July 2012 Philippine Supreme Court Decisions on Tax Law

Here are select July 2012 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code; Value Added Tax; “zero-rated” transaction; recipient of services. The recipient of services must be doing business outside the Philippines for the transaction to qualify it as zero-rated under Section 108 (B) of the National Internal Revenue Code of 1997 (1997 Tax Code). Since Section 108 (B) of the 1997 Tax Code is a verbatim copy of Section 102 (b) of the National Internal Revenue Code of 1977 (1977 Tax Code), any interpretation of the latter holds true for the former. When the Supreme Court decides a case, it does not pass a new law, but merely interprets a pre-existing one. Even though the taxpayer’s present petition was filed before the decision in the case of Commissioner of Internal Revenue v Burmeister and Wain Scandinavian Contractor Mindanao, Inc. was promulgated, the pronouncements made in that case may be applied to the present case without violating the rule against retroactive application. When the Court interpreted Section 102 (b) of the 1977 Tax Code in the Burmeister case, this interpretation became part of the law from the moment it became effective. It is elementary that the interpretation of a law by the Court constitutes part of that law from the date it was originally passed, since the Court’s construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect.

As explained by the Court in the Burmeister case: “If the provider and recipient of the ‘other services’ are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under section 102 (a) [of the 1977 Tax Code] can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret section 102 (b) (2) to apply to a payer-recipient of services doing business in the Philippines is to make the payment of the regular VAT under section 102 (a) dependent on the generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes section 102 (a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a voluntary contribution.” Accenture, Inc. vs. Commissioner of Internal Revenue, G.R. No. 190102, July 11, 2012.

National Internal Revenue Code; Value Added Tax; “zero-rated” transaction; not doing business in the Philippines. It is not enough that the recipient of the services be proven to be a foreign corporation; it must be specifically proven to be a non-resident foreign corporation. There is no specific criterion as to what constitutes “doing” or “engaging in” or “transacting” business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization. Accenture, Inc. vs. Commissioner of Internal Revenue, G.R. No. 190102, July 11, 2012.

Local Government Code; local business tax; appeal under Section 195; Rule 65 petition for certiorari. A taxpayer dissatisfied with a local treasurer’s denial of or inaction on his protest over an assessment has 30 days within which to appeal to the court of competent jurisdiction. The said period is to be reckoned from the taxpayer’s receipt of the denial of his protest or the lapse of the 60-day period within which the local treasurer is required to decide the protest, from the moment of its filing. Section 195 of the Local Government Code does not elaborate on how an appeal is to be made from the denial by a local treasurer of a protest on assessment made by a taxpayer. However, taxpayer erroneously availed of the wrong remedy in filing a Rule 65 petition for certiorari to question the treasurer’s inaction on its letter-protest. As a special civil action, certiorari is available only if the following essential requisites concur: (i) it must be directed against a tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) the tribunal, board, or officer must have acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and, (3) there is no appeal nor any plain, speedy, and adequate remedy in the ordinary course of law. Judicial function entails the power to determine what the law is and what the legal rights of the parties are, and then undertakes to determine these questions and adjudicate upon the rights of the parties. Quasi-judicial function, on the other hand, refers to the action and discretion of public administrative officers or bodies, which are required to investigate facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for their official action and to exercise discretion of a judicial nature. From the foregoing, the treasurer cannot be said to be performing a judicial or quasi-judicial in assessing the business tax and/or effectively denying the taxpayer’s protest. For this reason, the treasurer’s actions are not the proper subjects of a Rule 65 petition for certiorari which is the appropriate remedy in cases where the tribunal, board or officer exercising judicial or quasi-judicial functions acted without or in grave abuse of discretion amounting to lack or excess of jurisdiction and there is no appeal or any plain, speedy, and adequate remedy in law. Certiorari is an extraordinary remedy designed for the correction of errors of jurisdiction and not errors of judgment. It is likewise considered mutually exclusive with appeal like the one provided by Article 195 of the Local Government Code for a local treasurer’s denial or inaction on a protest. Appeals from the judgments, resolutions or orders of the Regional Trial Court in tax collection cases originally decided by them in their respective territorial jurisdiction must be filed with the Court of Tax Appeal within 30 days from receipt of the decision. Team Pacific Corporation vs. Daza as Municipal Treasurer of Taguig, G.R. No. 167732, July 11, 2012.

Republic Act No. 1125; Court of Tax Appeals; exclusive appellate jurisdiction. By going directly to the Supreme Court on a Rule 45 petition for review on certiorari, taxpayer lost sight of the fact that Court of Tax Appeals has the exclusive appellate jurisdiction over, among others, appeals from judgments, resolutions or orders of the regional trial courts in tax collection cases originally decided by them in their respective territorial jurisdictions Appeals to the Court of Tax Appeals must be perfected within 30 days from receipt of the decision and shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure. The perfection of an appeal in the manner and within the period fixed by law is not only mandatory but jurisdictional and non-compliance with these legal requirements is fatal to a party’s cause. Team Pacific Corporation vs. Daza as Municipal Treasurer of Taguig, G.R. No. 167732, July 11, 2012.

Local Government Code; real property tax; tax exemption of the Republic. Section 133 of the Local Government Code (LGC) prohibits local governments from imposing taxes of any kind on the National Government, its agencies or instrumentalities. However, Section 193 of the LGC has withdrawn tax exemptions enjoyed by, among others government-owned or controlled corporations (GOCCs). On the other hand, Section 234 of the LGC exempts from real property tax, real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration, or otherwise, to a taxable person. The Philippine Reclamation Authority (PRA) is not a GOCC because it is neither a stock nor non-stock corporation as required by the Administrative Code, which is the governing law defining the legal relationship and status of government entities. PRA is a government instrumentality vested with corporate powers and performing an essential public service. Being an incorporated government instrumentality, it is exempt from payment of real property tax. Moreover, real property owned by the Republic of the Philippines is exempt from real property tax unless the beneficial use thereof has been granted to a taxable person. Republic of the Philippines represented by the Philippine Reclamation Authority vs. City of Paranaque, G.R. No. 191109, July 18, 2012.

Constitution; Civil Code; property of public domain; foreclosure. The subject reclaimed lands are still part of the public domain, owned by the State and, therefore exempt from real property tax. They are portions of the foreshore and offshore areas of Manila Bay. As such, they remain public lands and form part of the public domain under the Constitution and the Civil Code. As held by the Court in the case of Chavez v. Public Estates Authority and AMARI Coastal Development Corporation, foreshore and submerged areas irrefutably belonged to the public domain and were inalienable unless reclaimed, classified as alienable lands open to disposition and further declared no longer needed for public service. The fact that alienable lands of the public domain were transferred to the Public Estates Authority (now PRA) and issued land patents or certificates of title in PEA’s name did not automatically make such lands private. The Court in the said case also held that reclaimed lands retained their inherent potential as areas for public use or public service. Reclaimed lands are reserved lands for public use. They are properties of public dominion. The ownership of such land remains with the State unless they are withdrawn by law or presidential proclamation from public use. Properties of public dominion are not subject to execution or foreclosure sale. Republic of the Philippines represented by the Philippine Reclamation Authority vs. City of Paranaque, G.R. No. 191109, July 18, 2012.

(Caren thanks Ma. Luisa D. Manalaysay for assisting in the preparation of this post.)