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.

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February 2013 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; documentary stamp tax; issuance of promissory notes; persons liable for the payment of DST; acceptance. Under Section 173 of the National Internal Revenue Code, the persons primarily liable for the payment of DST are the persons (1) making; (2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable documents, instruments or papers. Should these parties be exempted from paying tax, the other party who is not exempt would then be liable. In this case, petitioner Philacor is engaged in the business of retail financing. Through retail financing, a prospective buyer of home appliance may purchase an appliance on installment by executing a unilateral promissory note in favor of the appliance dealer, and the same promissory note is assigned by the appliance dealer to Philacor. Thus, under this arrangement, Philacor did not make, sign, issue, accept or transfer the promissory notes. It is the buyer of the appliances who made, signed and issued the documents subject to tax while it is the appliance dealer who transferred these documents to Philacor which likewise indisputably received or “accepted” them. Acceptance, however, is an act that is not even applicable to promissory notes, but only to bills of exchange. Under the Negotiable Instruments Law, the act of acceptance refers solely to bills of exchange. In a ruling adopted by the Bureau of Internal Revenue as early as 1995, “acceptance” has been defined as having reference to incoming foreign bills of exchange which are accepted in the Philippines by the drawees thereof, and not as referring to the common usage of the word as in receiving. Thus, a party to a taxable transaction who “accepts” any documents or instruments in the plain and ordinary meaning does not become primarily liable for the tax. Philacor Credit Corporation vs. Commissioner of Internal Revenue, G.R. No. 169899.  February 6, 2013.

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Dissension in the Court: February 2013

The primary issue in the three (3) consolidated cases involving San Roque Power, Taganito Mining and Philex Mining decided last February 12, 2013 revolves around the proper period for filing the judicial claim for refund or credit of creditable input tax. Under Section 112(A) and 112(C) of the Tax Code, a taxpayer whose sales are zero-rated or effectively zero-rated can file his administrative claim for refund or credit at anytime within two (2) years after the taxable quarter when the sales were made and, after full or partial denial of the claim or failure of the Commissioner to act on his application within 120 days from submission of the same, he may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day period, file his judicial claim with the CTA.

These cases all involved the timely filing by the taxpayers of their administrative claims with the Commissioner of Internal Revenue. However, San Roque and Taganito both prematurely filed their judicial claims without waiting for the 120-day period (for the Commissioner to act on their administrative claims) to lapse, whereas Philex was a case of late filing since it did not file its judicial claim until after 426 days beyond the 120 + 30 day periods. Voting 9 to 6, the majority, in a decision penned by Justice Carpio, denied tax refund or credit to San Roque and Philex, but granted the same to Taganito.

The majority denied refund to San Roque on the basis, among others, that the waiting period for filing a judicial claim is mandatory and jurisdictional and has been in the Tax Code for more than 15 years before San Roque filed its judicial claim in April 10, 2003 (barely 13 days after it filed its administrative claim). The majority, however, granted refund to Taganito who, although like San Roque filed its judicial claim without waiting for the 120-day period to lapse, was deemed to have filed its judicial claim on time since it was filed on February 14, 2007 or after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 (which states that the taxpayer need not wait for the 120-day period to lapse before it could seek judicial relief with the CTA) but before the October 6, 2010 Supreme Court (SC) decision in Commissioner of Internal Revenue v. Aichi Forging Company of Asia (reinstating the 120+30 day periods as mandatory and jurisdictional). The majority held that since the Commissioner has exclusive and original jurisdiction to interpret tax laws under Section 4 of the Tax Code, a taxpayer should not be prejudiced by an erroneous interpretation by the Commissioner and, under Section 246, a reversal of a BIR ruling cannot adversely prejudice a taxpayer like Taganito who in good faith relied on it prior to its reversal.

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Dissension in the Court: January 2013

The same legal issue resolved in the earlier case of Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue (G.R. Nos. 158885 & 170680, 2 October 2009) – regarding the proper interpretation of Section 105 (now Section 111(A)) of the National Internal Revenue Code (“Tax Code”) – was again raised in the recent case of Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue and Revenue District Officer, Revenue District No. 44, Taguig and Pateros, Bureau of Internal Revenue (G.R. No. 173425, January 22, 2013), resulting in the same decision and dissenting opinion.

Section 105 of the old Tax Code provides:

SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory prescribed by regulations, be allowed input tax on his beginning inventory of good, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax. (Emphasis supplied.)

The recent case began with the purchase by Fort Bonifacio Development Corporation (“FBDC”) on February 8, 1995 from the national government of a portion of the Fort Bonifacio Global City.  On January 1, 1996, RA 7716 restructured the VAT system by, among others, extending the VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of trade of business.

