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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Old Problem, New Solution: NTC to Require Internet Service Providers to Block Child Pornography Websites

Timely Solution. This is the appropriate description for the latest issuance of the National Telecommunications Commission (“NTC”), the government agency that regulates Philippines’ telecommunications infrastructure and services. On January 30, 2014, the NTC issued Memorandum Circular (the “Circular”) Number 01-01-2014 providing guidelines for Internet Service Providers (ISPs) in the implementation of the Anti-Child Pornography Act of 2009 (Republic Act No. 9775). The release of the Circular came at an opportune time after the Philippines was reportedly included by the Virtual Global Taskforce – an international alliance of law enforcement agencies against online child abuse – as among the top ten countries with rampant cyber pornographic activities involving boys and girls between ten to fourteen years.[1]  The said report might have been the catalyst that triggered the NTC to fulfill its mandate under Section 9 of R.A. No. 9775, “to promulgate rules and regulations… which shall include among others, the installation of filtering software that will block access to or transmission of any form of child pornography.”

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December 2013 Philippine Supreme Court Decisions on Legal and Judicial Ethics

Here are select December 2013 rulings of the Supreme Court of the Philippines on legal and judicial ethics:

Attorney; Applicability of the Code of Professional Responsibility to lawyers in government service in the discharge of their official tasks. Private respondents were charged before the Court of Tax Appeals for violation of the Tariff and Customs Code of the Philippines, as amended. However, the CTA dismissed the case since the prosecution failed to present certified true copies of the documentary evidence submitted contrary to Section 7, Rule 130 and Section 127, Rule 132 of the Rules of Court. The Run After the Smugglers (RATS) Group, Revenue Collection Monitoring Group (RCMG), as counsel for the BOC, filed a petition for certiorari but the petition was filed beyond the reglementary period.

The Supreme Court held that the display of patent violations of even the elementary rules shows that the case against respondents was doomed by design from the start. This stance taken by the lawyers in government service rouses the Court’s vigilance against inefficiency in the administration of justice. Verily, the lawyers representing the offices under the executive branch should be reminded that they still remain as officers of the court from whom a high sense of competence and fervor is expected. The Court will not close its eyes to this sense of apathy in RATS lawyers, lest the government’s goal of revenue enhancement continues to suffer the blows of smuggling and similar activities. The Court reminded the lawyers in the BOC that the canons embodied in the Code of Professional Responsibility equally apply to lawyers in government service in the discharge of their official tasks. Thus, RATS lawyers should exert every effort and consider it their duty to assist in the speedy and efficient administration of justice. People of the Philippines v. The Hon. Juanito C. Castaneda, Jr., et al., G.R. No. 208290, December 11, 2013.

Attorney; Champertous contract. Complainants engaged the legal services of Atty. Bañez, Jr. in connection with the recovery of their properties from Fevidal. Complainants signed a contract of legal services, where they would not pay acceptance and appearance fees to Atty. Bañez Jr., but that the docket fees would instead be shared by the parties. Under the contract, complainants would pay him 50% of whatever would be recovered of the properties. Later, however, complainants terminated his services and entered into an amicable settlement with Fevidal. Atty. Bañez, Jr. opposed the withdrawal of their complaint in court. Thus, complainants filed a case against him alleging that the motion of Atty. Baez, Jr. for the recording of his attorney’s charging lien was the “legal problem” preventing them from enjoying the fruits of their property.

Section 26, Rule 138 of the Rules of Court allows an attorney to intervene in a case to protect his rights concerning the payment of his compensation. According to the discretion of the court, the attorney shall have a lien upon all judgments for the payment of money rendered in a case in which his services have been retained by the client. In this case, however, the contract for legal services is in the nature of a champertous contract – an agreement whereby an attorney undertakes to pay the expenses of the proceedings to enforce the client’s rights in exchange for some bargain to have a part of the thing in dispute. Such contracts are contrary to public policy and are thus void or inexistent. They are also contrary to Canon 16.04 of the Code of Professional Responsibility, which states that lawyers shall not lend money to a client, except when in the interest of justice, they have to advance necessary expenses in a legal matter they are handling for the client. Thus, the Court held that Atty. Bañez, Jr. violated Canon 16.04 of the Code of Professional Responsibility. Conchita Baltazar,et al. v. Atty. Juan B. Bañez, Jr., A.C. No. 9091, December 11, 2013.

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November 2013 Philippine Supreme Court Decisions on Legal and Judicial Ethics

Here are select November 2013 rulings of the Supreme Court of the Philippines on legal and judicial ethics:

Attorney; Accountability for Money Received from Client. Atty. Lawsin undertook to process the registration and eventually deliver, within a period of 6 months, the certificate of title over a certain parcel of land (subject land) in favor of complainant acting as the representative of the Heirs of the late Isabel Segovia. Atty. Lawsin received from complainant the amounts of P15,000 and P39,000 to cover for the litigation and land registration expenses, respectively. Atty. Lawsin, however, failed to fulfil his undertaking and failed to return the money to complainant. The Supreme Court held that Atty. Lawsin’s failure to properly account for and duly return his client’s money despite due demand is tantamount to a violation of Rules 16.01 and 16.03, Canon 16 of the Code. Complainant’s purported act of “maligning” him does not justify the latter’s failure to properly account for and return his client’s money upon due demand. Verily, a lawyer’s duty to his client is one essentially imbued with trust so much so that it is incumbent upon the former to exhaust all reasonable efforts towards its faithful compliance. Azucena Segovia-Ribaya v. Atty. Bartolome C. Lawsin, A.C. No. 7965, November 13, 2013.

