February 2014 Philippine Supreme Court Decisions on Tax Law

Here are select February 2014 rulings of the Supreme Court of the Philippines on tax law:

Tax laws

National Internal Revenue Code; Doctrine of Exhaustion of Administrative Remedies. Taxpayer submits that the requirement to exhaust the 12-day period under Section 112 (c) of the National Internal Revenue Code prior to filing the judicial claim with the Court of Tax Appeals (CTA) is a doctrine of “exhaustion of administrative remedies” and that the non-observance of the same merely results in lack of cause of action which may be waived for failure to timely invoke the same. As the Court opined in San Roque, a petition for review that is filed with the CTA without waiting for the 120-day mandatory period renders the same void. A person committing a void act cannot claim or acquire any right from such void act. Accordingly, taxpayer’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. It is a mere scrap of paper from which taxpayer cannot derive or acquire any right notwithstanding the supposed failure on the part of the Commissioner to raise the issue of non-compliance with the 120-day period in the proceedings before the CTA First Division. Commissioner of Internal Revenue vs. Team Sual Corporation (Formerly Mirant Sual Corporation),  G.R. No. 194105. February 5, 2014

National Internal Revenue Code; excise tax; pacta sunt servanda; Section 135.  Under the basic international law principle of pacta sunt servanda, the state has the duty to fulfill its treaty obligations in good faith. This entails harmonization of national legislation with treaty provisions. Section 135 (a) of the National Internal Revenue Code embodies the country’s compliance with its undertakings under the 1944 Chicago Convention on International Aviation (Chicago Convention), Article 24 (9) of which has been interpreted to prohibit taxation of aircraft fuel consumed for international transport, and various bilateral air service agreements not to impose excise tax on aviation fuel purchased by international carriers from domestic manufacturers or suppliers. In the previous decision of the Court in this case, the Court interpreted Section 135 (a) as prohibiting domestic manufacturer or producer to pass on to international carriers the excise tax it had paid on petroleum products upon their removal from the place of production. Thus, the Court found that there was no basis to refund the excise taxes paid on petroleum products sold to tax-exempt international carriers as “erroneously or illegally paid” tax. The Court maintains that Section 135 (a) prohibits the passing of the excise tax to international carriers who buys petroleum products from local manufacturers/sellers such as the respondent taxpayer. However, there is a need to reexamine the effect of denying the domestic manufactures/sellers’ claim for refund of the excise taxes they already paid on petroleum products sold to international carriers, and its serious implications on the Government’s commitment to the goals and objectives of the Chicago Convention. With the process of declining sales of aviation jet fuel sales to international carriers on account of major domestic oil companies’ unwillingness to shoulder the burden of excise tax, or of petroleum products being sold to said carriers by local manufacturers or sellers at still high prices, the practice of “tankering” (i.e., carriers filling their aircraft as full as possible whenever they landed outside a jurisdiction that imposes tax on fuel to avoid paying tax) would not be discouraged. This does not augur well for the Philippines’ growing economy and the booming tourism industry. Worse, the Government would be risking retaliatory action under several bilateral agreements with various countries. Evidently, construction of the tax exemption provision in question should give primary consideration to its broad implications on the country’s commitment under international agreements. In view of the foregoing the Court held that respondent, as the statutory taxpayer who is directly liable to pay the excise tax on its petroleum products is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to international carriers, the latter having been granted exemption from the payment of said excise tax under Section 135 (a) of the NIRC. Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497. February 19, 2014.

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February 2014 Philippine Supreme Court Decisions on Criminal Law and Procedure

Here are select February 2014 rulings of the Supreme Court of the Philippines on criminal law and procedure:

1. REVISED PENAL CODE

Aiding or abetting; Unsolicited Commercial Communications; Child Pornography. Aiding or abetting has of course well-defined meaning and application in existing laws. When a person aids or abets another in destroying a forest, smuggling merchandise into the country, or interfering in the peaceful picketing of laborers, his action is essentially physical and so is susceptible to easy assessment as criminal in character. These forms of aiding or abetting lend themselves to the tests of common sense and human experience. If such means are adopted, self-inhibition borne of fear of what sinister predicaments await internet users will suppress otherwise robust discussion of public issues. Democracy will be threatened and with it, all liberties. What is more, as the petitioners point out, formal crimes such as libel are not punishable unless consummated. In the absence of legislation tracing the interaction of netizens and their level of responsibility such as in other countries, Section 5, in relation to Section 4(c)(4) on Libel, Section 4(c)(3) on Unsolicited Commercial Communications, and Section 4(c)(2) on Child Pornography, cannot stand scrutiny. Jose Jesus M. Disini Jr., et al v. The Secretary of Justice, et al, G.R. No. 203335, February 11, 2014.

Conspiracy; direct proof. While direct proof is not essential to establish conspiracy as it may be inferred from the collective acts of the accused before, during and after the commission of the crime which point to a joint purpose, design, concerted action, and community of interests, records are, however, bereft of any showing as to how the particular acts of petitioners figured into the common design of taking out the subject volume and inserting the falsified documents therein. It would be a stretch to conclude that the act of Castro of inviting Atibula to Atienza’s party, without any other proof of Castro’s participation, was instrumental or, at the very least, reasonably connected to Atienza and his own alleged participation in the above-stated crimes. Hence, the prosecution’s theory of conspiracy does not deserve any merit. Ricardo L. Atienza and Alfredo A. Castro v. People of the Philippines, G.R. No. 188694, February 12, 2014.

