Constitutional Law Case Digest: De Lima v. Pres. Duterte, G.R. No. 227635, October 15, 2019

De Lima v. Pres. Rodrigo R. Duterte
G.R. No. 227635, October 15, 2019

Lessons Applicable: Writ of Habeas Data, Presidential Immunity from Suit
Laws Applicable:

FACTS:

• May 9, 2016: Davao City Mayor Rodrigo Roa Duterte was elected as the 16th President of the Philippines with a key agenda of his Administration was the relentless national crackdown on illegal drugs.
• August 2, 2016: Sen. De Lima delivered a privilege speech on the floor of the Senate calling a stop to the alleged extrajudicial killings committed in the course of the crackdown.
• Petition for the issuance of a writ of habeas data seeking to enjoin President Rodrigo Roa Dutete from committing acts allegedly violative of her right to life, liberty and security through his public statements: 
• August 11, 2016 public statement of President Duterte: “I know I’m the favorite whipping boy of the NGOs and the human rights stalwarts.  But, I have a special ano kaya no.  She is a government official.  One day soon I will – bitiwan ko yan in public and I will have to destroy her in public.”  Incidentally, in the same event, President Duterte insinuated that with the help of another country, he was keeping surveillance of her.  “Akala nila na hindi rin ako nakikinig sa kanila.  So while all the time they were also listening to what I’ve done, I’ve also been busy, and with the help of another country, listening to them.
• The statement uttered in a briefing at the NAIA Terminal 3, Pasay City in August 17, 2016 wherein President Duterte named Sen. De Lima as the government office he referred to earlier at the same time accused her of living an immortal life by having a romantic affair with her driver, a married man, and of being involved in illegal drugs.  “There’s one crusading lady, whose even herself led a very immoral life, taking his driver as her lover… Paramour niya ang driver nya nagging hooked rin sa drugs because of the close association.  You know, when you are an immoral, dirty woman, the driver was married.  So you live with the driver, its concubinage.
• The statements that described her an immoral woman; that publicized her intimate and personal life, starting from her new boyfriend to her sexual escapades; that told of her being involved in illegal drugs as well as in activities that included her construction of a house for her driver/lover with financing from drug-money
• Statements that threatened her (“De Lima, you are finished”) and demeaned her womanhood and humanity.  If I were De Lima, ladies and gentlemen, I’ll hang myself.  Your life has been, hindi lang life, the innermost of your core as a female is being serialized everyday.  Dapat kang mag-resign.  You resign.  And “De Lima better hang yourself… Hindi ka na naghiya sa sarili mo.  Any other woman would have slashed her throat.  You?  Baka akala mo artista ka.  Mga artistang x-rated paglabas sa, paktapos ng shooting, nakangiti…”

• Sen. De Lima traces his animosity towards her when she 1st encountered President Durterte while he was still the City Mayor of Davao and she the Chairperson of the Commission on Human Rights investigating the existence of the so-called “Davao Death Squad.”

ISSUE: W/N Presidential’s immunity from suit can shield the President from being haled to court
HELD: Dismissed even without the President invoking the privilege of immunity from suit.
YES.
G.R. No. 227635, October 15, 2019

• Immunity can be classified either by: a. extent i.e. absolute or qualified or b. duration i.e. permanent or temporary
• Extent: 
• Absolute immunity is granted to a government official who has proven that his actions fell within the scope of his duties, and that his actions are discretionary rather than ministerial – conduct or the action performed must not involve insignificant or routinely office work but rather the challenged action must involve personal judgment.  It attaches to the function instead of the office.
• Qualified immunity was initially given to a government official who was able to prove that at the time of commission of the act complained of, he possessed a good faith that his actions were lawful – subjective element determined with the two-tier test:

• If the statutory or constitutional right asserted by the plaintiff was clear at the time of the alleged wrongful action
• Whether the official should reasonably have known the action was contrary to law
• Duration:
• Permanent or the immunity for speech or debate – immunity from liability in law suits that arise out of the performance of public duties of democratic deliberation
• Temporary or congressional immunity from arrest – to legislators from litigating even private suits while “at Session” of Congress as public officers

• Estrada v. Desierto (G.R. No. 146710-15, March 2, 2001): Being a former President, President Estrada no longer enjoyed immunity from suit
• David v. Macapagal-Arroyo (G.R. No. 171396, May 3, 2006): Improper to implead President Arroyo in a consolidated petition disputing the factual bases for Presidential Proclamation No. 1017 and General Order No. 5 declaring a state of national emergency and called out the Armed Forces of the Philippines in her capacity as Commander-in-Chief to maintain law and order throughout the country and to suppress acts of lawless violence, insurrection or rebellion.  
• Rubrico v. Macapagal-Arroyo (G.R. No. No. 183871, February 18, 2010):  Court upheld the exclusion of President  Gloria Macapagal-Arroyo, maintaining that presidential immunity from suit despite not being expressly reserved in the 1987 Constitution and declared that the President could not be sued during her tenure in a petition for the issuance of the writ of amparo against military, police personnel and the Office of the Ombudsman and including President Arroyo.
• Balao v. Macapagal-Arroyo (G.R. No. 186050, December 13, 2011): Court ruled that RTC had erred in holding that Presidential immunity could not be invoked in amparo proceedings
• While the concept of immunity from suit originated elsewhere, the ratification of the 1981 constitutional amendments and the 1987 Constitution made our version of presidential immunity unique.  Section 15, Article VII of the 1973 Constitution, as amended, provided for immunity at two distinct points in time: 1. Immunity during the tenure of the President 2. Thereafter.  Framer’s intended during tenure.  
• Presidential immunity does not hinge on the nature of the suit.  It is not intended to immunize the President from liability or accountability.
• Rationale for the grant of immunity stated in Soliven v. Makasiar (G.R. No. 82585, 82827, 83979, November 14, 1988): To assure the exercise of Presidential duties and functions fee from any hindrance of distraction, considering that being the Chief Executive of the Government is a job that aside from requiring all of the office-holder’s time, also demands undivided attention.
• Rationale expanded in David v. Macapagal-Arroyo: It will degrade the dignity of the high office of the President, the Head of State, if he can be dragged into court litigations while serving as such. Furthermore, it is important that he be freed from any form of harassment, hindrance or distraction to enable him to fully attend to the performance of his official duties and functions. Unlike the legislative and judicial branch, only one constitutes the executive branch and anything which impairs his usefulness in the discharge of the many great and important duties imposed upon him by the Constitution necessarily impairs the operation of the Government. However, this does not mean that the President is not accountable to anyone. Like any other official, he remains accountable to the people but he may be removed from office only in the mode provided by law and that is by impeachment.
• Passage in Soliven was made only to point out that it was the President by virtue of the office and may be invoked only by the holder of the office; not by any other person in the President’s behalf and that it was the President who had gone to court as the complainant
• If the Court were to first require the President to respond to each and every complaint brought against him, and then avail himself of presidential immunity on a case to case basis, then the rationale for the privilege – protecting the President from harassment, hindrance or distraction in the discharge of his duties – would very well be defeated.

• Constitution provides remedies for violations committed by the Chief Executive except an ordinary suit before the courts.  The Chief Executive must 1st be allowed to end his tenure (not his term) either through resignation or removal by impeachment. 

Tax Case Digest: City of Davao v. Randy Allied Ventures, G.R. No. 241697, July 29, 2019

City of Davao v. Randy Allied Ventures, Inc.
G.R. No. 241697, July 29, 2019.

Second Division
PERLAS-BERNABE, J.:

Lessons Applicable:  non-bank financial intermediary, local business tax
Laws Applicable:

FACTS:

• Randy Allied Ventures, Inc. (RAVI) is one of the Coconut Industry Investment Fund (CIIF) holding companies established to own and hold the shares of stock of San Miguel Corporation (SMC).
• January 24, 2012: Supreme Court decision in Philippine Coconut Producers Federation, Inc. v. Republic (COCOFED), G.R. Nos. 177857-58 and 178793, declared the CIIF companies, including RAVI, and the CIIF block of SMC shares as "public funds necessarily owned by the Government”.
• January 17, 2013: RAVI filed with the Regional Trial Court (RTC), a claim for refund or credit of erroneously and illegally collected LBT for the taxable year 2010 in the amount of P503,346.00, corresponding to its dividends from its SMC preferred shares, on the mistaken assumption that it is a non-bank financial intermediary (NBFI).
• RTC: Denied the claim for refund or credit.  Being a financial intermediary, RAVI's income from dividends and interests is subject to LBT under Section 143 (f) of Republic Act (RA) No. 7160, or the Local Government Code of 1991 (LGC).  It is its principal source of income, in line with the primary purpose stated in its Amended AOI.
• RAVI filed a Petition for Review with the CTA First Division.
• CTA First Division granted the petition and held that RAVI is a holding company and not an NBFI subject to LBT and denied City of Davao’s Motion for Reconsideration (MR)
• CTA EB: Denied City of Davao’s petition for lack of merit.  RAVI cannot be considered an NBFI for failing to meet the requisites provided under the General Banking Law, Manual of Regulations for Non-Bank Financial Institutions, and the National Internal Revenue Code, i.e., it is not authorized to act as an NBFI by the Bangko Sentral ng Pilipinas (BSP); its principal function does not relate to NBFI activities; and that while its primary purpose may involve one of the activities enumerated in the BSP Manual, there was no proof that it performed such activities as its principal function and on a regular and recurring basis.

ISSUE: W/N CTA EB erred in finding that RAVI is not an NBFI subject to LBT under Section 143 (f) of the LGC

HELD: Petition is denied.

• Essentially, LBT are taxes imposed by local government units on the privilege of doing business within their jurisdictions.  "Doing business" means some "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit."  LBT imposed pursuant to Section 143 (f) is premised on the fact that the persons made liable for such tax are banks or other financial institutions by virtue of their being engaged in the business as such. This is why the LBT are imposed on their gross receipts from "interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium."
• In order to be considered as an NBFI under the National Internal Revenue Code, banking laws, and pertinent regulations, the following must concur:
• a.    The person or entity is authorized by the BSP to perform quasi-banking functions;
• b.    The principal functions of said person or entity include the lending, investing or placement of funds or evidences of indebtedness or equity deposited to them, acquired by them, or otherwise coursed through them, either for their own account or for the account of others; 
• c.    The person or entity must perform any of the following functions on a regular and recurring, not on an isolated basis, to wit:
• i.    Receive funds from 1 group of persons, irrespective of number, through traditional deposits, or issuance of debt or equity securities; and make available/lend these funds to another person or entity, and in the process acquire debt or equity securities;
• ii.    Use principally the funds received for acquiring various types of debt or equity securities
• iii.    Borrow against, or lend on, or buy or sell debt or equity securities.

