November 2012 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; excise taxes; nature. Excise taxes imposed under Title VI of the National Internal Revenue Code (“Tax Code”) are taxes on property which are imposed on “goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported.” Although excises taxes are paid by the manufacturer or producer before removal of domestic products from the place of production or by the owner or importer before the release of imported articles from the customs house, the same partake of the nature of indirect taxes when it passed on to the subsequent purchaser. Indirect taxes are defined as those wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted to another person. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of the goods sold or services rendered.  Diageo Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 183553, November 12, 2012.

National Internal Revenue Code; excise taxes; refund; proper party to file. As defined in Section 22 (N) of the Tax Code, a taxpayer means any person subject to tax. He is, therefore, the person legally liable to file a return and pay excise taxes under Section 130 (A) of the Tax Code. The statutory taxpayer remains to be so even if he shifts the burden of tax to another person. Consequently, the right to claim a refund, if legally allowed, belongs to him and cannot be transferred to another without any clear provision of law allowing the same.

Unlike the law on Value-Added Tax which allows the subsequent purchaser under the tax credit method to refund or credit input taxes passed on to it by a supplier, no provision for excise taxes exists granting non-statutory taxpayer the right to claim a refund or credit. It must also be noted that when the excise taxes were included in the purchase price of the goods sold to petitioner, the same was no longer in the nature of a tax but already formed part of the cost of the goods. Diageo Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 183553, November 12, 2012.

Local Government Code; local tax; tax ordinance; procedure for assailing validity. As the Supreme Court had ruled in the case of Reyes v. Court of Appeals, the Local Government Code requires a dissatisfied taxpayer who questions the validity or legality of a tax ordinance to file his appeal to the Secretary of Justice within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. If the Secretary does not act thereon within 60 days, a party could already proceed to seek relief in court. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. For this reason the courts construe these provisions of statutes as mandatory. Cagayan Electric Power and Light Co., Inc. vs. City of Cagayan de Oro, G.R. No. 191761, November 14, 2012.

Local Government Code; local business taxes; definition of business. Business is defined by Section 131 (d) of the Local Government Code as “trade or commercial activity regularly engaged in as a means of livelihood or with a viewed to profit.” In relation to Section 131 (d), Section 143 (h) of the Local Government Code provides that the city may impose taxes, fees, and charges on any business which is not specified in Section 143 (a) to (g) and which the sanggunian concerned may deem proper to tax. Cagayan Electric Power and Light Co., Inc. vs. City of Cagayan de Oro, G.R. No. 191761, November 14, 2012.

Local Government Code; taxing power of cities; limitations as to the imposable rate; effect of absence of separability clause in a tax ordinance. Section 151 of the Local Government Code states that, subject to certain exceptions, a city may exceed by not more than 50% the tax rates allowed to provinces and municipalities. Section 143 (h) of the Local Government Code provides that a municipality may impose a business tax at a rate not exceeding “two percent of gross sales or receipts” on any business subject to value-added tax under the National Internal Revenue Code. Following Section 151, a city may impose a business tax of up to 3% of a business’ gross sales or receipts of the preceding calendar year. Thus, the 10% tax rate imposed by the Ordinance in question clearly violates Section 143 (h). In view of the lack of separability clause in the Ordinance, the Supreme Court declare void the entirety of the Ordinance without prejudice to the enactment of the City of Cagayan de Oro of a tax ordinance that complies with the limits set by the Local Government Code. Cagayan Electric Power and Light Co., Inc. vs. City of Cagayan de Oro, G.R. No. 191761, November 14, 2012.

(Caren thanks Grace Ann C. Lazaro for assisting in the preparation of this post.)

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