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February 2014 Philippine Supreme Court Decisions on Legal and Judicial Ethics

Here are select February 2014 rulings of the Supreme Court of the Philippines on legal and judicial ethics:

Attorney; Notarization; Importance. An administrative case was filed against Atty. Rinen for falsification of an Extra Judicial Partition with Sale which allowed the transfer to Spouses Durante of a parcel of land. In Bautista v. Atty. Bernabe, the Court held that “[a] notary public should not notarize a document unless the persons who signed the same are the very same persons who executed and personally appeared before him to attest to the contents and truth of what are stated therein. The presence of the parties to the deed will enable the notary public to verify the genuineness of the signature of the affiant.” Notarization is not an empty, meaningless, routinary act. It is invested with substantive public interest, such that only those who are qualified or authorized may act as notaries public. It converts a private document into a public one, making it admissible in court without further proof of its authenticity. Thus, notaries public must observe with utmost care the basic requirements in the performance of their duties. Otherwise, the confidence of the public in the integrity of public instruments would be undermined.

In this case, Atty. Rinen did not deny his failure to personally verify the identity of all parties who purportedly signed the subject document and whom, as he claimed, appeared before him on April 7, 1994. Such failure was further shown by the fact that the pertinent details of the community tax certificates of Wilberto and his sister, as proof of their identity, remained unspecified in the deed’s acknowledgment portion. Clearly, there was a failure on the part of Atty. Rinen to exercise the due diligence that was required of him as a notary public ex–officio. Thus, Atty. Rinen’s notarial commission as revoked and he was disqualified from being commissioned as a notary public for one year. Wilberto C. Talisic v. Atty. Primo R. Rinen, A.C. No. 8761, February 12, 2014.

Attorney; Notarization not an empty act. Complainant charged Atty. Gupana of forgeries and falsifications in the notarization of certain documents. The Supreme Court found Atty. Gupana administratively liable under Section 1 of Public Act No. 2103, otherwise known as the Notarial Law, for violation of his notarial duties when he failed to require the personal presence of Candelaria Magpayo when he notarized the Affidavit of Loss which Candelaria allegedly executed on April 29, 1994.

Under the law, the party acknowledging must appear before the notary public or any other person authorized to take acknowledgments of instruments or documents. In this case, the jurat of the Affidavit of Loss stated that Candelaria subscribed to the affidavit before Atty. Gupana on April 29, 1994, at Mandaue City. Candelaria, however, was already dead since March 26, 1991. Hence, it is clear that the jurat was made in violation of the notarial law. The notarization of a document is not an empty act or routine. A notary public’s function should not be trivialized and a notary public must discharge his powers and duties which are impressed with public interest, with accuracy and fidelity. As a lawyer commissioned as notary public, Atty. Gupana is mandated to subscribe to the sacred duties appertaining to his office, such duties being dictated by public policy impressed with public interest. Thus, the Supreme Court held that Atty. Gupana’s revocation of his notarial commission, disqualification from being commissioned as a notary public for a period of two years and suspension from the practice of law for one year are in order. Carlito Ang v. Atty. James Joseph GupanaA.C. No. 4545. February 5, 2014.

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February 2014 Philippine Supreme Court Decisions on Commercial Law

Here are select February 2014 rulings of the Supreme Court of the Philippines on commercial law:

Corporate officer; intra-corporate dispute. There are two circumstances which must concur in order for an individual to be considered a corporate officer, as against an ordinary employee or officer, namely: (1) the creation of the position is under the corporation’s charter or by-laws; and (2) the election of the officer is by the directors or stockholders. It is only when the officer claiming to have been illegally dismissed is classified as such corporate officer that the issue is deemed an intra-corporate dispute which falls within the jurisdiction of the trial courts. Raul C. Cosare v. Broadcom Asia, Inc., et al., G.R. No. 201298, February 5, 2014.

Intra-corporate dispute; illegal dismissal case. As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the Court of Appeals (CA), it is the labor arbiter (LA), and not the regular courts, which has the original jurisdiction over the subject controversy. An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been regarded in its broad sense to pertain to disputes that involve any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates, themselves.

Settled jurisprudence, however, qualifies that when the dispute involves a charge of illegal dismissal, the action may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination disputes and claims for damages arising from employer-employee relations as provided in Article 217 of the Labor Code.  Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and an officer of Broadcomat the time the subject controversy developed failed to necessarily make the case an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros, the Court distinguished between a “regular employee” and a “corporate officer” for purposes of establishing the true nature of a dispute or complaint for illegal dismissal and determining which body has jurisdiction over it.  Succinctly, it was explained that “[t]he determination of whether the dismissed officer was a regular employee or corporate officer unravels the conundrum” of whether a complaint for illegal dismissal is cognizable by the LA or by the RTC.  “In case of the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority to adjudicate.

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was not a “corporate officer” as the term is defined by law. Raul C. Cosare v. Broadcom Asia, Inc., et al., G.R. No. 201298, February 5, 2014.

February 2014 Philippine Supreme Court Decisions on Civil Law

Here are select February 2014 rulings of the Supreme Court of the Philippines on civil law:

Contract law; principle of relativity. The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof “Where there is no privity of contract, there is likewise no obligation or liability to speak about.” Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Contract of sale; obligations of the parties; there is nothing in the decision of the HLURB, as affirmed by the OP and the CA, which shows that the petitioner is being ordered to assume the obligation of any of the respondents.In a contract of sale, the parties’ obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing that is the object of sale. On the other hand, the principal obligation of a vendee is to pay the full purchase price at the agreed time. Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Contract to sell; ownership; right to mortgage the property by the owner. Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is not to pass until full payment of the purchase price. In other words, at the time of the mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v. Spouses Lozada the Court affirmed the right of the owner/developer to mortgage the property subject of development, to wit: “[P.D.] No. 957 cannot totally prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of the purchase price by the installment buyer.” Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

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