January 2014 Philippine Supreme Court Decisions on Tax Law

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

Court of Tax Appeals; findings of fact. The Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. Factual findings made by the CTA can only be disturbed on appeal if they are supp1ied by substantial evidence or there is a showing of gross error or abuse on the part of the CTA. In the absence of any clear and convincing proof to the contrary, the Court must presume that the CTA rendered a decision which is valid in every respect. Commissioner of Internal Revenue v. Toledo, Power, Inc., G.R. No. 183880, January 20, 2014.

Refund; solutio indebiti; elements. There is solutio indebiti when: (1) Payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) Payment is made through mistake, and not through liberality or some other cause. Solutio indebiti does not apply in this case because there exists a binding relation between petitioner and the CIR, the former being a taxpayer obligated to pay VAT and the payment of input tax was not made through mistake since petitioner was legally obligated to pay for that liability. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT system. At the time of payment of the input VAT, the amount paid was correct and proper. CBK Power Company Limited vs. Commissioner of Internal Revenue, G.R. No. 198729-30, January 15, 2014.

Value-added tax; refund of input value-added tax;; prescriptive period for judicial and administrative claims. Under Section 112 of the National Internal Revenue Code (NIRC), it is only the administrative claim for refund of input value-added tax (VAT) that must be filed within the two-year prescriptive period; the judicial claim need not fall within the two-year prescriptive period. Subsection (A) of the said provision states that “any VAT-registered person whose sales are zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.” The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” refers to applications for refund/credit filed with the Commissioner of Internal Revenue (CIR) and not to appeals made to the Court of Tax Appeals (CTA). This is apparent in the first paragraph of subsection (D) of the same provision which states that the CIR has “120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)” within which to decide on the claim. Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014.

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July 2012 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; Value Added Tax; “zero-rated” transaction; recipient of services. The recipient of services must be doing business outside the Philippines for the transaction to qualify it as zero-rated under Section 108 (B) of the National Internal Revenue Code of 1997 (1997 Tax Code). Since Section 108 (B) of the 1997 Tax Code is a verbatim copy of Section 102 (b) of the National Internal Revenue Code of 1977 (1977 Tax Code), any interpretation of the latter holds true for the former. When the Supreme Court decides a case, it does not pass a new law, but merely interprets a pre-existing one. Even though the taxpayer’s present petition was filed before the decision in the case of Commissioner of Internal Revenue v Burmeister and Wain Scandinavian Contractor Mindanao, Inc. was promulgated, the pronouncements made in that case may be applied to the present case without violating the rule against retroactive application. When the Court interpreted Section 102 (b) of the 1977 Tax Code in the Burmeister case, this interpretation became part of the law from the moment it became effective. It is elementary that the interpretation of a law by the Court constitutes part of that law from the date it was originally passed, since the Court’s construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect.

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November 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected November 2010 rulings of the Supreme Court of the Philippines on tax law:

Court of Tax Appeals; jurisdiction; other matters. The jurisdiction of the Court of Tax Appeals (CTA) over “other matters” is found in number 1 of Section 7 of Republic Act No. 1125, as amended. Under this provision, the CTA exercises exclusive appellate jurisdiction to review by appeal decisions of the Commissioner of Internal Revenue (CIR) in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC) or other law as part of law administered by the Bureau of Internal Revenue (BIR). The term “other matters” is limited only by the qualifying phrase that follows it. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. It covers other cases that arise out of the NIRC or related laws administered by the BIR. The issue of whether or not the BIR’s right to collect taxes had already prescribed is a subject matter falling under the NIRC. In connection therewith, the NIRC also states that the collection of taxes is one of the duties of the BIR. Thus, from the foregoing, the issue of prescription of the BIR’s right to collect taxes may be considered as covered by the term “other matters” over which the CTA has appellate jurisdiction. Commissioner of Internal Revenue vs Hambrecht & Quist Philippines, Inc., G.R. No. 169225, November 17, 2010.