• A "'holding company' is 'organized' and is basically conducting its business by investing substantially in the equity securities of another company for the purpose of controlling their policies (as opposed to directly engaging in operating activities) and 'holding' them in a conglomerate or umbrella structure along with other subsidiaries."While holding companies may partake in investment activities, this does not per se qualify them as financial intermediaries that are actively dealing in the same. Financial intermediaries are regulated by the BSP because they deal with public funds when they offer quasi-banking functions. On the other hand, a holding company is not similarly regulated because any investment activities it conducts are mere incidental operations, since its main purpose is to hold shares for policy-controlling purposes

Tax Case Digest: Chevron Holdings, Inc. v. CIR, CTA EB No. 1895/1896, March 9, 2020

Chevron Holdings, Inc. v. CIR
CTA EB No. 1895/1896, March 9, 2020.

CTA En Banc
Castaneda, Jr., J.:

Lessons Applicable: filing of the complete supporting documents by the taxpayer in connection with an administrative claim for VAT refund
Laws Applicable: Section 112 (C) of the NIRC of 1997

FACTS:

• October 31, 2013: Chevron Holdings, Inc. (CHI) filed with the Department of Finance One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS) an administrative claim for refund or issuance of TCC for unutilized input VAT for the 1st quarter of CY 2012 in the total amount of P16,165,791.62.
• January 16, 2014: CHI filed with DOF-OSS an administrative claim for refund or issuance of TCC for unutilized input VAT for the 2nd quarter of CY 2012 in the total amount of P19,732,044.98.
• February 17 and 27, 2014: CHI submitted additional documents required under the First Notice attached to the Letter of Authority (LOA) No.  LOA-311-2013-0000050327 dated November 28, 2013.
• March 14, 2014: CHI received LOA No. LOA-411-2014-00000015 dated March 10, 2014.
• Due to CIR’s inaction on its administrative claims for refund, it filed a Petition for Review on March 28, 2014 for CTA Case No. 8790 and June 13, 2014 for CTA Case No. 8835.
• January 18 and July 10, 2018: CTA 1st Division issued the assailed decision
• August 14, 2018: CHI filed its Petition for Review in CTA EB No. 1895 and CIR filed his Petition for Review in CTA EB No. 1896. 

ISSUES:
1.    W/N CTA has jurisdiction
2.    W/N CHI is entitled to its entire refund claim.

HELD: Dismissed.
1.    NO.  CHI complied with the thirty (30) day period from the request of the BIR dated February 7, 2014 when it submitted its last batch of supporting documents on February 27, 2014.  But, failed to observe the unqualified provision of law regarding the 120-day period which commences from the taxpayer’s submission of complete documents.  In other words, while Chevron’s due process were observed following the pronouncement of the Supreme Court in the Total case, Chevron completely disregarded the BIR’s right to be afforded opportunity to review its claims.  Thus, Chevron’s haste in elevating the instant case to the CTA is a blatant violation of the doctrine of exhaustion of administrative remedies as pronounced in the San Roque case.

• Subject provision works to protect both the taxpayer and the BIR from belated resolution of the claim and from prematurity of elevating the same to the proper courts, respectively.
• To be sure, it is the taxpayer who ultimately determines when complete documents have been submitted for the purpose of commencing and continuing the running of the 120-day period.  Nevertheless, the Supreme Court also emphasized that the forgoing benefit given to taxpayer is not unbridled and, as such, is subject to limitations.  Hence, based on the above-quoted portion of Pilipinas Total Gas, the filing of the complete supporting documents by the taxpayer in connection with an administrative claim for VAT refund is subject to the following rules:

a.    Upon filing of his application for tax credit or refund for excess creditable input taxes, the taxpayer-claimant is given thirty (30) days within which to complete the required documents within thirty (30) days from request of the investigation/processing unit. 
b.    If in the course of the investigation and processing of the claim, additional documents are required for the proper determination of the legitimate amount of the claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the investigation/processing unit.  Notice of the request for the submission of additional supporting document is required.
c.    It is only upon the submission of the taxpayer that the 120-day period would begin to run.
d.    In all cases, whatever documents a taxpayer intends to file to support his claim must be completed within the two-year period under Section 112 (A) of the NIRC.

2.    NO.

• Chevon’s presentation of its clients’ (1) SEC Certificates of Non-Registration (2) screenshots of Chevron Subsidiary governance website and (3) Service Agreements, may have sufficed to prove that they were foreign corporations.  However, these pieces of evidence are insufficient to prove that they are doing business outside the Philippines.
• Even if RMC No. 42-03 allows out-of-period claims of input VAT, the same cannot be adhered to, as it contravenes Section 110 (A)(2) of the NIRC OF 1997, as amended.  It is clear from the foregoing provision that for purchases of goods, the corresponding input value added taxes of which is creditable to the purchaser upon the issuance of the corresponding invoice.  On the other hand, for purchases of services, the corresponding input value added taxes of which is creditable to the purchaser upon payment of compensation, rental, royalty or fee, that is, upon the date of official receipt.  Section 110 (A) is explicit – upon consummation, in the case of domestic purchases of goods, and upon payment, in the case of purchases of services.  It does not provide any qualification.

Tax Case Digest: Lennie De Sagun et al. v. CIR, CTA Case No. 9084, March 11, 2020

Lennie De Sagun et al. v. CIR
CTA Case No. 9084. March 11, 2020.

CTA Third Division
Modesto-San Pedro, J.:

FACTS:

• February 2014: 2 Filipino ADB employees, on their own, and on behalf of other Filipino ADB employees, questioned its legality of the RMC 31-13 issued on April 12, 2013 which provides that only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax with the RTC of Mandaluyong
• RTC: Declared section 2 (d) (1) RMC 31-13 void for being issued without legal basis, in excess of authority and/or without due process of law, and in the absence of legislation and/or regulation to the contrary
• Lennie De Sagun et al. filed their administrative claim for refund using the Decision of the RTC to prove that their payment of income tax for taxable years 2012 and 2013 are erroneous.
• Lennie De Sagun et al. filed a Petition for Review

ISSUES:
1.    W/N RTC Mandaluyong has no jurisdiction.
2.    W/N NIRC and RMC 31-13 intended to impose income tax on resident Filipino citizens who are ADB employees.
3.    W/N RMC 31-13 should be prospectively applied.
4.    W/N evidence presented is sufficient for the entitlement of refund.

HELD: NO. Denied.
1.    NO. RTC Mandaluyong has no jurisdiction to decide on the validity or constitutionality of RMC 31-13.  Consequently, its Decision is a nullity.  Assuming it has jurisdiction and its Decision is valid, the same is still not binding upon this Court.  It must be stressed that only decisions of the Supreme Court establish jurisprudence or doctrines in this jurisdiction and these decisions become judicial precedents to be followed in subsequent cases by all courts of the land. 

2.    YES.

• Based on Section 23 (A) and related Sections 24, and 32 (A)(1) of the NIRC provides that income of a resident Filipino citizen, whether derived from sources within or outside the Philippines are subject to tax.
• A perusal of RMC 31-13 would reveal that CIR merely exercised his power to interpret the pertinent provisions of the NIRC in relation to the RP-ADB Agreement.  Section 45 (b) of the RP-ADB Agreement: (B) Exemption from taxation on or in respect of the salaries and emoluments paid by Bank subject to the power of the Government to tax its nationals”

3.    YES.   To retroactively apply RMC 31-13 would be prejudicial to the Filipino ADB officers and employees would be prejudicial to the Filipino ADB officers and employees as they may be issued deficiency income tax assessments for compensation which at the time of payment was declared tax-exempt by CIR.  Consequently, the retroactive application of RMC 31-13 will violate Section 246 of NIRC. 

• CIR issued contradictory rulings causing confusion among them prior to finally settling the issue in RMC 31-13 on April 12, 2013, to wit:

a.    March 11, 1999: Former CIR issued a ruling that ADB Filipino employees holding managerial and technical position are subject to a preferential rate of 15%
b.    January 29, 2001: BIR, through its Regional Director (RD) which had the jurisdiction over ADB, issued an opinion stating that salaries and emoluments received by ADB officers and staff are exempt from taxation
c.    February 6, 2013: Chief Legal Division of Revenue Region No. 7, Amado Rey B. Pagarigan issued an opinion that the Filipino employees in ADB are subject to the preferential tax rate of 15% on their compensation income.

• When the Filipino ADB officers and employees received their 2012 salaries and emoluments, CIR’s position then was that their compensation was tax-exempt.  Xxx They cannot be faulted for believing that they were exempt from paying income tax for such belief was brought about by an opinion by CIR himself, who, after all, is in charge of implementing the country’s tax laws.
• Although it can be argued that RMC 31-13 is a mere interpretation of existing law and should be applied even to compensation for TY 2012, the Court finds that it should only be applied prospectively in the interest of justice and equity. 

4.    NO.  Without adequate proof that a prior administrative claim for refund was lodged before the present Petition was institution, petitioners claim for tax refund CANNOT prosper.

• Before a refund claim under Section 229 of the NIRC can be granted, a taxpayer/claimant must 1st prove that he or she has filed an administrative claim with CIR prior to filing suit with this Court.
• Section 3 of Rule 130 of the Rules of Court provides that no documentary evidence is admissible as proof of its content without presenting its original.  
• Proof of the following facts: 1. Filing an administrative claim for refund and 2. Content of administrative refund claim were mere photocopies

• As an exception is the best evidence rule under Section 2 of Rule 130 of the Rules of Court.  Consequently, before a copy may be admitted as proof of the contents of a document, its execution or existence, and the cause of its unavailability (which should be without bad faith on the part of the offeror) must be first be established. 
• In this case, petitioner’s witness did not testify on matters proving 1. The execution or existence of the original administrative claims for refund 2. Cause of the unavailability of these documents which is not due to the bad faith of petitioners.  In fact, she did not adduce any testimony at all identifying these documents.  Worse, these documents have not been marked considering that these were neither included in the Pre-trial Brief nor Pre-trial order.  – inadmissible

• It may be pointed out that the presentation of the originals of the administrative claims for refund is unnecessary since the truth of its contents is not in issue but only the fact of (prior execution of the administrative claim before the filing of the present Petition) is needed to be proved, hence, parol evidence is allowed. Nonetheless, petitioner’s counsel still failed to offer as evidence the copies of the administrative claims for refund in the Formal Offer of Evidence.

