August 2013 Philippine Supreme Court Decisions on Tax Law

Here are select August 2013 rulings of the Supreme Court of the Philippines on tax law:

Tariff and Customs Code; Central Bank Circular No. 1389; Prohibited goods v. regulated goods. Central Bank Circular No. 1389 dated April 13, 1993 classified imports into three (3) categories, namely: (a) “freely importable commodities” or those commodities which are neither “regulated” nor “prohibited” and the importation of which may be effected without any prior approval of or clearance from any government agency; (b) “regulated commodities” or those commodities the importation of which require clearances/permits from appropriate government agencies; and (c) “prohibited commodities” or those commodities the importation of which are not allowed by law.  Under Annex 1 of the foregoing circular, rice and corn, which are subject goods in this case, are enumerated as “regulated” commodities. Regulated goods may be released in detention by the filing of a cash bond. Thus, the Court of Tax Appeals did not gravely abuse its discretion when it granted respondent’s motion to release since there lies cogent legal bases to support the conclusion that subject goods were merely “regulated” and not “prohibited” commodities. Secretary of the Department of Finance v. Court of Tax Appeals and Kutangbato Conventional Trading Multi-Purpose Cooperative, G.R. No. 168137, August 7, 2013

Grave abuse of discretion; concept. In order to be qualified as “grave,” the abuse of discretion must be so patent or gross as to constitute an evasion of a positive duty or a virtual refusal to perform the duty or to act at all in contemplation of law. Finding that this characterization does not fit the Court of Tax Appeal’s (CTA) exercise of discretion in this case, the Court held that no grave abuse of discretion attended CTA’s grant of respondent’s motion to release the subject goods. Secretary of the Department of Finance v. Court of Tax Appeals and Kutangbato Conventional Trading Multi-Purpose Cooperative, G.R. No. 168137, August 7, 2013

Procedure; minute resolution not binding precedent. The Court’s minute resolution in the case of Mirant is not a binding precedent. As the Court clarified in the case of Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue: “… [A]lthough contained in a minute resolution, the Court’s dismissal of the petition was a disposition of the merits of the case…. With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata. However, if other parties or another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent.” Thus, even if the Court had affirmed the Court of Tax Appeals in the case of Mirant, the doctrine laid down in that decision cannot bind the Court in cases of similar nature. There are differences in parties, taxes, taxable periods, and treaties involved. More importantly, the disposition of that case was made only through a minute resolution. Deutsche Bank Ag Manila Branch v. Commissioner of Internal Revenue, G.R. No. 188550, August 19, 2013.

International Law; pacta sunt servanda. The Philippine Constitution provides for adherence to the general principles of international law as part of the law of the land. The international principle of pacta sunt servanda demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. More importantly, treaties have the force and effect of law in this jurisdiction. Deutsche Bank Ag Manila Branch v. Commissioner of Internal Revenue, G.R. No. 188550, August 19, 2013.

Tax Treaties; rationale. Tax treaties are entered into “to reconcile the national fiscal legislations of the contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions.” As the Court stated in the case of Commissioner of Internal Revenue v. S.C. Johnson, “tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate.” Deutsche Bank Ag Manila Branch v. Commissioner of Internal Revenue, G.R. No. 188550, August 19, 2013.

National Internal Revenue Code; Revenue Memorandum Order No. 1-2000; noncompliance with the 15-day period for prior application. Revenue Memorandum Order No. 1-2000 (RMO 1-2000) requires that any availment of the tax treaty relief must be preceded by an application with the International Tax Affairs Division (ITAD) of the Bureau of Internal Revenue (BIR) at least 15 days before the transaction. It was implemented to obviate any erroneous interpretation and/or application of the treaty provisions. The objective of the BIR is to forestall assessments against corporations who erroneously availed themselves of the benefits of the tax treaty but are not legally entitled thereto, as well as to save such investors from the tedious process of claims for a refund due to an inaccurate application of the tax treaty provisions. There is nothing in RMO 1-2000 that would indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. Deutsche Bank Ag Manila Branch v. Commissioner of Internal Revenue, G.R. No. 188550, August 19, 2013.

Tax Treaty v. Revenue Memorandum Order No. 1-2000. Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by Revenue Memorandum Order No. 1-2000 (RMO 1-2000) should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the Bureau of Internal Revenue should merely operate to confirm the entitlement of the taxpayer to the relief. The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000. Deutsche Bank Ag Manila Branch v. Commissioner of Internal Revenue, G.R. No. 188550, August 19, 2013.

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

Advertisements