revenue vs. Far East Bank & Trust Company, etc., G.R. No. 173854, March 15, 2010.

Tax 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 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 tax withheld.  Commissioner of Internal Revenue vs. Far East Bank & Trust Company, etc., G.R. No. 173854, March 15, 2010.

Value-added tax (VAT);  exemption. Prior to the issuance by the BIR of Revenue Memorandum Circular No. 74-99, whether a PEZA-registered enterprise was exempt from VAT or subject to VAT depended on the type of fiscal incentive availed of by said enterprise. If the enterprise availed itself of 5% gross income taxation under Republic Act No. 7916, it was exempt from VAT. If it availed itself of income tax holiday under the Omnibus Investments Code, it was subject to VAT.  Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010.

Value-added tax (VAT); exemption. Prior to the issuance by the BIR of Revenue Memorandum Circular No. 74-99, whether a PEZA-registered enterprise was exempt from VAT or subject to VAT depended on the type of fiscal incentive availed of by said enterprise. If the enterprise availed itself of 5% gross income taxation under Republic Act No. 7916, it was exempt from VAT. If it availed itself of income tax holiday under the Omnibus Investments Code, it was subject to VAT. Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010.

VAT; zero-rating. Upon issuance of RMC 74-99, the rule was clearly established that following the cross-border doctrine, based on the fiction that ecozones are foreign territory, a sale by a supplier in the customs territory to a PEZA-registered enterprise is considered an export sale and therefore subject to zero VAT. Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010.

(As of the date of this post, the Supreme Court has not yet published the complete March 2010 cases. This post will be updated as soon as additional cases become available.)

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