Tax Case Digest: Macquarie Offshore Services v. CIR CTA Case No. 9722, March 12, 2020.

Macquarie Offshore Services v. CIR
CTA Case No. 9722, March 12, 2020.

CTA Second Division
Mindaro-Grulla, J.:

Lessons Applicable: VAT refund claim, zero-rated sales
Laws Applicable: Section 112 (A) and (C) of the NIRC of 1997, Sections 106(A)(2)(1) and (2); 106(B) and 108(B)(1) and (2)

FACTS:

• June 29, 2017: Macquarie Offshore Services Pty Ltd. (Philippines Branch) (MOS) filed with the BIR an Application for Tax Credits / Refunds with corresponding Checklist of Mandatory Requirements for Claims for VAT Credit/Refund, and the letter dated June 29, 2017, applying for refund of its alleged excess and unutilized input VAT in the total amount of P85,098,492.89 for the 1st to 4th quarters of the FY 2016.
• November 24, 2017: MOS filed the instant Petition for Review

ISSUE: W/N  VAT credit or claim should be allowed

HELD: Denied.

NO.

• Based on Section 112 (A) and (C) of the NIRC of 1997, as amended by RA 9337, jurisprudence has laid down certain requisites which the taxpayer-applicant must comply with to successfully obtain a credit/refund of input VAT – classified into certain categories, to wit:

1.    As to the timeliness of the filing of the administrative and judicial claims: - met

• a.    Claim is filed with the BIR within 2 years after the close of the taxable quarter when the sales were made – filed June 29, 2017
• b.    In case of full or partial of the Commissioner to act on the said claim within a period of 120 days, the judicial claim has been filed with this Court, within 30 days from receipt of the decision or after the expiration of the said 120-day period – filed on November 24, 2017

2.    With reference to the taxpayer’s registration with the BIR

• a.    Taxpayer is a VAT-registered person – met since BIR Payment Forms, standing alone, may be considered as evidence of VAT registration

3.    In relation to the taxpayer’s output VAT

• a.    Taxpayer is engaged in zero-rated or effectively zero-rated sales
• b.    For zero-rated sales under Sections 106(A)(2)(1) and (2); 106(B) and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations
• Essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), under Section 108(B)(2) of the NIRC of 1997:
• 1)    The services fall under any of the categories under Section 108(B)(2) or simply, the services rendered should be other than “processing, manufacturing or repacking goods. - met
• 2)    Services must be performed in the Philippines by a VAT-registered person
• 3)    Recipient of the services is a foreign corporation, and the said corporation is            doing business outside the Philippines or is a non-resident person not engaged in business who is outside the Philippines when the services were performed; -    not met since the documents presented: (1) Certification of Non-Registration of Company issued by the SEC, (2) Certificate/Articles of Foreign Incorporation/Registration and (3) Minor Services Agreements, standing alone is inadequate proof that its client is a non-resident doing business outside the Philippines.
• 4)    The payment for such services should be in acceptable foreign currency    accounted for in accordance with BSP rules

4.    As regards taxpayer’s input VAT being refunded
a.    Input taxes are not transitional input taxes
b.    Input taxes are due or paid
c.    Input taxes have not been applied against output taxes during and n the succeeding quarters
d.    Input taxes claimed are attributable to zero-rated or effectively zero-rated sales.  However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the sales volume

Tax Case Digest: Jones Lang Lasalle (Philippines), Inc. v. CIR, CTA Case No. 9590, March 12, 2020

Jones Lang Lasalle (Philippines), Inc. v. CIR
CTA Case No. 9590, March 12, 2020.

CTA Third Division
Uy, J:

Lessons Applicable: CTA Jurisdiction, Prescription, Due Process
Laws Applicable: RA 1124, as amended by RA 9282,  Section 3 (a) (1), Rule 4, under Section 228 of the NIRC of 1997, as amended, and RR No. 12-99

FACTS:

• September 3, 2009: Commissioner of Internal Revenue (CIR) issued a Letter Notice informing Jones Lang Lasalle (Philippines), Inc. (JLL) that a computerized matching on the information/data provided by 3rd-party sources against its declarations per income/VAT/percentage withholding tax returns, disclosed discrepancies for calendar year 2007.
• May 11, 2010: CIR issued Letter of Authority (LOA).  
• May 31, 2010: CIR issued an undated Notice for Informal Conference.  
• October 8, 2010: CIR issued the Preliminary Assessment Notice (PAN).
• October 19, 2011: CIR issued a FAN.
• September 19, 2016: JLL filed a letter stating that the deficiency VAT assessment for VY 2007 and Collection Letter should be cancelled.
• May 8, 2017: JLL received a Final Notice Before Seizure (FNBS) dated February 28, 2017.
• JLL filed a petition for Review (With Urgent Motion for the Issuance of an Order to Suspend the Collection of Tax)

ISSUES:
1.    W/N CTA has jurisdiction to act on the Petition for Review
2.    W/N period to assess has already prescribed.
3.    W/N due process requirements under NIRC and its regulations has been complied with.

HELD: Granted.
1.    YES. Issuance of the subject FBNS constitutes the final decision of CIR that is appealable before the CTA.

• Jurisdiction over the subject matter or nature of an action is fundamental for a court to act on a given controversy.  CTA being a court of special jurisdiction can take cognizance only of matters that are clearly within its jurisdiction.
• Based on RA 1124, as amended by RA 9282 and Section 3 (a) (1), Rule 4 of the Revised Rules of the CTA, the jurisdiction of the CTA is not limited to decisions of the CIR involving disputed assessments.  The second part thereof also includes “other matters” arising under the NIRC or other laws administered by the BIR.  
• Jurisdiction of the CTA to rule on “other matters arising under the NIRC or other laws administered by the BIR” include among others, the validity of the warrant of distraint and levy and waiver of statute of limitations.
• Moreover, the term “other matters” pertain to matters directly related to disputed assessments or refunds or internal revenue taxes, fees or other charges, penalties imposed in relation thereto.

• CIR v. Isabela Cultural Corporation (G.R. No. 135210, July 11, 2001):  FBNS which indicates that the taxpayer was being given "this LAST OPPORTUNITY" to pay; otherwise, its properties would be subjected to distraint and levy, constitutes the CIR’s final decision.

2.    NO. Section 11 of RA 1125 as amended, provides that any party adversely affected by a decision or ruling of the CIR may file an appeal with the CTA 30 days after the receipt of such decision or ruling.  Since FBNS was received on May 8, 2017, thus it has until June 7, 2017 or 30 days, to appeal and challenge its validity with the CTA.  Hence, May 15, 2017 was within the 30-day period.

3.    NO. Failure to strictly comply with the notice requirements prescribed under Section 228 of the NIRC of 1997, as amended, and RR No. 12-99 is tantamount to denial of due process.  

• If there exists sufficient basis to assess the taxpayer, the CIR or his authorized representative is mandated to issue a PAN.  Thereafter, a formal letter of demand and an assessment notice shall be issued by the CIR or his duly authorized representative.  The use of the word “shall” in these legal provisions indicates the mandatory nature of the requirements laid down therein.  Thus, it is essential for CIR to establish and prove that the requisite assessment notices were fully served to the taxpayer within the prescription period. 
• Tax assessment, due process requires that the taxpayer must actually receive the assessment.  
• If the taxpayer denies having received the assessment notices, it is incumbent upon respondent to prove by competent evidence that the assessment notices were indeed received by the taxpayer.  
• It is basic in the rule of evidence that bare allegations unsubstantiated by evidence, are not equivalent proof.  
• BIR was fully informed of the change in address in accordance to Section 11 of RR No. 12-8531.  Court notes that the new address was likewise indicated in the documents issued by the BIR in the BIR records.  Evidently, BIR had knowledge of the change of address and should have sent the PAN and FAN to its new address.  But, they were sent to the old address.  While it appears that BIR did indeed issued the assessment notices, it failed to present evidence to refute JLL’s claim that it did not receive said assessment notices.  Consequently, there was no valid service of assessment notices to petitioner. 

Tax Case Digest: JG Summit Holdings, Inc. v. CIR, CTA Case No. 9147, March 12, 2020

JG Summit Holdings, Inc. v. CIR
CTA Case No. 9147, March 12, 2020.

CTA Second Division
Bacorro-Villena, J.:

Lessons Applicable: filed out of time
Laws Applicable: Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 of NIRC

FACTS:
•    May 14, 2010: CIR issued a Letter of Authority (LOA) No. LOA-127-2020-00000012.
•    April 2, 2012: JG Summit Holdings, Inc. (JGSHI) executed a Waiver of the Defense of Prescription (1st WDP) extending CIR right to assess until December 31, 2012
•    December 31, 2013: JGSHI executed a 2nd WDP extending CIR right to assess until December 31, 2013.
•    January 16, 2013: JGSHI executed a 3rd WDP extending CIR right to assess until June 30, 2014.
•    November 4, 2013: JGSHI received a Preliminary Assessment Notice (PAN) adjusting its tax liabilities to P5,840,180,957.23.
•    February 27, 2014: Final Assessment Notice (FAN) and Formal Letter of Demand (FLD) for deficiency taxes amounting to P6,001,075,046.14.
•    March 12, 2014: JGSHI filed its protest to the FLD with a request for investigation.
•    December 5, 2014: JGSHI received Final Decision on Disputed Assessment (FDDA) amounting to P6,546,206,763.32.
•    December 22, 2014: JGSHI filed a request for reconsideration with CIR
•    August 20, 2015: CIR denied JGSHI’s request through the assailed Revised Final Decision on Disputed Assessment (RFDDA)
•    September 18, 2015: JGSHI’s filed a Petition for against the RFDDA

ISSUES: W/N the 30-day reglementary period for filing an appeal with the Court should begin to run from its receipt of RFDDA.

