March 2012 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; assessment; remedies. In case the Commissioner of Internal Revenue failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. These options are mutually exclusive and resort to one bars the application of the other. In arguing that the assessment became final and executory by the sole reason that petitioner failed to appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period, respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the National Internal Revenue Code to just one, that is – to appeal the inaction of the Commissioner on its protested assessment after the lapse of the 180-day period. This is incorrect. The word “decisions” in paragraph 1, Section 7 of Republic Act No. 1125, has been interpreted to mean the decisions of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments. Taxpayers cannot be left in quandary by the Commissioner’s inaction on the protested assessment.  The taxpayers must be informed informed of its action in order that the taxpayer should be able to take recourse to the tax court at the opportune time. Finally, as pointed out by the Court of Tax Appeals, to adopt the interpretation of the Commissioner will not only sanction inefficiency, but will likewise condone the Bureau of Internal Revenue’s inaction Lascona Land, Inc. vs. Commissioner of Internal Revenue, G.R. No. 171251, March 5, 2012.

National Internal Revenue Code; Omnibus Investments Code; Revenue Regulation No. 5-2000; tax credit certificate (TCC); assignment of TCC. Under the Omnibus Investments Code, tax credit certificates (TCC) are granted to entities registered with the Board of Investment (BOI) and are given for taxes and duties paid on raw materials used for the manufacture of their export products. A TCC may be used by the grantee assignee in the payment of its direct internal revenue tax liability. It may also be transferred to an assignee subject to the following conditions: 1) the TCC transfer is made with the prior approval of the Commissioner of Internal Revenue or his duly authorized representative; 2) the transfer of a TCC is limited to one transfer only; and 3) the transferee shall strictly use the TCC for the payment of the assignee’s direct internal revenue tax liability. The processing of a TCC is entrusted to a specialized agency called the “One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center” (“Center”). A TCC may be assigned through a Deed of Assignment, which the assignee submits to the Center for its approval. Upon approval of the deed, the Center will issue a DOF Tax Debit Memo (DOF-TDM), [38] which will be utilized by the assignee to pay the latter’s tax liabilities for a specified period. Upon surrender of the TCC and the DOF-TDM, the corresponding Authority to Accept Payment of Excise Taxes (ATAPET) will be issued by the Bureau of Internal Revenue (BIR) Collection Program Division and will be submitted to the issuing office of the BIR for acceptance by the Assistant Commissioner of Collection Service. This act of the BIR signifies its acceptance of the TCC as payment of the assignee’s excise taxes. Issued TCCs are immediately valid and effective and are not subject to a post-audit as a suspensive condition. A transferee in good faith and for value has the right to rely on the validity and effectivity of the TCCs that were assigned to it. Commissioner of Internal Revenue vs. Petron Corporation, G.R. No. 185568, March 21, 2012.

(Caren thanks Ma. Luisa D. Manalaysay for assisting in the preparation of this post.)

July 2010 Philippine Supreme Court Decisions on Tax Law

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

Court of Tax Appeals; raising new issues on appeal; general rule. The general rule is that appeals can only raise questions of law or fact that (a) were raised in the court below; and (b) were within the issues framed by the parties therein. An issue which was neither averred in the pleadings nor raised during trial in the court below cannot be raised for the first time on appeal. The rule was made for the benefit of the adverse party and the trial court as well. Raising new issues at the appeal level is offensive to the basic rules of fair play and justice and is violative of a party’s constitutional right to due process of law. Moreover, the trial court should be given a meaningful opportunity to consider and pass upon all the issues, and to avoid or correct any alleged errors before those issues or errors become the basis for an appeal. Commissioner of Internal Revenue vs. Eastern Telecommunications Philippines, Inc., G.R. No. 163835, July 7, 2010.