Court of Tax Appeals; petition for review with Court of Tax Appeals en banc; motion for reconsideration mandatory.   Rule 8, Section 1 of the Revised Rules of Court of Tax Appeals (CTA) requiring that “the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Decision” is mandatory. The word “must” clearly indicate the mandatory- not merely directory- nature of a requirement. The rules are clear. Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned CTA division. Procedural rules are not to be trifled with or be excused simply because their non-compliance may have resulted in prejudicing a party’s substantive rights. Rules are meant to be followed. They may be relaxed only for very exigent and persuasive reasons to relieve a litigant of an injustice not commensurate to his careless non-observance of the prescribed rules. Commissioner of Customs vs. Marina Sales, Inc., G.R. No. 183868, November 22, 2010.

Court of Tax Appeals; petition for certiorari; requisites. In order for a petition for certiorari to succeed, the following requisites must concur: (a) the writ is directed against a tribunal, a board, or any officer exercising judicial or quasi-judicial functions, (b) such tribunal, board or officer has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and (c) there is no appeal, or any plain, speedy and adequate remedy in the ordinary course of law. “Without jurisdiction” denotes that the tribunal, board or officer acted with absolute lack of authority. There is “excess of jurisdiction” when the public respondent exceeds its power or acts without any statutory authority. “Grave abuse of discretion” connotes such capricious and whimsical exercise of judgment as to be equivalent to lack or excess of jurisdiction; otherwise stated, power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal hostility; and such exercise is so patent or so gross as to amount to an evasion of a positive duty or to a virtual refusal either to perform the duty enjoined or to act at all in contemplation of law. The grant or denial of a motion for postponement is addressed to the sound discretion of the court which should always be predicated on the consideration that more than the mere convenience of the courts or of the parties, the ends of justice and fairness should be served thereby. Furthermore, this discretion must be exercised intelligently. In this case, the taxpayer was given more than ample time to collate and gather its evidence. Accordingly, its right to due process was not transgressed.  Milwaukee Industries Corporation vs. Court of Tax Appeals and Commissioner of Internal Revenue, G.R. No. 173815, November 24, 2010.

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June 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected June 2010 decisions of the Supreme Court of the Philippines on tax law:

Court of Tax Appeals; factual findings final, binding and conclusive. The factual findings of the Court of Tax Appeals (CTA), a special court exercising expertise on the subject of tax, are generally regarded as final, binding and conclusive upon the Supreme Court, especially if these are substantially similar to the findings of the Court of Appeals (CA) which is normally the final arbiter of questions of fact. Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

Court of Tax Appeals; factual findings final, binding and conclusive; exceptions. Recognized exceptions to the rule that the factual findings are final, binding and conclusive are: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in makings its findings the CA went beyond the issues of the case; or its findings are contrary to the admissions of both the appellee and the appellant; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties which, if properly considered, would justify a different conclusion. Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

Employees’ trust fund; no estoppel in favor of BIR. An employees’ trust fund is not estopped from proving its ownership over a lot held in trust by, and titled in the name of, another when the purpose is not to contest the disposition or encumbrance of the property in favor of an innocent third-party purchaser for value. The Bureau of Internal Revenue (BIR), not being a buyer or claimant to any interest in the lot, has not relied on the fact of the title of the lot to acquire any interest in it. Thus, there is no basis for the BIR to claim that the trustee of employees’ trust fund is estopped from proving that it co-owns the lot.  Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

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April 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected April 2010 rulings of the Supreme Court of the Philippines on tax law:

Procedure; perfection of an appeal; when disregarded. The procedure for perfecting an appeal may be disregarded for strong compelling reasons such as when insisting on strict compliance therewith will allow the government to collect deficiency VAT that it has no right at all to collect or receive. In this instance, dismissing the case on a mere technicality would lead to the unjust enrichment of the government at the expense of petitioner. TFS, Incorporated vs. Commissioner of Internal Revenue, G.R. No. 166829, April 19, 2010.