HELD: Dismissed for lack of jurisdiction
•    NO. With the procedure of appeal already clearly laid down, a resort to a request for reconsideration (with the CIR) did not then toll the running of the reglementary period within which petitioner’s appeal must be elevated to this Court.  In relying on the possibility that CIR might reconsider her previous decision, it waived its remedy of appeal before this Court.

•    PAGCOR v. CIR (G.R. No. 208731, January 27, 2016): Following the verba legis doctrine, the law must be applied exactly as worded since it is clear, plain, and unequivocal.15 A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three options xxx To further clarify the three options: A whole or partial denial by the CIR's authorized representative may be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized representative.
•    Wordings of the CIR’s denial of its request could not amend or alter what is provided in the law (i.e.  If you disagree, you may appeal this final decision…)  - To note, same wordings in the FDDA and RFDDA.

Tax Case Digest: CIR v. PNB, G.R. No. 212699, March 13, 2019

Commissioner of Internal Revenue (CIR) V. Philippine National Bank (PNB)
G.R. No. 212699, March 13, 2019.

SC Second Division
J. REYES, JR., J.:

Lessons Applicable:  Duty of CIR, CTA's jurisdiction is appellate
Laws Applicable:

FACTS:

• April 17, 2006: PNB electronically filed its Annual Income Tax Return (ITR) for taxable year 2005 with attachments dated February 12, 2007, June 22, 2007, and March 10, 2008, which were received by the CIR on February 22, 2007, June 25, 2007, and March 13, 2008, respectively.
• PNB filed its claim for refund or issuance of tax credit certificate of its excess CWT in the amount of P74,598,430.47
• Due to the CIR's inaction to the said claim, PNB filed a petition for review for its claim on April 11, 2008 before the CTA.
• CTA Third Division: Denied the petition for review and Motion for Reconsideration (MR).  PNB's evidence to be insufficient to support its claim for refund or the issuance of a tax credit certificate.  Presentation of PNB's Annual ITR for 2006 is not enough to prove that it did not carry over the claimed excess or unutilized CWT to the subsequent quarters of 2006 and that succeeding Quarterly ITRs is vital to its claim for refund.
• CTA En Banc: Affirmed CTA 3rd Division but reversed and granted PNB’s MR as PNB complied with all the requisites for the filing of such claim: 1. Within the 2-year prescription period 2. Income related to the CW formed part of taxable income as evidenced by documents presented: Original accounting tickets or input sheets; original deeds of absolute/conditional sale; general ledgers for the years 1999 to 2006; audited financial statements; and ITRs for the years 1999 to 2006 3. Supported by original Certificates of Creditable Tax Withheld at Source issued in the name of PNB and dated within the calendar year 2005.  It denied CIR’S MR. 
• CIR filed a petition for review on certiorari under Rule 45

ISSUE: W/N presentation of the subsequent Quarterly ITRs (for 2006) is indispensable to the claim of refund.

HELD:

NO.   CTA correctly ruled that there is nothing under the NIRC that requires the submission of the Quarterly ITRs of the succeeding taxable year in a claim for refund. Even the BIR's own regulations do not provide for such requirement.

• Winebrenner & Iñigo Insurance Brokers, Inc. v. Commissioner of Internal Revenue (GR No. 206526, January 28, 2015): presentation of the claimant's quarterly returns is not a requirement to prove entitlement to the refund.
• Republic v. Team Energy (Phils.) Corporation (G.R. No. 188016, January 14, 2015)
• BIR ought to have its own copies, originals at that, of the claimant's quarterly returns on file, on the basis of which it could have easily rebut the claim that the excess or unutilized CWT sought for refund were carried over to the immediately succeeding taxable quarters.  Failure to present such document during the trial is fatal against the BIR's case rather than the claimant's.

•  It bears stressing that the power to decide matters concerning refunds of internal revenue taxes, among others, is vested in the CIR.  It has the duty to ascertain the veracity of such claims and should not just wait and hope for the burden to fall on the claimant when the issue reaches the court. 
• Commissioner of Internal Revenue v. PERF Realty Corporation (G.R. NO. 163345, July 4, 2008):
• Duty of the CIR to verify whether or not the claimant had carried over its excess CWT
• CTA's jurisdiction is appellate. In the exercise of its authority to review, the CTA cannot dictate what particular evidence the parties must present to prove their respective cases. The means of ascertainment of a fact is best left to the party that alleges the same. The court's power is limited only to the appreciation of that means pursuant to the prevailing rules of evidence.

• Despite PNB's failure to present at the onset its Quarterly ITRs for 2006, its Annual ITR for 2006 is apt and sufficient to show that no CWT carry over was made in 2006.

• Factual findings of the CTA when supported by substantial evidence, will not be disturbed on appeal.

Tax Case Digest: CIR v. V.Y. Domingo (G.R. No. 221780, March 25, 2019)

Commissioner of Internal Revenue v. V.Y. Domingo Jewellers, Inc.'s
G.R. No. 221780, March 25, 2019.

SC Third Division
PERALTA, J.:

Lessons Applicable: doctrine of exhaustion of administrative remedies, petition for review on certiorari under rule 45
Laws Applicable: Section 228 of the NIRC, RR 12-99, rule 45

FACTS:

• September 9, 2009: Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) against V.Y. Domingo for P2,781,844.21 representing deficiency income tax and value-added tax, inclusive of interest, for the taxable year 2006.
• V.Y. Domingo then received a Preliminary Collection Letter (PCL) dated August 10, 2011 from the Revenue District Office (RDO) No. 28 – Novaliches pursuant to Assessment Notice No. 32-06-IT-0242 and Assessment Notice No. 32-06-VT-0243, both dated November 18, 2010, for collection for the total amount of P3,164,617.43.
• September 15, 2011: V.Y. Domingo received the certified true copies of Assessment Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 which it requested through a letter on September 12, 2011.
• September 16, 2011: V.Y. Domingo  filed a Petition for Review with the CTA in Division, under Section 7(1) of RA No. 1125 and Section 4, Rule 8 of the Revised Rules of the Court of Tax Appeals (RRCTA), praying that Assessment Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 dated November 18, 2010 and the PCL dated August 10, 2011 be declared  void for been issued beyond the prescriptive period for assessment and collection
• CTA En Banc: granted reversing Resolutions of the CTA First Division and remanded the case to the CTA First Division for further proceedings to afford the CIR full opportunity to present her evidence
• CIR filed a Petition for review on certiorari under Rule 45

ISSUE: W/N CTA has jurisdiction over the petition for review

HELD: Grants. Resolution of the CTA reinstated.

NO.  V.Y. Domingo's immediate recourse to the CTA First Division was in violation of the doctrine of exhaustion of administrative remedies.

• CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction.  Section 7 of R.A. No. 1125, as amended by R.A. No. 9282, specifically provides:

“SEC. 7. Jurisdiction. — The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws, administered by the Bureau of Internal Revenue;  xxx”

• In relation thereto, Section 228 of R.A. No. 8424 or The Tax Reform Act of 1997, as amended, implemented by Revenue Regulations No. 12-99, provides for the procedure to be followed in issuing tax assessments and in protesting the same.
• Section 228 of the Tax Code requires taxpayers to exhaust administrative remedies by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment.
• Assessment Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 dated November 18, 2010 have not been disputed by V.Y. Domingo at the administrative level without any valid basis therefor, in violation of the doctrine of exhaustion of administrative remedies. To reiterate, what is appealable to the CTA are decisions of the CIR on the protest of the taxpayer against the assessments.  Consequently, the non-filing of the protest against the FLD (30 days from September 15, 2011 - when it received a copy of it) let to the finality of the assessment.

Tax Case Digest: CIR V. Team Energy Corporation (formerly Mirant Pagbilao Corporation) G.R. No. 230412, March 27, 2019

CIR V. Team Energy Corporation (formerly Mirant Pagbilao Corporation)
G.R. No. 230412, March 27, 2019.

Second Division
J. REYES, JR., J.:

Lessons Applicable: VAT tax refund, judicial claim,
Laws Applicable: Section 108(B)(3) of NIRC, Section 4.108-1 of Revenue Regulations No. 7-95 (Consolidated Value Added Tax Regulations)

FACTS:

• Team Energy Corporation (TEC) (formerly Mirant Pagbilao Corporation) is principally engaged in the business of power generation and the subsequent sale thereof to the National Power Corporation (NPC) under a Build, Operate, Transfer Scheme.  It is also a VAT taxpayer.
• December 17, 2004: TEC filed with the BIR Audit Information, Tax Exemption and Incentives Division an Application for Effective Zero-Rate for the supply of electricity to the NPC for the period January 1, 2005 to December 31, 2005, which was subsequently approved.
• December 20, 2006: TEC filed an administrative claim for cash refund or issuance of tax credit certificate corresponding to the input VAT reported in its Quarterly VAT Returns for the 1st 3 quarters of 2005 and Monthly VAT Declaration for October 2005 in the amount of P80,136,251.60
• April 18, 2007: Due to inaction on its claim, TEC filed a Petition for Review before the CTA in Division
• CTA in Division on July 13, 2010: Partially granted ordered to refund or in the alternative, issue a tax credit certificate in the amount of P79,185,617.33 representing unutilized input VAT, attributable to its effectively zero-rated sales of power generation services to NPC for the period covering January 1, 2005 to October 31, 2005.
• Court in Division: Granted CIR’s Motion for Reconsideration, reversed and set aside the Decision dated July 13, 2010, and dismissed the Petition for Review for having been filed prematurely
• CTA En Banc: denied the Petition for Review for lack of merit and denied tis MR
• Supreme Court 3rd Division: Granted Motion to Admit Attached Petition for Review on Certiorari and granted the Certiorari remanded to the Court of Tax Appeals for the proper determination of the refundable amount.  It became final and executory on March 10, 2014 and was recorded in the Book of Entries of Judgments.
• January 9, 2015: CIR filed a Manifestation with Motion for Reinstatement of the July 13, 2010 Decision of the Court of Tax Appeals
• CTA En Banc: Petition for Review is denied.
• CIR filed a petition for review on certiorari

ISSUES:
1.    W/N the Certificate of Compliance (COC) issued by the Energy Regulation Commission (ERC) is indispensable in claiming a tax refund or tax credit.
2.    W/N judicial claim was prematurely filed for its failure to exhaust administrative remedies when it failed to submit complete supporting documents for its administrative claim

HELD:  Petition is denied.
1.    Yes.  But, considering that Team Energy's refund claim is premised on Section 108(B)(3) of the 1997 NIRC, in relation to Section 13 of the NPC Charter, as amended by Section 10 of P.D. No. 938, the requirements under the EPIRA are inapplicable. To qualify its electricity sale to NPC as zero-rated, Team Energy needs only to show that it is a VAT-registered entity and that it has complied with the invoicing requirements under Section 108(B)(3) of the 1997 NIRC, in conjunction with Section 4,.108-1 of Revenue Regulations No. 7-95.