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June 2012 Philippine Supreme Court Decisions on Tax Law

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

National Internal Revenue Code; Revenue Regulations No. 7-95; refund of input VAT; printing of “zero-rated” on official receipt. Revenue Regulations No. 7-95, which took effect on 1 January 1996, proceeds from the rule-making authority granted to the Secretary of Finance by the National Internal Revenue Code for the efficient enforcement of the same Tax Code and its amendments. In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, the Court had ruled that this provision is “reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services.” Moreover, the Court held in Kepco Philippines Corporation v. Commissioner of Internal Revenue that the subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of Republic Act No. 9337 actually confirmed the validity of the imprinting requirement on VAT invoices or official receipts – a case falling under the principle of legislative approval of administrative interpretation by reenactment. The Court has consistently held as fatal the failure to print the word “zero-rated” on the VAT invoices or official receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made prior to the effectivity of R.A. 9337. Western Mindanao Power Corporation vs. Commissioner of Internal Revenue, G.R. No. 181136, June 13, 2012.

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December 2011 Philippine Supreme Court Decisions on Tax Laws

National Internal Revenue Code; Value Added Tax; Civil Code. LVM Construction was awarded the construction contract with DPWH. LVM as the contractor entered into a Sub-Contractor Agreement with a Joint Venture as sub-contractor. As the entity which directly dealt with the government insofar as the main contract was concerned, LVM was itself required by law to pay the 8.5% VAT which was withheld by the DPWH. A contract constitutes the law between the parties who are, therefore, bound by its stipulations which, when couched in clear and plain language, should be applied according to their literal tenor. That there was no agreement regarding the offsetting urged by LVM may likewise be readily gleaned from the parties’ contemporaneous and subsequent acts which are given primordial consideration in determining their intention.  In the absence of any stipulation regarding the Joint Venture’s sharing in the VAT deducted and withheld by the DPWH from its payment on the main contract, LVM has no basis in offsetting the amounts of said tax from the retention still in its possession.  LVM, as Contractor for the Project, was liable for the 8.5% VAT which was withheld by the DPWH from its payments, pursuant to Section 114 (C) of the NIRC.  Absent any agreement to that effect, LVM cannot deduct the amounts thus withheld from the sums it still owed the Joint Venture which, as Sub-Contractor of 30% of the Project, had its own liability for 10% VAT insofar as the sums paid for the sub-contracted works were concerned.   Although the burden to pay an indirect tax like VAT can, admittedly, be passed on to the purchaser of the goods or services, it bears emphasizing that the liability to pay the same remains with the manufacturer or seller like LVM and the Joint Venture.  In the same manner that LVM is liable for the VAT due on the payments made by the DPWH pursuant to the contract on the Project, the Joint Venture is, consequently, liable for the VAT due on the payments made by LVM pursuant to the parties’ Sub-Contract. LVM Construction Corporation vs. F.T. Sanchez/SOCOR/KIMWA (Joint Venture), G.R. No. 181961, December 5, 2011.

(Caren thanks Lui Manalaysay for assisting in the preparation of this post.)

January 2011 Philippine Supreme Court Decisions on Tax Law

Here are selected January 2011 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code; section 76; option to carry-over excess income tax payments to succeeding taxable years; option irrevocable. Under section 76 of the National Internal Revenue Code (Tax Code) in case of overpayment of income taxes, a corporation may either file a claim for refund or carry-over the excess payments to the succeeding taxable year and the availment of one remedy precludes the other. However, unlike section 69 of the previous Tax Code, the carry-over of excess income tax payments is no longer limited to the succeeding taxable year but is carried over to the succeeding taxable year until fully utilized. Moreover, the option to carry-over excess income tax payments is not irrevocable. Hence; unutilized excess income tax payments may no longer be refunded. Belle Corporation vs Commissioner of Internal Revenue, G.R. No. 181298, January 10, 2011.

National Internal Revenue Code; value-added tax; claim for credit or refund of input value-added tax; requirements. In its section 112 (A), the National Internal Revenue Code sets down the following requirements in a claim for credit or refund of input value-added tax (VAT): (1) the taxpayer must be VAT registered, (2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated, (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made, and (4) the creditable input VAT due or paid must be attributable to such sales, except the transitional input VAT, to the extent that such input VAT has not been applied against the output VAT.  Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) vs Commissioner of Internal Revenue, G.R. No. 172378, January 17, 2011.

National Internal Revenue Code; value-added tax; claim for credit or refund of input value-added tax; authority to print. The authority to print (ATP) need not be reflected or indicated in the invoices or receipts because there is no law or regulation requiring it. In the absence of such law or regulation, failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund. However, section 238 of the National Internal Revenue Code (Tax Code) expressly requires persons engaged in business to secure an ATP from the Bureau of Internal Revenue prior to printing invoices or receipts. Under section 112 (A) of the Tax Code, a claimant must be engaged in sales which are zero-rated or effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or receipts would have no probative value for the purpose of refund.  Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) vs Commissioner of Internal Revenue, G.R. No. 172378, January 17, 2011.

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