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.

Value-added tax; official receipts and sales invoices. Section 113 of the Tax Code does not create a distinction between a sales invoice and an official receipt. Section 113 states that “a VAT-registered person shall, for every sale, issue an invoice or receipt.”  Moreover, section 100 of the Tax Code provides that “any input tax evidenced by a VAT invoice or official receipt issued in accordance with section 113… shall be creditable against the output tax….” Thus, to determine the validity of petitioner’s claim as to unutilized input VAT, an invoice would suffice provided that the requirements under sections 113 and 237 of the Tax Code are met. AT & T Communications Services Philippines, Inc. vs Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010.

Value-added tax; proof to substantiate claim for refund. Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs that a business transaction has been concluded and therefore should not be considered bereft of probative value. Only the preponderance of evidence threshold as applied in ordinary civil action is needed to substantiate a claim for tax refund proper. AT & T Communications Services Philippines, Inc. vs Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010.

Local Government Code

Local Government Code and Presidential Decree No. 464; right of redemption. Section 79 of Presidential Decree No. (PD) 464 provides for a one-year redemption period for properties foreclosed due to tax delinquency reckoned from the date of the registration of the sale of the property.  Section 261 of the Local Government Code (LGC) provides, on the other hand, that the one-year period is reckoned from the date of sale. Section 534, or the repealing clause of the LGC, expressly repealed PD 464. Thus, as regards redemption of tax delinquent properties sold at public auction, section 261 of the LGC is applicable and the owner of the delinquent real property or person having interest therein, or his representative, has the right to redeem the property within one year from the date of sale upon payment of the delinquent tax and other fees. City Mayor, City Treasurer, City Assessor, all of Quezon City and Alvin Emerson S. Yu vs Rizal Commercial Banking Corporation, G.R. No. 171033, August 3, 2010.

 Local Government Code; Quezon City Revenue Code of 1993; general law and special law; right of redemption.  The Quezon City, pursuant to the taxing power vested on local government units by the Constitution and the Local Government Code enacted the Quezon City Revenue Code of 1993 which provided, among other things, in its section 14 (a) paragraph 7 that the right of redemption may be exercised within one year from the date of the annotation of the sale of the property at the proper registry. The LGC is general law while the Quezon City Revenue Code of 1993 is a special law, having emanated only from the LGC and with limited territorial application in Quezon City only. The general law and the special law should be read together and harmonized, if possible, with a view to giving effect to both. To harmonize the provisions of the two laws and to maintain the policy of the law to aid rather than to defeat the owner’s right to redeem his property, section 14(a) paragraph 7 of the Quezon City Revenue Code of 1993 as defining the phrase “one (1) year from the date of sale” appearing in section 261 of the LGC to mean “one (1) year from the date of the annotation of the sale of the property at the proper registry.” City Mayor, City Treasurer, City Assessor, all of Quezon City and Alvin Emerson S. Yu vs Rizal Commercial Banking Corporation, G.R. No. 171033, August 3, 2010.

Tax Treaty

Philippines-Malaysia Tax Treaty; royalties and business profits. Payments for the use of programs where the recipient has proprietary rights is considered “royalties” under the Philippine-Malaysia tax treaty. Payments for programs where the proprietary rights belong to the payor are considered business profits under the said treaty and, where the recipient has no permanent establishment in the Philippines, are not subject to Philippine income tax. Commissioner of Internal Revenue vs Smart Communication, Inc., G.R. No. 179045-46, August 25, 2010.

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