Attorney; Administrative Proceedings; Sole Issue. Complainants filed a complaint for dishonesty against respondent, a retired judge, for knowingly making untruthful statements in the complaint he filed against them. The Supreme Court held that in administrative cases, the only issue within the ambit of the Court’s disciplinary authority is whether a lawyer is fit to remain a member of the Bar. Other issues are proper subjects of judicial action. On its face, the 12 September 2006 complaint filed by the Spouses Williams against Atty. Enriquez does not merit an administrative case. In order for the Court to determine whether Atty. Enriquez is guilty of dishonesty, the issue of ownership must first be settled. The issue of ownership of real property must be settled in a judicial, not administrative, case. Sps. David Williams and Marissa Williams v. Atty. Rudy T. EnriquezA.C. No. 7329, November 27, 2013.

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September 2013 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; tax refund. If the Bureau of Internal Revenue, or other government taxing agencies for that matter, expects taxpayers to observe fairness, honesty, transparency and accountability in paying their taxes, it must hold itself against the same standard in refunding excess payments or illegal exactions. As a necessary corollary, when the taxpayer’s entitlement to a refund stands undisputed, the State should not misuse technicalities and legalisms, however exalted, to keep money not belonging to it. The government is not exempt from the application of solutio indebiti, a basic postulate proscribing one, including the State, from enriching himself or herself at the expense of another. Commissioner of Internal Revenue v. Fortune Tobacco Corporation, Fortune Tobacco Corporation v. Commissioner of Internal Revenue, G.R. Nos. 167274-75/G.R. No. 192576, September 11, 2013.

Procedure; execution of judgment; fallo prevails over the body of the opinion; exceptions. It is established jurisprudence that “the only portion of the decision which becomes the subject of execution and determines what is ordained is the dispositive part, the body of the decision being considered as the reasons or conclusions of the Court, rather than its adjudication.” However, there are two (2) exceptions to this rule: [1] where there is ambiguity or uncertainty, the body of the opinion may be referred to for purposes of construing the judgment because the dispositive part of a decision must find support from the decision’s ratio decidendi; and [2] where extensive and explicit discussion and settlement of the issue is found in the body of the decision. Both exceptions apply in this case. There is an ambiguity in the fallo of the July 21, 2008 decision in G.R. Nos. 167274-75 considering that the propriety of the Court of Appeals holding in CA-G.R. SP No. 83165 formed part of the core issues raised in G.R. Case Nos. 167274-75 but was left out in the decretal portion of the judgment. The fallo of the Court’s July 21, 2008 decision should, therefore, be corresponding corrected.  Commissioner of Internal Revenue v. Fortune Tobacco Corporation, Fortune Tobacco Corporation v. Commissioner of Internal Revenue,  G.R. Nos. 167274-75/G.R. No. 192576, September 11, 2013.

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Protecting the Lives and Property of Filipinos by Protecting Government Risk Reduction and Preparedness Equipment: A Look Into the Risk Reduction and Preparedness Equipment Protection Act and its IRR

On December 4, 2012, President Benigno S. Aquino III signed into law Republic Act No. 10344 (“RA 10344”) or the Risk Reduction and Preparedness Equipment Protection Act. This law was passed pursuant to the policy of the State under Section 17 of Article II of the 1987 Philippine Constitution to protect the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature.

Under RA 10344, government risk reduction and preparedness equipment (the “equipment”) refer to pieces of equipment, or parts thereof of the Department of Science and Technology (DOST), Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), the Philippine Institute of Volcanology and Seismology (PHIVOLCS) and the National Disaster Risk Reduction and Management Council (NDRRMC) that gather, store, archive or monitor meteorological and seismological data and information which are analyzed and used to warn the public about weather conditions, earthquake, volcanic or tsunami activities and similar natural calamities.

On June 25, 2013, the DOST in coordination with the NDRRMC promulgated the Implementing Rules and Regulations of RA 10344 (the “IRR”). Under the IRR, the following are included in the list of equipment by the DOST which will be regularly updated:

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Investing in the Future: Implementing Rules of the Enhanced Basic Education Act of 2013

Not long after the passage of the Enhanced Basic Education Act of 2013, the Implementing Rules and Regulations (“IRR”) of this law was issued on September 4, 2013 through the joint efforts of the Department of Education (“DepEd”), the Commission on Higher Education (“CHED”) and the Technical Education and Skills Development Authority (“TESDA”).  The IRR applies to the following educational institutions: (1) Higher Education Institutions (“HEIs”); (2) Technical-Vocational Institutions (“TVIs”); (3) Teacher Education Institutions (“TEIs”); (4) foundations; and (5) all public and private basic educational institutions and learning centers.

Enhanced Curriculum for Basic Education

Premised on the need for an educational reform to produce globally competitive Filipino graduates, every parent, guardian or person having custody of a child is mandated to enroll such child in basic education which covers kindergarten, elementary and secondary education.    Alternative learning systems for out-of-school students and those with special needs are also considered in the IRR as part of the basic education program.  This is somehow similar to the prior educational system providing for a Specialized Educational Service for differently-abled students and for out-of-school youth and adults.  Unlike the previous Education Act (BP Blg. 232), however, the IRR of the Enhanced Basic Education Act enumerated the following programs to address the physical, intellectual, psychosocial and cultural needs of students:

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