November 2013 Philippine Supreme Court Decisions on Tax Law

Here are select rulings of the Supreme Court of the Philippines on tax laws:

Merger; concept.  The term “merger” or “consolidation”, when used shall be understood to mean: (i) the ordinary merger or consolidation, or (ii) the acquisition by one corporation of all or substantially all the properties of another corporation solely for stock: Provided, [t]hat for a transaction to be regarded as a merger or consolidation, it must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation. In case of a merger, two previously separate entities are treated as one entity and the remaining entity may be held liable for both of their tax deficiencies. In the agreement between Traders Royal Bank and Bank of Commerce, it was explicitly provided that they shall continue to exist as separate entities. Since the purchase and sale of identified assets between the two companies does not constitute a merger under the foregoing definition, the Bank of Commerce is considered an entity separate from petitioner. Thus, it cannot be held liable for the payment of the deficiency documentary stamp tax assessed against petitioner. Commissioner of Internal Revenue v. Bank of Commerce, G.R. No. 180529. November 13, 2013.

Newly discovered evidence; concept; applicability. Ordinarily, the concept of newly discovered evidence is applicable to litigations in which a litigant seeks a new trial or the re-opening of the case in the trial court. Seldom is the concept appropriate when the litigation is already on appeal, because appellate courts, in general, are not triers of facts. Facts have to be proven while the case is still pending with the lower courts. The taxpayer has to convince the CTA that the quasi-judicial agency a quo should not have denied the claim, and to do so the taxpayer should prove every minute aspect of its case by presenting, formally offering and submitting its evidence to the CTA, including whatever was required for the successful prosecution of the administrative claim as the means of demonstrating to the CTA that its administrative claim should have been granted in the first place. In order that newly discovered evidence may be a ground for allowing a new trial, it must be fairly shown that: (a) the evidence is discovered after the trial; (b) suchevidence could not have been discovered and produced at the trial even with the exercise of reasonable diligence; (c) such evidence is material, not merely cumulative, corroborative, or impeaching; and (d) such evidence is of such weight that it would probably change the judgment if admitted. The first two requisites are not present here. First, the proposed evidence was plainly not newly discovered considering the taxpayer’s submission that its former Finance and Accounting Manager had misplaced the VAT official receipts. Second, the receipts, had they truly existed, could have been sooner discovered and easily produced at the trial with the exercise of reasonable diligence. Luzon Hydro Corporation v. Commissioner of Internal Revenue, G.R. No. 188260. November 13, 2013.

Value-added tax; claims for refund or tax credit of unutilized input VAT; period within which to file judicial claim; applicable provision. Section 229 of the National Internal Revenue Code (NIRC), which provides for a two-year period, reckoned from the date of payment of the tax or penalty, for the filing of a claim of refund or tax credit, is only pertinent to the recovery of taxes erroneously or illegally assessed or collected. The relevant provision of the NIRC for claiming a refund or a tax credit for the unutilized creditable input value-added tax (VAT) is Section 112(A). Input VAT is not ‘excessively’ collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct and proper. Commissioner of Internal Revenue v. Visayas Geothermal Power Company, Inc.,G.R. No. 181276. November 11, 2013.

Value-added tax; claims for refund or tax credit of unutilized input VAT; period within which to file judicial claim; the 120+30 day period is mandatory and jurisdictional. Section 112(D) of the NIRC clearly provides that the Commissioner of Internal Revenue (CIR) has “120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit],” within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the Court of Tax Appeals (CTA) within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

The application of the 30-day period from receipt of the decision of the CIR or from the lapse of the 120-day period (the “120+30 day period”) given to the taxpayer within which to file a petition for review with the CTA, as provided for in Section 112(D) of the Tax Code, was further explained in the San Roque cases[1] which affirmed the doctrine in the case of CIR v Aichi Forging Company of Asia, Inc. and explicitly ruled that “the 120-day waiting period is mandatory and jurisdictional.” Commissioner of Internal Revenue v. Visayas Geothermal Power Company, Inc., G.R. No. 181276. November 11, 2013.

Value-added tax; claims for refund or tax credit of unutilized input VAT; period within which to file judicial claim; the 120+30 day period is mandatory and jurisdictional; exception. Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 provides a valid claim for equitable estoppel under Section 246 of the NIRC. BIR Ruling No. DA-489-03 expressly states that the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.” Prior to this ruling, the BIR held, as shown by its position in the Court of Appeals, that the expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed. Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in the Aichi case on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional. Commissioner of Internal Revenue v. Visayas Geothermal Power Company, Inc., G.R. No. 181276. November 11, 2013.

Value-added tax; tax credits or refund of input tax; period to file judicial claim.  Section 112(A) of the National Internal Revenue Code provides for a two-year prescriptive  period after the close of the taxable quarter when the sales were made, within which a value-added tax-registered person whose sales are zero-rated or effectively zero-rated may file an administrative application for the issuance of a tax credit certificate or refund of creditable input tax. The Commissioner of Internal Revenue (CIR) has one hundred twenty (120) days from the date of submission of complete documents in support of the application within which to decide on the administrative claim. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.  Applied Food Ingredients Co., Inc. v. Commissioner of Internal Revenue,G.R. No. 184266. November 11, 2013.

Value-added tax; refund or tax credit of unutilized input VAT; requisites. A claim for refund or tax credit for unutilized input value-added tax (VAT) may be allowed only if the following requisites concur, namely: (a) the taxpayer is VAT-registered; (b) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (c) the input taxes are due or paid; (d) the input taxes are not transitional input taxes; (e) the input taxes have not been applied against output taxes during and in the succeeding quarters; (f ) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (g) for zero-rated sales under Section 106(A)(2)(1) and (2), 106(B), and 108(B)(1) and (2) of the National Internal Revenue Code, the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; (h) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be  proportionately allocated on the basis of sales volume; and (i) the claim is filed within two years after the close of the taxable quarter when such sales were made. Luzon Hydro Corporation v. Commissioner of Internal Revenue, G.R. No. 188260. November 13, 2013.

Value-added tax; refund or tax credit of input VAT; evidence of zero-rated sales. Although the taxpayer has correctly contended here that the sale of electricity by a power generation company like it should be subject to zero-rated VAT under Republic Act No. 9136, its assertion that it need not prove its having actually made zero-rated sales of electricity by presenting the VAT official receipts and VAT returns cannot be upheld. It could not be permitted to substitute such vital and material documents with secondary evidence like financial statements. As the Court of Tax Appeals (CTA) En Banc precisely found, the petitioner did not reflect any zero-rated sales from its power generation in its four quarterly VAT returns, which indicated that it had not made any sale of electricity. Had there been zero-rated sales, it would have reported them in the returns. Indeed, it carried the burden not only that it was entitled under the substantive law to the allowance of its claim for refund or tax credit but also that it met all the requirements for evidentiary substantiation of its claim before the administrative official concerned, or in the de novo litigation before the CTA in Division. Luzon Hydro Corporation v. Commissioner of Internal Revenue, G.R. No. 188260. November 13, 2013.

(Caren thanks Carlos P. Garcia for assisting in the preparation of this post.)

 

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