• CIR v. Toledo Power Company (G.R. No. 196415, December 02, 2015)
• requirements of the EPIRA must be complied with only if the claim for refund is based on EPIRA
• Section 6 of the EPIRA provides that the sale of generated power by generation companies shall be zero-rated. Section 4 (x) of the same law states that a generation company "refers to any person or entity authorized by the ERC to operate facilities used in the generation of electricity." Corollarily, to be entitled to a refund or credit of unutilized input VAT attributable to the sale of electricity under the EPIRA, a taxpayer must establish: (1) that it is a generation company, and (2) that it derived sales from power generation.

• Team Energy Corporation v. CIR (G.R. Nos. 197663 and 197770, March 14, 2018)
• CIR that Team Energy is not entitled to tax refund or tax credit because it cannot qualify for VAT zero-rating for its failure to submit its ERC Registration and COC required under the EPIRA.

• Effective zero-rating was intended to relieve the exempt entity from being burdened with the indirect tax which is or which will be shifted to it had there been no exemption. In this case, respondent is being exempted from paying VAT on its purchases to relieve NPC of the burden of additional costs that respondent may shift to NPC by adding to the cost of the electricity sold to the latter.

2.    No.  There is no showing that the CIR sent a written notice requiring respondent to submit additional documents — a process that is indispensable in computing the 120+30 day period.

• Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue (GR No. 207112, December 08, 2015)
• To summarize, for the just disposition of the subject controversy, the rule is that from the date an administrative claim for excess unutilized VAT is filed, a taxpayer has thirty (30) days within which to submit the documentary requirements sufficient to support his claim, unless given further extension by the CIR. Then, upon filing by the taxpayer of his complete documents to support his application, or expiration of the period given, the CIR has 120 days within which to decide the claim for tax credit or refund. Should the taxpayer, on the date of his filing, manifest that he no longer wishes to submit any other addition documents to complete his administrative claim, the 120-day period allowed to the CIR begins to run from the date of filing. 

Tax Case Digest: CIR v. Univation Motor Philippines, Inc. , G.R. No. 231581, April 10, 2019

Commissioner Of Internal Revenue  v. Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, Inc.).
G.R. No. 231581, April 10, 2019.

Second Division
REYES, J. JR., J.:

Lessons Applicable:  2-year prescription period, judicial claim, Factual Finding by the CTA
Laws Applicable: Sections 204 and 229 of NIRC, Section 7 of Republic Act No. 9282, Sec. 8 of RA 1125

FACTS: 

• March 12, 2012: Univation Motor Philippines, Inc. (UMP) filed its administrative claim with the Bureau of Internal Revenue (BIR) explaining that the overpayment of P26,103,898.52 consists of prior year's excess credits in the amount of P15,576,837.00 less Minimum Corporate Income Tax amounting to P2,341,683.48 and creditable withholding taxes accumulated during the four quarters of 2010 in the amount of P12,868,745.00.
• April 12, 2013: Since the BIR has not acted upon the application for tax credit, UMP filed a petition for review with the CTA
• CTA En Banc affirmed the CTA First Division decision partially granting the petition for Review and ordered the CIR to issue a tax credit certificate and denied CIR’s MR.
• CIR filed a Petition for Review on Certiorari.

ISSUES:
1. W/N CTA has prematurely assumed jurisdiction on judicial claim for tax refund or credit without waiting for the decision of BIR.
2. W/N CTA en Banc erred in granting the claim for refund despite its failure to substantiate its claim by sufficient documentary proof.

HELD:
1.    NO. No violation of the doctrine of exhaustion of administrative remedies.  The law only requires that an administrative claim be priorly filed.  As long as the administrative claim and the judicial claim were filed within the two-year prescriptive period, then there was exhaustion of the administrative remedies.

• 2-year prescriptive period to claim a refund actually commences to run, at the earliest, on the date of the filing of the adjusted final tax return because this is where the figures of the gross receipts and deductions have been audited and adjusted, reflective of the results of the operations of a business enterprise. 
• 2-year period to file a claim for refund is reckoned from the date of filing its Final Adjustment Return – April 15, 2011 – both claims were filed on time:
• Administrative claim – March 12, 2012
• Judicial claim – April 12, 2013

•  Under the circumstances, if respondent awaited for the commissioner to act on its administrative claim (before resort to the Court), chances are, the two-year prescriptive period will lapse effectively resulting to the loss of respondent's right to seek judicial recourse and worse, its right to recover the taxes it erroneously paid to the government.

2.    No.  CIR did not even render a Decision denying respondent's administrative claim on the ground that it had failed to submit all the required documents.  Considering that the administrative claim was never acted upon, there was no decision for the CTA to review on appeal per se. However, this does not preclude the CTA from considering evidence that was not presented in the administrative claim with the BIR.

• Pilipinas Total Gas v. CIR (G.R. No. 207112, December 08, 2015): A distinction must be made between administrative cases (1) appealed due to inaction and those (2) dismissed at the administrative level due to the failure of the taxpayer to submit supporting documents. If an administrative claim was dismissed by the CIR due to the taxpayer's failure to submit complete documents despite notice/request, then the judicial claim before the CTA would be dismissible, not for lack of jurisdiction, but for the taxpayer's failure to substantiate the claim at the administrative level.  Failure to submit a document requested by the BIR at the administrative level cannot be cured by filing before the CTA.
• Cases filed in the CTA are litigated de novo as such, respondent "should prove every minute aspect of its case by presenting, formally offering and submitting x x x to the Court of Tax Appeals all evidence x x x required for the successful prosecution of its administrative claim." Consequently, the CTA may give credence to all evidence presented by respondent, including those that may not have been submitted to the CIR as the case is being essentially decided in the first instance.
• The issue of whether or not respondent was able to prove by preponderance of evidence its entitlement to the issuance of a Tax Credit certificate, the same is a factual matter. "It is doctrinal that 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 developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority."

• Jurisprudence laid down the basic requirements in order for a taxpayer to claim tax credit or refund of creditable withholding tax, thus: (1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax, as prescribed under Section 229 of the NIRC of 1997; (2) The fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld; and (3) It must be shown on the return of the recipient that the income received was declared as part of the gross income.  The second and third requirements are found under Section 2.58.3(B) of Revenue Regulation No. 2-98, as amended.
• CTA En Banc correctly appreciated that there were certain income payments which, although respondent expected to receive in 2006, 2008 and 2009, were only remitted to it in 2010.    The delay in collection of certain income payments caused the timing difference between the actual reporting of the income by respondent and the actual withholding of the corresponding creditable income tax by its customers.  What is important is that the creditable withholding taxes corresponding to the related income in the respondent's books for CY's 2006, 2008 and 2009 were not yet claimed as income tax credits in respondent's annual ITRs corresponding to the said years.  It presented Schedule/Summary of Creditable Taxes Withheld for the year 2010 and the related Certificates of Creditable Taxes Withheld at Source (BIR form No. 2307) duly issued to it by various withholding agents for the year 2010xxx.  Court was able to trace the income payments related to the substantiated CWT of P12,868,745.87 (save for the amount of P139,127.97 CWT) to UMP’s General Ledger (GL) for CY 2010, 2009, 2008 and 2006.

Tax Case Digest: ANPC v. BIR,G.R. No. 228539, June 26, 2019

Association of Non-Profit Clubs, Inc. v. Bureau of Internal Revenue
G.R. No. 228539, June 26, 2019
Second Division
Perlas-Bernabe, J.:

Lessons Applicable: doctrine of hierarchy of courts, rule-making authority of BIR
Laws Applicable: RMC No. 35-2012

FACTS:

• August 3, 2012: Bureau of Internal Revenue (BIR) issued issued Revenue Memorandum Circular (RMC) No. 35-2012 entitled “"Clarifying the Taxability of Clubs Organized and Operated Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes” which was addressed to all revenue officials, employees, and others concerned for their guidance regarding the income tax and Valued Added Tax (VAT) liability of the said recreational clubs.
• RMC No. 35-2012 states that "clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes are subject to income tax under the National Internal Revenue Code of 1997, as amended (1997 NIRC)."  In justifying the interpration, the BIR raised the doctrine of casus omissus pro omisso habendus est, a person, object, or thing omitted from an enumeration must be held to have been omitted intentionally. The provision in the 1977 Tax Code which granted income tax exemption to such recreational clubs was omitted in the 1997 NIRC, as amended and  Section 105, Chapter I, Title IV of the 1997 NIRC, which states that even a nonstock, nonprofit private organization or government entity is liable to pay VAT on the sale of goods or services.
• October 25, 2012: During the meeting of ANPC and other club member representatives with Atty. Elenita Quimosing (Atty. Quimosing), Chief of Staff and Operations Group of the BIR, Atty. Quimosing suggested the attendees to submit a position paper to the BIR regarding their concerts about the Circular.   
• September Since the BIR has not action upon NPC’s request on its position paper for the non-application of RMC No. 35-2012, ANPC, filed before the RTC a petition for declaratory relief to declare RMC no. 35-2012 invalid, unjust, oppressive, confiscatory, and in violation of the due process clause of the Constitution for it is beyond the BIR’s rule-making authority.
• RTC: Denied the petition for declaratory relief and upheld RMC No. 35-2012
• ANPC filed a petition for review on certiorari raising pure questions of law

ISSUES:
1.    W/N the doctrine of hierarchy of courts should apply and the matter should be first elevated the matter to the Secretary of Finance for review pursuant to Section 4, Title I of the 1997 NIRC.
2.    W/N RMC No. 35-2012 is constitutional.