Court of Tax Appeals; raising new issues on appeal; exceptions. In this case, contrary to respondent’s claim, the petitioner has previously questioned the nature of the respondent’s transactions (i.e., respondent was also engaged in value-added tax (VAT) transactions) insofar as they affected the claim for VAT refund, in petitioner’s motion for reconsideration of the Court of Tax Appeals’ decision, although it did not specifically refer to the relevant provision of the National Internal Revenue Code (Tax Code). Moreover, the rule against raising new issues on appeals is not without exceptions; it is a procedural rule that the Court may relax when compelling reasons so warrant or when justice requires it. Former Senator Vicente Francisco, a noted authority in procedural law, cites an instance when the appellate court may take up an issue for the first time: The appellate court may, in the interest of justice, properly take into consideration in deciding the case matters of record having some bearing on the issue submitted which the parties failed to raise or the lower court ignored, although they have not been specifically raised as issues by the pleadings. As applied in the present case, even without the petitioner raising the applicability of Section 104 (A) of the Tax Code, since all four of respondent’s tax returns clearly stated that it earned income from exempt sales, i.e., non-VAT taxable sales. Respondent’s quarterly VAT returns are matters of record and were, in fact, included by it in its formal offer of evidence before the CTA. Commissioner of Internal Revenue vs. Eastern Telecommunications Philippines, Inc., G.R. No. 163835, July 7, 2010.

National Internal Revenue Code; irrevocability of option to carry-over of excess income tax credits. In the old National Internal Revenue Code provision, the option to carry-over the excess or overpaid income tax for a given taxable year is limited to the immediately succeeding taxable year only. Under the current provision, the application of the option to carry-over the excess creditable tax is not limited only to the immediately following tax year but extends to the next succeeding taxable years. Thus, once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option s irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the nest succeeding taxable years. The unutilized excess tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities until fully utilized. Asiaworld Properties Philippine Corporation vs. Commissioner of Internal Revenue, G.R. No. 171766, July 29, 2010.

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December 2009 Philippine Supreme Court Decisions on Tax Law

Here are selected December 2009 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code

Tax refund;  nature.   It is settled that tax refunds are in the nature of tax exemptions.  Laws granting exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority.  Where the taxpayer claims a refund, the CTA as a court of record is required to conduct a formal trial (trial de novo) to prove every minute aspect of the claim.  Kepco Philippines Corporation vs. Commissioner of Internal Revenue, G.R. No. 179356, December 14, 2009.

VAT; input VAT  on capital goods. For petitioner’s purchases of domestic goods and services to be considered as “capital goods or properties,” three requisites must concur. First, the useful life of goods or properties must exceed one year; second, said goods or properties are treated as depreciable assets under Section 34 (f) and; third, the goods or properties must be used directly or indirectly in the production or sale of taxable goods and services.

From petitioner’s evidence, the account vouchers specifically indicate that the disallowed purchases were recorded under inventory accounts, instead of depreciable accounts. That petitioner failed to indicate under its fixed assets or depreciable assets account, goods and services allegedly purchased pursuant to the rehabilitation and maintenance of Malaya Power Plant Complex, militates against its claim for refund. As correctly found by the CTA, the goods or properties must be recorded and treated as depreciable assets under Section 34 (F) of the NIRC. Kepco Philippines Corporation vs. Commissioner of Internal Revenue, G.R. No. 179356, December 14, 2009.

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July 2009 Philippine Supreme Court Decisions on Commercial, Tax and Labor Laws

Here are selected July 2009 Philippine Supreme Court decisions on commercial, tax and labor laws:

Commercial Law

Board action.  A corporate loan entered into by the President without board approval is binding on the corporation when the President is authorized under the by-laws to enter into loans on behalf of the corporation. Cebu Mactan Members Center, Inc. vs. Masahiro Tsukahara, G.R. No. 159624, July 17, 2009.

Tax Law

Franchise tax.  Jurisprudence suggests that aside from the national franchise tax, the franchisee is still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the payment thereof under its legislative franchise. The “in lieu of all taxes” clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority.  Smart Communications, Inc., vs. The City of Davao, represented by its Mayor Hon. Rodrigo Duterte and the Sangguniang Panlunsod of Davao City, G.R. No. 155491, July 21, 2009.

Minimum corporate income tax. Under its charter, Philippine Airlines is exempt from the minimum corporate income tax. Commissioner of Internal Revenue vs.. Philippine Airlines, Inc., G.R. No. 180066, July 7, 2009.

Overseas communications tax.  Section 13 of Presidential Decree No. 1590, granting respondent tax exemption, is clearly all-inclusive. The basic corporate income tax or franchise tax paid by respondent shall be “in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description imposed, levied, established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future x x x,” except only real property tax.  Even a meticulous examination of Presidential Decree No. 1590 will not reveal any provision therein limiting the tax exemption of respondent to final withholding tax on interest income or excluding from said exemption the overseas communications tax.  Commissioner of Internal Revenue vs. Philippine Airlines, Inc. (PAL), G.R. No. 180043, July 14, 2009.

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