2006 Taxation Case Digests.doc

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2006 Taxation Case Digests

PERIOD TO ASSESS AND COLLECT TAX DEFICIENCY

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER OF INTERNAL

REVENUE

GR. No. 155541. January 27, 2004

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the

Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrustfiled her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an administrative

investigation of the decedents tax liability and found a deficiency income tax for the year 1997 in the amount of

P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment notice

addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income taxreturn. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to

enforce the collection of decedents deficiency income tax liability and serve the same upon her heir, FranciscoGabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the

deficiency tax. The Court denied BIRs claim against the estate on the ground that no proper notice of the tax

assessment was made on the proper party. On appeal, the CA held that BIRs service on PhilTrust of the notice of

assessment was binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedentsdeath. Consequently, as the estate failed to question the assessment within the statutory period of thirty days, the

assessment became final, executory, and incontestable.

Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana throughPhilTrust was a valid service as to bind the estate.

(2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and incontestable.

Held: (1) Since the relationship between PhilTrust and the decedent was automatically severed the moment of thetaxpayers death, none of the PhilTrusts acts or omissions could bind the estate of the taxpayer. Although the

administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedentsdeath, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These

do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the

notice requirement for such assessment.

(2) The assessment was served not even on an heir or the estate but on a completely disinterested party. Thisimproper service was clearly not binding on the petitioner. The most crucial point to be remembered is that PhilTust

had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served onthe estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court

for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondents claimfor collection filed with the court only on November 22, 1984 was barred for having been made beyond the five-

year prescriptive period set by law.

TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES OF ELECTRIC COOPERATIVES BY THELOCAL GOVERNMENT CODE

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al. vs. THE SECRETARY OF

DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT

GR. No. 143076. June 10, 2003

Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other electric


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cooperatives organized and existing under PD 269 which are members of petitioner Philippine Rural Electric

Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric cooperatives of Agusan del Norte

(ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-stock, non-profit electric cooperatives organizedand existing under PD 269, as amended, and registered with the National Electrification Administration (NEA).

Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National Government, localgovernment, and municipal taxes and fee, including franchise, fling recordation, license or permit fees or taxes and

any fees, charges, or costs involved in any court or administrative proceedings in which it may be party.From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended, the Philippine

Government, acting through the National Economic council (now National Economic Development Authority) and

the NEA, entered into six loan agreements with the government of the United States of America, through the United

States Agency for International Development (USAID) with electric cooperatives as beneficiaries. The loanagreements contain similarly worded provisions on the tax application of the loan and any property or commodity

acquired through the proceeds of the loan.Petitioners allege that with the passage of the Local Government Code their tax exemptions have been validly

withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the

withdrawal of tax exemption privileges granted to all persons, whether natural or juridical, except cooperatives duly

registered under RA 6938, while Sec. 234 exempts the same cooperatives from payment of real property tax.

Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection clause since theprovisions unduly discriminate against petitioners who are duly registered cooperatives under PD 269, as amended,

and no under RA 6938 or the Cooperatives Code of the Philippines?(2) Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the

US Governments?

Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonableclassification. Classification, to be reasonable must (a) rest on substantial classifications; (b) germane to the purpose

of the law; (c) not limited to the existing conditions only; and (d) apply equally to all members of the same class. Wehold that there is reasonable classification under the Local Government Code to justify the different tax treatment

between electric cooperatives covered by PD 269 and electric cooperatives under RA 6938.

First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In the former, thegovernment is the one that funds those so-called electric cooperatives, while in the latter, the members makeequitable contribution as source of funds.

a. Capital Contributions by Members Nowhere in PD 269 doe sit require cooperatives to make equitablecontributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under

PD 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the memberis no longer interested in getting electric service from the cooperative or will transfer to another place outside the

area covered by the cooperative. However, under the Cooperative Code, the articles of cooperation of a cooperative

applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of

the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has been subscribedand at least 25% of the total subscription has been paid and in no case shall the paid-up share capital be less than

P2,000.00.b. Extent of Government Control over Cooperatives The extent of government control over electric cooperatives

covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of these electric

cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and

operations of these electric cooperatives. Consequently, amendments were primarily geared to expand the powers ofNEA over the electric cooperatives o ensure that loans granted to them would be repaid to the government. In

contrast, cooperatives under RA 6938 are envisioned to be self-sufficient and independent organizations withminimal government intervention or regulation.

Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the


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law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that

the exercise of the power by the local governments is beyond the regulation of Congress. Sec. 193 of the LGC is

indicative of the legislative intent to vet broad taxing powers upon the local government units and to limitexemptions from local taxation to entities specifically provided therein.

Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not limited to existingconditions and apply equally to all members of the same class.

(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligations of

contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only

impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute

impairment, the law must affect a change in the rights of the parties with reference to each other and not with respectto non-parties.

The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of any party tothe contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the

transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the

Local Government Code under Sec. 193 and 234 of the tax exemptions previously enjoyed by petitioners does not

impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax

exemption is granted therein.