HELD: Partly meritorious.
1.    NO.  The petition for review on certiorari, filed pursuant to Section 2 (c), Rule 41 in relation to Rule 45 of the Rules of Court, is the sole remedy to appeal a decision of the RTC in cases involving pure questions of law

• The doctrine of hierarchy of courts is violated only when relief may be had through multiple fora having concurrent jurisdiction over the case, such as in petitions for certiorari, mandamus, and prohibition which are concurrently cognizable either by the Regional Trial Courts, the Court of Appeals, or the Supreme Court.
• Uy v. Contreras: This Court, the Court of Appeals, and the Regional Trial Courts have concurrent original jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and habeas corpus, such concurrence does not accord litigants unrestrained freedom of choice of the court to which application therefor may be directed. There is a hierarchy of courts determinative of the venue of appeals which should also serve as a general determinant of the proper forum for the application for the extraordinary writs.

 
2.    Yes.

• RMC No. 35-2012 erroneously foisted a sweeping interpretation that membership fees and assessment dues are sources of income of recreational clubs from which income tax liability may accrue.  As correctly argued by ANPC, membership fees, assessment dues, and other fees of similar nature only constitute contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by recreational clubs to their exclusive members.  They represent funds "held in trust" by these clubs to defray their operating and general costs and hence, only constitute infusion of capital.
• Well-enshrined principle in our jurisdiction that the State cannot impose a tax on capital as it constitutes an unconstitutional confiscation of property.  An income tax is arbitrary and confiscatory if it taxes capital because capital is not income.
• Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary (G.R. No. 108524, November 10, 1994): Court held that "as a matter of power, a court, when confronted with an interpretative rule, [such as RMC No. 35-2012] is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule."  By sweepingly including in RMC No. 35-2012 all membership fees and assessment dues in its classification of "income of recreational clubs from whatever source'' that are "subject to income tax,"the BIR exceeded its rule-making authority.
• In the same way, the Court declares as invalid the BIR's interpretation in RMC No. 35-2012 that membership fees, assessment dues, and the like are part of "the gross receipts of recreational clubs" that are "subject to VAT.  Basic principle that before a transaction is imposed VAT, a sale, barter or exchange of goods or properties, or sale of a service is required.  This is true even if such sale is on a cost-reimbursement basis.

Tax Case Digest: City Treasurer of Manila v. Philippine Beverage Partners, Inc. G.R. No. 233556, September 11, 2019

City Treasurer of Manila v. Philippine Beverage Partners, Inc.
G.R. No. 233556, September 11, 2019

Second Division
REYES, J. JR., J.:

Lessons Applicable: Local Tax Protest, Judicial Claim for Refund
Laws Applicable: Section 125 and 126 of LGC

FACTS:

• January 17, 2007: City Treasurer of Manila (CTM) issued a Statement of Account (SOA) under Bill No. 012007-33025 representing business taxes and regulatory fees for the first quarter of 2007 in the total amount of P2,930,239.82 to Philippine Beverage Partners, Inc. (PBP).
• February 6, 2007: PBP received the decision of CTM dated February 2, 2007 denying its protest for the assessment dated January 19, 2007, arguing that Tax Ordinance Nos. 7988 and 8011, amending the Revenue Code of Manila (RCM), should be declared null and void since the collection of local business tax under Section 21 (tax on other business) of the RCM and Section 14 (tax on manufacturers) of the same code constitutes double taxation. 
• February 13, 2007: PBP paid in full the amount stated in the SOA.
• March 2, 2007: It filed a written claim for refund of erroneously/illegally collected tax with petitioner in the amount of P2,424,158.93.  
• March 8, 2007: It filed a Complaint for the Revision of SOA (Preliminary Assessment) and for Refund or Credit of LBT Erroneously/Illegally Collected with the Regional Trial Court, Manila, Branch 47 (RTC).
• CTA Second Division affirmed RTC decision: Ordered CTM to refund the amount of P2,424,158.93 and the cost of suit. 
• CTA En Banc: CTM was able to comply with the requisites for entitlement to a refund/credit of local taxes considering that it filed written claim for refund on March 2, 2007 and filed the judicial claim on March 8, 2007 which is within two years from payment of the tax on February 13, 2007.  With regards the deficiency tax for year 2006 and 2007 sought to be offset, CTM has waived any additional defenses by its failure to raise the same in its Answer before the trial court
• PBP filed a Petition for Review on Certiorari

ISSUES:
1.    W/N a taxpayer who protested an assessment may later on institute a judicial action for refund
2.    W/N deficiency taxes may be used to offset its claim for refund

HELD:  Denied for lack of merit.

1.    YES.

• City of Manila v. Cosmos Bottling Corporation (G.R. No. 196681, June 27, 2018) held that a taxpayer facing an assessment issued by the local treasurer may protest it and alternatively: (1) appeal the assessment in court, or (2) pay the tax, and thereafter, seek a refund.
• The taxpayers' remedies of protesting an assessment and refund of taxes are stated in Sections 195 and 196 of the LGC
• The first provides the procedure for contesting an assessment issued by the local treasurer; whereas, the second provides the procedure for the recovery of an erroneously paid or illegally collected tax, fee or charge. Both Sections 195 and 196 mention an administrative remedy that the taxpayer should first exhaust before bringing the appropriate action in court. In Section 195, it is the written protest with the local treasurer that constitutes the administrative remedy; while in Section 196, it is the written claim for refund or credit with the same office.
• Unlike Section 195, Section 196 does not expressly provide a specific period within which the local treasurer must decide the written claim for refund or credit. It is, therefore, possible for a taxpayer to submit an administrative claim for refund very early in the two-year period and initiate the judicial claim already near the end of such two-year period due to an extended inaction by the local treasurer. In this instance, the taxpayer cannot be required to await the decision of the local treasurer any longer, otherwise, his judicial action shall be barred by prescription.
• Section 196 does not expressly mention an assessment made by the local treasurer. This simply means that its applicability does not depend upon the existence of an assessment notice. By consequence, a taxpayer may proceed to the remedy of refund of taxes even without a prior protest against an assessment that was not issued in the first place.
• Where an assessment is to be protested or disputed, the taxpayer may proceed (a) without payment, or (b) with payment of the assessed tax, fee or charge
• (a)   Where no payment is made, the taxpayer's procedural remedy is governed strictly by Section  195. That is, in case of whole or partial denial of the protest, or inaction by the local treasurer, the taxpayer's only recourse is to appeal the assessment with the court of competent jurisdiction. The appeal before the court does not seek a refund but only questions the validity or correctness of the assessment.
• (b)  Where payment was made, the taxpayer may thereafter maintain an action in court questioning the validity and correctness of the assessment (Section 195, LGC) and at the same time seeking a refund of the taxes. In truth, it would be illogical for the taxpayer to only seek a reversal of the assessment without praying for the refund of taxes. Once the assessment is set aside by the court, it follows as a matter of course that all taxes paid under the erroneous or invalid assessment are refunded to the taxpayer.

• 2 conditions for an action for refund in case the taxpayer had received an assessment:
• (a) Pay the tax and administratively assail within 60 days the assessment before the local treasurer, whether in a letter-protest or in a claim for refund
• (b)   Bring an action in court within thirty (30) days from decision or inaction by the local treasurer, whether such action is denominated as an appeal from assessment and/or claim for refund of erroneously or illegally collected tax

2.    NO.

• Based on Section 195 of the LGC, the issuance of a notice of assessment is mandatory before the local treasurer may collect deficiency taxes from the taxpayer. The notice of assessment is not only a requirement of due process but it also stands as the first instance the taxpayer is officially made aware of the pending tax liability. The local treasurer cannot simply collect deficiency taxes for a different taxing period by raising it as a defense in an action for refund of erroneously or illegally collected taxes.

Tax Case Digest: FDCP v. Colon Heritage Realty Corporation G.R. No. 203754/G.R. No. 204418, October 15, 2019

FDCP v. Colon Heritage Realty Corporation
G.R. No. 203754/G.R. No. 204418, October 15, 2019
SC En Banc
Perlas-Bernabe, J.

Lessons Applicable: Doctrine of Operative Fact , Lifeblood theory
Laws Applicable:

FACTS:

• 1993: Cebu City passed City Ordinance No. LXIX: Revised Omnibus Tax Ordinance of the City of Cebu, Sections 42 and 43, Chapter XI of the Ordinance required proprietors, lessees or operators of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement to pay amusement tax equivalent to 30% of the gross receipts of the admission fees to the Office of the City Treasurer of Cebu City.
• June 7, 2002: Congress passed RA 9167 creating FDCP.  Sections 13 and 14 thereof provide that the amusement tax on certain graded films which would otherwise accrue to the cities and municipalities in Metropolitan Manila and highly urbanized and independent component cities in the Philippines during the period the graded film is exhibited, should be deducted and withheld by the proprietors, operators or lessees of theaters or cinemas and remitted to the FDCP which shall reward the same to producers of the graded films.  
• RTC: Granted Cebu City and CHRC separate petition for declaratory relief before the RTC Cebu City which sought to declare Sections 13 and 14 of RA 9167 invalid and unconstitutional.

ISSUE: W/N doctrine of operative fact in relation to the declaration of Sections 13 and 14 of RA 9167 as invalid and unconstitutional.

HELD:  YES.  The operative fact doctrine equally applies to the non-remittance by proprietors since the law produced legal effects prior to the declaration of the nullity of Sections 13 and 14 of RA 9167.

• The operative fact doctrine recognizes the existence and validity of a legal provision prior its being declared as unconstitutional and legitimizes otherwise invalid acts done pursuant thereto because of considerations of practicality and fairness. 
• In this regard, certain acts done pursuant to a legal provision which was just recently declared as unconstitutional by the Court cannot be anymore undone because not only would it be highly impractical to do so, but more so, unfair to those who have relied on the said legal provision prior to the time it was struck down.

• The right to receive the amusement taxes accrued the moment the taxes were deemed payable under the provisions of the Omnibus Tax Ordinance of Cebu City. 
• Taxes, once due, must be paid without delay to the taxing authority
• Taxes are the lifeblood of Government and their prompt and certain availability is an imperious need.  This flows from the truism that without taxes, the government would be paralyzed for lack of the motive power to activate and operate it.  
• The prompt payment of taxes to the rightful authority, cannot be left to the whims of taxpayers.  To rule otherwise would be to acquiesce to the norm allowing taxpayers to reject payment of taxes under the supposition that the law imposing the same is illegal or unconstitutional.  This would unduly hamper government operations. 

