September 2012 Philippine Supreme Court Decisions on Tax Law

Here are select September 2012 rulings of the Philippine Supreme Court on tax law:

Court of Tax Appeals; Rules of Court; motion for reconsideration. At the outset, the Court holds that a dismissal of the petition is warranted in view of the petitioner’s failure to file before the Court of Tax Appeals en banc a motion for reconsideration of the assailed resolution. The settled rule is that a motion for reconsideration is a condition sine qua non for the filing of a petition for certiorari. Its purpose is to grant an opportunity for the court to correct any actual or perceived error attributed to it by the re-examination of the legal and factual circumstances of the case. The rationale of the rule rests upon the presumption that the court or administrative body which issued the assailed order or resolution may amend the same, if given the chance to correct its mistake or error. The “plain, speedy, and adequate remedy” referred to in Section 1, Rule 65 of the Rules of Court is a motion for reconsideration of the questioned order or resolution. While the rule is not absolute and admits of settled exceptions, none of the exceptions attend the present petition. Commissioner of Internal Revenue vs. Court of Tax Appeals and Ayala Land, Inc., G.R. No. 190680. September 13, 2012.

National Internal Revenue Code; income tax; exemption of charitable and social welfare institutions. St. Luke’s Medical Center, Inc. (the “petitioner”) claims income tax exemption under Section 30 (E) and (G) of the National Internal Revenue Code (the “Tax Code”). The petitioner claims that it is a charitable institution and an organization promoting social welfare. The petitioner claims that the legislative intent of introducing Section 27 (B) was only to remove the exemption for “proprietary non-profit” hospitals. The Court holds that Section 27 (B) of the Tax Code does not remove the income tax exemption of proprietary non-profit hospitals under Section 30 (E) and (G). The effect of the introduction of Section 27(B) is to subject the taxable income of two specific institutions, namely, proprietary non-profit educational institutions and proprietary non-profit hospitals, which are among the institutions covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(1). Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are that they must be proprietary and non-profit. “Proprietary” means private. “Non-profit” means no net income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institution’s purposes and all its activities conducted not for profit. “Non-profit” does not necessarily mean “charitable.”  An organization may be considered as non-profit if it does not distribute any part of its income to stockholders or members. However, despite its being  a tax exempt institution, any income such institution earns from activities conducted for profit is taxable, as expressly provided in the last paragraph of Section 30. The petitioner fails to meet the requirements under Section 30 (E) and (G) of the Tax Code to be completely tax exempt from all its income. However, it remains a proprietary non-profit hospital under Section 27 (B) as long as it does not distribute any of its profits to its members and such profits are reinvested pursuant to its corporate purposes. The petitioner, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit activities. Commissioner of Internal Revenue vs. St. Luke’s Medical Center, Inc./St. Luke’s Medical Center, Inc. vs. Commissioner of Internal Revenue, G.R. No. 195909/G.R. No. 195960. September 26, 2012.

National Internal Revenue Code; Indirect Taxes vs. Withholding Taxes. The Commissioner of Internal Revenue (CIR) contends that taxpayer is disqualified to avail itself of amnesty under Republic Act No. 9480 because it is “deemed” a withholding agent for deficiency value-added tax (VAT) and excise taxes. The CIR did not assess taxpayer as a withholding agent that failed to withhold or remit the deficiency VAT and excise tax to the Bureau of Internal Revenue under the relevant provisions of the National Internal Revenue Code. Indirect taxes, like value-added tax (VAT) and excise tax, are different from withholding taxes. To distinguish, in indirect taxes, the incidence of taxation falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. On the other hand, in case of withholding of taxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The burden of taxation is not shifted to the withholding agent who merely collects, by withholding, the tax due from income payments to entities arising from certain transactions and remits the same to the government. Due to this difference, the deficiency VAT and excise tax cannot be deemed as withholding taxes merely because they constitute indirect taxes. Asia International Auctioneers, Inc. vs. Commissioner of Internal Revenue, G.R. No. 179115. September 26, 2012.

Republic Act No. 9480; Republic Act No. 9399; Tax Amnesty.  Republic Act No. 9480 (RA 9480) granted tax amnesty to qualified taxpayers for all national internal revenue taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have remained unpaid as of December 31, 2005. A tax amnesty is a general pardon or the intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of tax amnesty, similar to tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. Republic Act No. 9399 (RA 9399) declared a one-time amnesty on certain tax and duty liabilities incurred by certain business enterprises operating within the special economic zones and certain freeports. RA 9399 does not preclude taxpayers within its coverage from availing themselves of other tax amnesty programs available or enacted in the future like 9480. RA 940 does not exclude from its coverage taxpayers operating within special economic zones, such as the taxpayer. Thus, a taxpayer has the liberty to choose which tax amnesty program it wants to avail as long as it is within the bounds of the law. Asia International Auctioneers, Inc. vs. Commissioner of Internal Revenue, G.R. No. 179115. September 26, 2012.

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