December 2010 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; Revenue Regulations No. 12-99; due process requirements; preliminary assessment notice. Section 228 of the national Internal Revenue Code (Tax Code) clearly require that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a preliminary assessment notice (PAN). He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations- that taxpayers should be able to present their case and adduce supporting evidence. This is confirmed under section 3 of Revenue Regulations No. 12-99. From the said section, it is clear that the sending of a PAN to taxpayer to inform him of the assessment is part of the “due process requirement in the issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the tax authorities. The use of the word “shall” in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the Commissioner of Internal Revenue (CIR) to strictly comply with the requirements laid down by law and its own rules is a denial of taxpayer’s right to due process. Thus for failure to send the PAN stating the facts and the law on which the assessment was made as required by section 228 of the Tax Code, the assessment made by the CIR is void. Commissioner of Internal Revenue vs Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010.

Local Government Code; real property tax; government instrumentality. Philippine Fisheries Development Authority (PFDA) is a government instrumentality and therefore exempt from real property tax imposed on the Lucena Fishing Port Complex, except those portions which are leased to private persons or entities. Under section 133 (o) of the Local Government Code, local government units have no power to tax instrumentalities of the national government. In the 2007 case of “Philippine Fisheries Development Authority v. Court of Appeals,” the Court resolved the issue of whether the PFDA is a government-owned or controlled corporation (GOCC) or an instrumentality of the national government. In that case, the Court ruled that PFDA is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax except for the portions of the Iloilo Fishing Port Complex (which was managed and operated by PFDA) which were leased to private entities. The PFDA has a capital stock but it is not divided into shares of stocks. It has no stockholders or voting shares. Hence, it is not a stock corporation. Neither is it a non-stock corporation because it has no members. The PFDA is a national government instrumentality which is defined as an agency of the national government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This ruling was affirmed by the Court in a subsequent PFDA case involving the Navotas Fishing Port Complex.  Philippine Fisheries Development Authority vs Central Board of Assessment Appeals, Local Board of Assessment Appeals of Lucena City, City of Lucena, Lucena City Assessor and Lucena City Treasurer, G.R. No. 178030, December 15, 2010.

Local Government Code; real property tax; property of public dominion. Under section 234 (a) of the Local Government Code, properties of public dominion intended for public use are exempt from real property tax.  Properties of public dominion are owned by the state or the national government as defined under section 420 of the Civil Code.  The Lucena Fishing Port Complex, which is one of the major infrastructure projects undertaken by the national government under the Nationwide Fishing Ports Package is devoted for public use and falls with the term “ports.” It “serves as [the Philippine Fisheries Development Authority’s (PFDA’s)] commitment to continuously provide post-harvest infrastructure support to the fishing industry, especially in areas where productivity among the various players in the fishing industry need to be enhanced.”  As property of public dominion, the Lucena Fishing Port Complex is owned by the Republic of the Philippines and exempt from real property tax except for the portions that the PFDA has leased to private parties.  Philippine Fisheries Development Authority vs Central Board of Assessment Appeals, Local Board of Assessment Appeals of Lucena City, City of Lucena, Lucena City Assessor and Lucena City Treasurer, G.R. No. 178030, December 15, 2010.

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