Tax Case Digest: CIR v. San Miguel Corporation G.R. No. 180740/G.R. No. 180910, November 11, 2019

CIR v. San Miguel Corporation
G.R. No. 180740/G.R. No. 180910, November 11, 2019

SC Second Division
Hernando, J.:

Lessons Applicable: unauthorized administrative legislation, prescription period for refund
Laws Applicable: 

FACTS:

• January 1, 1997: Republic Act (RA) No. 8240 took effect adopting a specific tax system instead of the ad valorem tax system imposed on, among others, fermented liquor.  As a result, fermented liquors were specifically subjected to excise taxes in accordance to the schedule in Section 140 of RA 8240 (renumbered to Section 143 under RA 8424)
• December 16, 1999: Secretary of Finance, upon recommendation of the CIR, issued RR No. 17-99 to implement 12% increase on excise tax, among others, fermented liquors by January 1, 2000.
• January 10, 2003: SMC filed a claim for tax refund or credit of excise tax it paid on its Red Horse Beer product from January 11, 2001 to December 31, 2000 in the amount of 94,494,801.96 php equivalent to the difference before the effectivity of RA 8240 and the new rate imposed under Section 145 of RA 8424 .  
• Without waiting for the CIR to act on its administrative claim for tax refund or credit, SMC filed a Petition for Review before the CTA
• CTA 1st Division: Approved SMC’s claim for tax refund or credit for its excess excise tax payment from March 1, 2001 to December 31, 2002 in the amount of 88,090,531.56 (excluded prescribed claim for January to February 2001).
• SMC filed a Motion for Reconsideration (MR) for the prescribed claim for January to February 2001 arguing that under the Advance Payment or Deposit scheme authorized by Section 11.1(2)(b) of RR No. 2-97, the filing of the returns and supporting documents may be submitted even a week after the actual removals.
• CTA 1st Division denied MR: Though due date of tax payment is not always the reckoning point for purposes of prescription, SMC failed to present its excise tax returns for January 1, 2001 to February 28, 2001 to prove the dates they were actually filed.
• CIR and SMC filed a Petition for Review with the CTA En Banc
• CTA en Banc: Denied since SMC claim is barred by prescription based on Section 229 and 130(A)(2) of the Tax Reform Act of 1997 since it failed to present the proof of the exact amount it paid for the period February 1 to 23, 2001.
• CIR filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court with the CTA En Banc

ISSUES:
1.    W/N Section 1 of RR 17-99 is valid
2.    W/N SMC is entitled claim has prescribed

HELD: Petitions are denied.

1.    NO. 

• As  correctly contended by SMC, CIR v. Fortune Tobacco Corporation (G.R. Nos. 167274-75,  July 21, 2008) declaring Section 1 of RR No. 17-99 as unauthorized administrative legislation applies.  In this case, the provision is not supported by the plain wording of Section 143 of the Tax Code on fermented liquor just like Section 145 of the same Code on cigars and cigarettes in the above-mentioned case.
• Moreover, in CIR v. San Miguel Corporation (G.R. No. 184428, November 23, 2011) which involved the same parties herein and similar claim for refund of SMC for excess excise tax payments on its Red Horse beer product paid from May 22 to December 31, 2004.

2.    Yes. 

• In CIR v. Meralco (G.R. No. 181459, June 9, 2014), the court ruled that the two (2)-year prescriptive period under Section 229 of the Tax Reform Act of 1997 applies and that the six (6)-year period for actions based on solutio indebiti under Art. 1145 of the Civil Code.  The first element of solution indebiti where 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 is lacking.  Moreover, it is inapplicable since the Tax Code is a special law which explicitly provides for a mandatory period for claiming a refund for taxes erroneously paid.  Generalia specialibus non derogant.
• Neither can the claim be excepted from the two (2)-year prescription period based on equity considerations when there is clear statutory law governing the matter.
• It is a basic rule of evidence that each party must prove its affirmative allegation.  The burden rests upon SMC to present evidence that its prescribed returns for the excise taxes on its Red Horse beer product for February 2001 were actually filed after the removal of the said products from the place of production or later than February 24, 2001.   Yet, it failed to present a definitive computation of the excise taxes on its Red Horse Beer product which it had paid from February 24 to 28, 2001 and which would still have been within the prescriptive period.  
• Only questions of law may be raised under Rule 45 of the Rules of Court.  The sufficiency of a claimant’s evidence and the determination of the amount of refund are questions of fact which are for the judicious determination by the CTA of the evidence on record.  Rule finds greater significance with respect to the findings of specialized courts such as the CTA because of the very nature of its functions, which is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, and consequently its conclusions are not lightly set aside unless there has been an abuse or improvident exercise of authority.

Tax Case Digest: People v. Mallari, G.R. No. 197164, December 4, 2019

People v. Mallari
G.R. No. 197164, December 4, 2019

SC Second Division
Hernando, J.

Lessons Applicable: Doctrine of  Immutability
Laws Applicable:

FACTS:

• October 23, 2007: Revenue Delegation Authority Order (RDAO) No. 202007, Regional Director Alfredo V. Misajon (Misajon) of the Bureau of Internal Revenue (BIR), Revenue Region No. 6 of Manila (BIR Manila) filed a criminal complaint against respondens Benedicta Mallari (Mallari) and Chi Wei-Neng (Wei-Neng), President and General Manager of Topsun Int’l (Topsun) for violation of Section 255 in relation to Sections 253 and 256 of the 1997 National Internal Revenue Code (NIRC) before the Office of the City Prosecutor (OCP) of Manila before the Office of the City Prosecutor. 
• August 7, 2009: Assistant City Prosecutor of Manila Gideon C. Mendoza (ACP Mendora) found probable cause to indict Mallari and Wei-neng and Information was subsequently filed before the CTA 1st Division.
• CTA 1st Division dismissed the criminal complaint for failure of ACP Mendorza to obey a lawful order of the court to submit a certified true copy of the Memorandum of the CIR authorizing Misajon to prosecute.
• January 18, 2010 (out of time): Special counsels/prosecutors of the BIR Manila filed their Entry of Appearance with Leave to Admit Attached Motion for Reconsideration maintaining that RD Misajon can sign approval and referral letters to authorize the institution of criminal actions/cases from the regional office with the courts, government agencies, or quasi-judicial bodies under Section 220 of the NIRC in accordance with the delegated authority vested by the CIR to RD under RDAO No. 2-2007.  Further, March 27, 2007 Memorandum issued by the CIR gives authority to specific BIR legal offices to prosecute and conduct criminal proceedings with respect to violation of tax laws like in the instant case.
• CTA En Banc dismissed Petition for Review on Certiorari under Rule 45 of the Rules of Court affirming CTA 1st Division decision which has already become final.

ISSUE: W/N CTA 1st Division decision which has already become final

HELD: YES. By Doctrine of Immutability, the resolution can no longer be reviewed nor modified even if it is meant to correct an erroneous conclusion of law and facts of the said tax court. 

• Alleged negligence of special counsel ACP Mendoza bind petitioner.

Case Digest: Republic of the Philippines v. Sps. Marcelino (2019)

Republic of the Philippines v. Sps. Marcelino
G.R. No. 205473, December 10, 2019
SC First Division
Caquioa, J

Lessons Applicable:  Capital Gains Tax on Expropriation
Laws Applicable: Section 6 Rule 67

FACTS:
•    RTC Order dated August 23, 2012 and Order dated January 10, 2013 directed the expropriation of a 100 sqm. Lot in Valuenzuela City covered by Transfer Certificate of Title (TCT) No. V-16548 issued in the name of Sps. Marcelino and Sps. Bunsay and orderining Department of Public Works and Highways (DPWH) to pay Sps. Bunsay consequential damages equivalent to the value of the capital gains tax (CGT) and other taxes necessary to transfer the Disputed Property in its name.
•    Department of Public Works and Highways (DPWH) filed a Motion for Partial Reconsideration (MPR) praying for the deletion of the award for just compensation representing replacement cost of improvements and equivalent value of CGT and other taxes necessary to transfer
•    RTC granted the MPR in part by excluding the replacement cost of improvements
•    DPWH filed a Petition for review on certiorari filed under Rule 45 of the Rules of Court against the Order dated August 23, 2012 and Order dated January 10, 2013

ISSUE: W/N RTC award for consequential damages should include equivalent value of CGT and other taxes necessary to transfer

HELD:  NO.  While award of consequential damages equivalent value of CGT and other taxes necessary to transfer must be struck down for being erroneous, it is just and equitable to direct Republic to shoulder such taxes to preserve the compensation awarded as a consequence of the expropriation.  Compensation, to be just, must be of such value as to fully rehabilitate the affected owner; it must be sufficient to make the affected owner whole.

•    CGT, being a tax on passive income, is imposed by National Internal Revenue Code (NIRC) on the seller as a consequence of the latter’s presumed income from the sale or exchange of real property.  However, the transfer of real property by way of expropriation is not an ordinary sale contemplated under Art. 1458 of the Civil Code.  It is akin to a “forced sale” or one which arises not from consensual agreement of the vendor and vendee, but by compulsion of law.  Unlike in an ordinary sale wherein the vendor sets and agrees on the selling price, the compensation paid to the affected owner in an expropriation proceeding comes in the form of just compensation determined by the court.  Just compensation is defined as the fair and full equivalent of the loss incurred by the affected owner.
•    Section 6 Rule 67 of the Rules of Court mandates that in no case shall xxx the owner be deprived of the actual value of his property so taken.  Since just compensation requires that real, substantial, full and ample equivalent be given for the property taken, the loss incurred by the affected owner necessarily includes all incidental costs to facilitate the transfer of the expropriated property to the expropriating authority including the CGT, other taxes and fees due on the forced sale. 

Taxation Case Digest: Association of International Shipping Lines v. Sec. of Finance (2020)

Association of International Shipping Lines v. Sec. of Finance
G.R. No. 222239, January 15, 2020
SC First Division
Lazara-Javier, J.