VAT; pawnshops.  Since the imposition of VAT of pawnshops (which are non-bank financial intermediaries) was deferred for tax years 1996 to 2002, petitioner is not liable for VAT for tax year 1998.  TFS, Incorporated vs. Commissioner of Internal Revenue, G.R. No. 166829, April 19, 2010.

March 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected March 2010 rulings of the Supreme Court of the Philippines on tax law:

Constitutionality; justiciable controversy. A dispute ripens into a judicial controversy by the mere enactment of a questioned law or the approval of a challenged act, even without any other overt act. Thus, there is no need to wait until the concerned taxpayers have shut down their operations as a result of the questioned minimum corporate income tax (MCIT) or creditable withholding tax (CWT). Chamber of Real Estate and Builders’ Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.

Court of Tax Appeals; issues not raised. Failure by the Commissioner of Internal Revenue (CIR) to timely plead and prove before the CTA the defenses that Toshiba was VAT-exempt under Republic Act No. 7916 and that its export sales were VAT-exempt under the Tax Code is deemed a waiver of such defenses. Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010.

CTA; judicial admissions. An admission made in a stipulation of facts at pre-trial by the parties is considered a judicial admission and, under the Rules of Court, requires no proof. Such admission may be controverted only by a showing that it was made through a palpable mistake or that no such admission was made. Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, G.R. No. 157594, March 9, 2010.

Creditable withholding tax (CWT); constitutionality; due process. Imposition of CWT does not constitute a deprivation of property without due process because seller may claim tax refund if net income is less than the taxes withheld. Practical problems in claiming tax refund do not affect the constitutionality and validity of CWT as a method of collecting tax. Chamber of Real Estate and Builders’ Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.

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February 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected February 2010 rulings of the Supreme Court of the Philippines on tax law:

Assessment; final decision. Records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision.  Allied Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 175097, February 5, 2010.

Excise tax;  refund. The proper party to question, or claim a refund or tax credit of an indirect tax is the statutory taxpayer, which is Petron in this case, as it is the company on which the tax is imposed by law and which paid the same even if the burden thereof was shifted or passed on to another. It bears stressing that even if Petron shifted or passed on to petitioner Silkair, the burden of the tax, the additional amount which petitioner paid is not a tax but a part of the purchase price which it had to pay to obtain the goods.   Silkair (Singapore) PTE. Ltd. vs. Commissioner of Internal Revenue, G.R. No. 184398, February 25, 2010.

Gross Philippine billings;  off line carrier. South African Airways, an off-line international carrier selling passage documents through an independent sales agent in the Philippines, is engaged in trade or business in the Philippines subject to the 32% income tax imposed by Section 28 (A)(1) of the 1997 NIRC.

The general rule is that resident foreign corporations shall be liable for a 32% income tax on their income from within the Philippines, except for resident foreign corporations that are international carriers that derive income “from carriage of persons, excess baggage, cargo and mail originating from the Philippines” which shall be taxed at 2 1/2% of their Gross Philippine Billings. Petitioner, being an international carrier with no flights originating from the Philippines, does not fall under the exception. As such, petitioner must fall under the general rule. This principle is embodied in the Latin maxim, exception firmat regulam in casibus non exceptis, which means, a thing not being excepted must be regarded as coming within the purview of the general rule.

To reiterate, the correct interpretation of the above provisions is that, if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% of such income.  South African Airways vs. Commissioner of Internal Revenue, G.R. No. 180356, February 16, 2010.

Overseas communication tax; PAL.  Under its franchise, Philippine Airlines is exempt from the overseas communications tax.  Republic of the Philippines represented by the Commissioner of Internal Revenue vs. Philippine Airlines, Inc. (PAL), G.R. No. 179800, February 4, 2010.

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