Lessons Applicable: Res judiciata, Petition for Declaratory Relief, Income tax and VAT on demurrage and detention fees, Interpretative and internal rule

Laws Applicable: CA 55, RA 9337, RMC 31-2008

FACTS:

• July 1, 2005: Republic Act No. 9337 (RA 9337) was enacted amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the 1997 National Internal Revenue Code, as amended. (NIRC)

• January 30, 2008: Commissioner of Internal Revenue (CIR) Lilian Hefti issued Revenue Memorandum Circular No. 31-2008 (RMC 31-2008) seeking to clarify certain provisions of the NIRC with portions, to wit:  
• Q-3: Are on-line international sea carriers subject to VAT?
• A-3:    No. On-line international sea carriers  are  not  subject  to  VAT  they  being subject to percentage tax under Title V of the Tax Code. xxx However, if these on-line international sea carriers engage in other transactions not exempt under Section 119 of the Code, they shall be liable to the twelve percent (12%) VAT on these transactions. 

 

• Q-4: Are demurrage fees collected by on-line international sea carriers due to delay by the shipper in unloading their inbound cargoes subject to tax?
• A-4: Yes, Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines is considered income from Philippine source and is subject to income tax under the regular rate as the other types of income of the on-line carrier. Said other line of business may likewise be subject to VAT or percentage tax applying   the   rule   on   threshold   discussed   in   the   succeeding paragraph.

 

• Q-5: Are detention fees and other charges collected by international sea carriers subject to tax?
• A-5: Detention fees and other charges relating to outbound cargoes and inbound  cargoes  are  all  considered  Philippine-sourced  income  of the international  sea  carriers  they  being  collected  for  the  use  of property  or  rendition  of  services  in  the  Philippines, and are subject to the Philippine income tax under the regular rate, and to the Value added  tax,  if  the  total  annual  receipts  from  all  the  VAT-registered activities   exceeds   one   million   five   hundred   thousand pesos (P1,500,000.00).  However, if the total annual gross receipts do not exceed one million five hundred thousand pesos, said taxpayer is liable to pay the 3% percentage tax.

• Q-14: Are sales of goods, supplies, equipment, fuel and services to persons engaged in international shipping operations subject to VAT? 
• A-14: The sale of goods, supplies, equipment, fuel and services (including leases of property) to the common carrier to be used in its international sea transport operations is zero-rated.  Provided,  that  the same is limited to goods, supplies, equipment, fuel and services pertaining   to   or   attributable   to   the   transport   of   goods   and passengers from  a  port  in  the  Philippines  directly  to  a  foreign  port  without  docking  or  stopping  at  any  other  port  in  the  Philippines  to  unload  passengers  and/or  cargoes  loaded  in  and  from  another domestic  port xxx

• Q-34: Are commission incomes received by the local shipping agents from their foreign principals subject to VAT?
• A-34: The  commission  income  or  fees  received  by  the  local  shipping agents   for   outbound   freights/fares   received   by   their   foreign principals which are on-line international sea carriers ( touching any port in the Philippines as part of their operation) shall be zero-rated pursuant to the provisions of Section 108(B)(4) of the Code.  Said provision does not require that payments of the commission income or fees for “services rendered to persons engaged in international shipping operations, including leases of property for use thereof,” be paid in acceptable foreign currency in order that such transaction may be zero-rated. On the other hand, commission income or fees received   by   the   local   shipping   agents   pertaining   to   inbound freights/fares     received     by     their     foreign     principals/on-line international sea carriers or pertaining to freights/fares received by off-line international sea carriers shall be subject to VAT at 12%.

• December 6, 2010: Petitioners Association of International Shipping Lines, Inc. (AISL), APL Co. Pte. Ltd. (APL) and Maersk-Filipinas, Inc. (Maersk) sought to nullify RMC No. 31-2008 via a petition for declaratory relief under Civil Case No. Q-09-64241 praying for the issuance of a writ of preliminary injunction enjoining then CIR and her agents from implementing, enforcing or acting pursuant to or on the basis of the challenged provisions of RMC 31-2008 and render judgment declaring these challenged provisions void.
• It alleged that RMC 31-2008 was void as it imposed regular tax rate of 30% and 12% VAT on the demurrage and detention fees collected by international shipping carriers from shippers or consignees for delay in the return of containers, on the domestic portion of services to persons engaged in international shipping operations, and on commission income received by local shipping agents from international shipping carriers or in connection with inbound shipments.

• May 18, 2012: RTC branch 98 in Civil Case No. Q-09-64241 declared as invalid the challenged provisions of RMC 31-2008 insofar as it subjects demurrage and detention fees to the regular corporate income tax under Section 28(A)(1) and 12% VAT.

•  March 7, 2013: RA 10378 was enacted amending Section 28 (A)(3)(a) of the NIRC which reads:
• Being incidental to the trade or business of the international carrier, demurrage fees should instead form part of the Gross Philippine Billings (GPB) subject to 2.5% tax under Section 28 (A)(1)(3b) of the NIRC and the same does not expressly impose 12% VAT on the domestic portion of the services rendered by international carriers.

• December 4, 2013: Petitioners initiated a petition for declaratory relief challenging Section 4.4 of RR 15-2013 (implementing rules of RA 10378) and impleading both the Secretary of Finance and CIR.
• 4.4) Taxability   of   Income   Other   Than   Income   from International Transport Services. —All items of income derived by international carriers that do not form part of Gross Philippine Billings as defined under these Regulations shall be subject to tax under the pertinent provisions of the NIRC, as amended. 

•  Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines, is considered income from Philippine source and is subject to income tax under the regular rate as the other types of income of the on-line carrier.
• Detention fees and other charges relating to outbound cargoes and inbound cargoes are all considered Philippine-sourced income of international sea carriers they being collected for the use of property or rendition of services in the Philippines, and are subject to the Philippine income tax under the regular rate.

• September 15, 2015: RTC dismissed the petition for declaratory relief

1.    granted the motion for judicial notice of the existence of RMC 31-2008, May 18, 2012 RTC Order in Civil Case No. Q-09-64241 and the enactment of RA 10378 – all these being official acts of different branches of government
2.    Declared that it had no jurisdiction over the petition for declaratory relief pursuant to CA 55 which removed from RTC the authority to rule on cases involving one’s liability for tax, duty, or charge collectible under any law administered by the Bureau of Customs (BOC) or BIR
3.    Ruled against res judicata because:
a.    res judicata does not give rise to a cause of action for the purpose of initiating a complaint
b.    RA 10378 constituted a supervening event which negated the application of res judicata
c.    there is no similarity of parties, subject matters, and cause of action
d.    it found RR 15-2013 to be reasonable tax regulation and an interpretative issuance, the effectivity of which does not require a public hearing nor prior registration with the UP Law Center.  

• January 8, 2016:  Petitioners’ partial motion for reconsideration was denied
•  Petitioners, on pure questions of law, sought for Supreme Court’s discretionary appellate jurisdiction to review.  They reiterated the arguments raised in their petition for declaratory relief.  

ISSUES
1.    Does res judicata apply in this case?
2.    Is a petition for declaratory relief proper for the purpose of invalidating RR 15-2013?
3.    Is RR 15-2013 a valid rule?

HELD: Denied
1.    NO. Res judicata applies in the concept of “bar by prior judgment” if the following requisites concur:
a.    Former judgment or order must be final
b.    Judgment or order must be on the merits
c.    Decision must have been rendered by a court having jurisdiction over the subject matter and the parties – not met since while RMC 31-2008 which is the subject of Civil Case No. Q-09-64241 and RR 15-2013 subject of the present case both treat demurrage and detention fees to be within the prism of regular corporate income tax rate, they emanate from different authority. Moreover, the judgment in Civil Case No. Q-09-64241 which only binds the CIR cannot serve as a judicial precedent for the purpose of precluding the Secretary of Finance from promulgating a similar issuance on the same subject.  It also cannot be judicial precedent to be followed in subsequent cases by all courts in the land as it is rendered by RTC and not SC.
d.    There must be, between the 1st and 2nd action, identity of parties of subject matter and of cause of action – not met since RTC branch 98 in Civil Case No. Q-09-64241 is only binding on herein petitioners and the CIR as lone respondent.  However, in this case, although the petitioners are the same, the respondents are the CIR and the Sec. of Finance.

• CIR issued RMC 31-2008 on January 30, 2008 under the auspices of Section 4 of the NIRC while Sec. of Finance issued RR 15-2013 on September 20, 2013 in obedience to the legislative directive under Section 5 of RA 103778 and pursuant to his rule-making power under Section 244 of the NIRC.  Both were issued pursuant to their separate powers and prerogatives granted by law.

2.    No. Since there is no actual case involved in a petition for declaratory relief, it cannot be the proper vehicle to invoke the power of judicial review to declare a state as invalid or unconstitutional. As decreed in DOTR v. PPSTA (G.R. No. 230107, July 24, 2018), the proper remedy is certiorari or prohibition. 

• Nonetheless, the court held in Diaz et al v. Secretary of Finance, et al (G.R. No. 193007, July 19, 2011): “But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good. The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority. xxx Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement of locus standi which is a mere procedural requisite.”

3.    Yes. RR 15-2013 is a valid interpretative and internal issuance for the guidance of all internal revenue officers and others concerned.  It merely sums up the rules by which international carriers may avail of preferential rates or exemption from income tax on their gross revenues derived from the carriage of persons and their excess baggage based on the principle of reciprocity or an applicable tax treaty or international agreement to which the Philippines is a signatory.  As such it need not pass through a public hearing or consultation, get published nor registered with UP Law Center for its effectivity. 

• In treating demurrage and detention fees as regular income subject to regular income tax rate, the Secretary of Finance relied on Section 23(A)(I)(3a) of NIRC, as amended by RA 10378, which is still in effect since not amended by Tax Reform for Acceleration and Inclusion (TRAIN) law.
• Under 55 15-2013, demurrage and detention fees are not deemed within the scope of GPB.  GPB covers gross revenue derived from transportation of passengers, cargo and/or mail originating from the Philippines up to the final destination.  Any other income, therefore, is subject to the regular income tax rate.  When the law is clear, there is no other recourse but to apply it regardless of its perceived harshness.  Dura lex sed lex.
• Exclusion of demurrage and detention fees from the preferential rate of 2.5% is proper since they are not considered income derived from transportation of persons, goods and/or mail, in accordance with the rule expressio unios est exclusion alterius.
• Demurrage and detention fees fall within the definition of “gross income” - acquired in the normal course of trade or business 
• Demurrage fees – rent payment for the vessel
• Detention fees – use of container