TARIFF AND CUSTOMS LAWS; PRIMARY JURISDICTION OVER SEIZURE AND FORFEITURE CASES

Chief State Prosecutor JOVENCITO R. ZUO, ATTY. CLEMENTE P. HERALDO, Chief of the Internal Inquiry

and Prosecution Division-customs Intelligence and Investigation Service (IIPD-CIIS), and LEONITO A.

SANTIAGO, Special Investigator of the IIPD-CIIS vs. JUDGE ARNULFO G. CABREDO, Regional Trial Court,

Branch 15, Tabaco City, AlbayAM. No. RTJ-03-1779, April 30, 2003

Facts: Atty. Winston Florin, the Deputy Collector of Customs of the Sub-Port of Tabaco, Albay, issued on

September 3, 2001 Warrant of Seizure and Detention (WSD) No. 06-2001against a shipment of 35, 000 bags of rice

aboard the vessel M/V Criston for violation of Sec. 2530 of the Tariff and Customs Code of the Philippines (TCCP).A few days, after the issuance of the warrant of seizure and detention, Antonio Chua, Jr. and Carlos Carillo,claiming to be consignees of the subject goods, filed before the Regional Trial Court of Tabaco City, Albay a

Petition with Prayer for the Issuance of Preliminary Injunction and Temporary Restraining Order (TRO). The saidpetition sought to enjoin the Bureau of Customs and its officials from detaining the subject shipment.

By virtue of said TRO, the 35,000 bags of rice were released from customs to Antonio Chua, Jr. and Carlos Carillo.In his complaint, Chief State Prosecutor Zuo alleged that respondent Judge violated Administrative Circular No. 7-

99, which cautions trial court judges in their issuance of TROs and writs of preliminary injunctions. Said circular

reminds judges of the principle, enunciated in Mison vs. Natividad, that the Collector of Customs has exclusive

jurisdiction over seizure and forfeiture proceedings, and regular courts cannot interfere with his exercise thereof orstifle or put it to naught.

Issue: Whether or not the issuance of the TRO was illegal and beyond the jurisdiction of the RTC.

Held: The collection of duties and taxes due on the seized goods is not the only reason why trial courts are enjoined

from issuing orders releasing imported articles under seizure and forfeiture proceedings by the Bureau of Customs.Administrative Circular No. 7-99 takes into account the fact that the issuance of TROs and the granting of writs of

preliminary injunction in seizure and forfeiture proceedings before the Bureau of Customs may arouse suspicion thatthe issuance or grant was fro considerations other than the strict merits of the case. Furthermore, respondent Judges

actuation goes against settled jurisprudence that the Collector of Customs has exclusive jurisdiction over seizure and


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forfeiture proceedings, and regular courts cannot interfere with his exercise thereof or stifle and put it to naught.

Respondent Judge cannot claim that he issued the questioned TRO because he honestly believed tat the Bureau of

Customs was effectively divested of its jurisdiction over the seized shipment.Even if it be assumed that in the exercise of the Collector of Customs of its exclusive jurisdiction over seizure and

forfeiture cases, a taint of illegality is correctly imputed, the most that can be said is that under these circumstance,grave abuse of discretion may oust it of its jurisdiction. This does mean, however, that the trial court is vested with

competence to acquire jurisdiction over these seizure and forfeiture cases. The proceedings before the Collector ofCustoms are not final. An appeal lies to the Commissioner of Customs and, thereafter, to the Court of Tax Appeals.

It may even reach this Court through an appropriate petition for review. Certainly, the RTC is not included therein.

Hence, it is devoid of jurisdiction.

Clearly, therefore, respondent Judge had no jurisdiction to take cognizance of the petition and issue the questionedTRO.

It is a basic principle that the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedingsof dutiable goods. A studious and conscientious judge can easily be conversant with such an elementary rule.

NATURE OF FRANCHISE TAX; TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES BY THE

LOCAL GOVERNMENT CODE

NATIONAL POWER CORPORATION vs. CITY OF CABANATUANGR. No. 149110, April 9, 2003

Facts: NAPOCOR, the petitioner, is a government-owed and controlled corporation created under Commonwealth

Act 120. It is tasked to undertake the development of hydroelectric generations of power and the production of

electricity from nuclear, geothermal, and other sources, as well as, the transmission of electric power on a

nationwide basis.For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a gross income of

P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed the petitioner afranchise tax amounting to P808,606.41, representing 75% of 1% of the formers gross receipts for the preceding

year.

Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government, refused to pay the taxassessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner alsocontend that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or

fees in accordance with Sec. 13 of RA 6395, as amended.The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner pay the assessed

tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly interest. Respondent alleged thatpetitioners exemption from local taxes has been repealed by Sec. 193 of RA 7160 (Local Government Code). The

trial court issued an order dismissing the case. On appeal, the Court of Appeals reversed the decision of the RTC and

ordered the petitioner to pay the city government the tax assessment.

Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly

owned by the National Government and its charter characterized is as a non-profit organization?(2) Is the NAPOCORs exemption from all forms of taxes repealed by the provisions of the Local Government Code

(LGC)?

Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise by thecorporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not

the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from theNational Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation

under the Corporation Code.


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To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that

petitioner is no engage din business.

(2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion ofinstrumentalities and agencies of the National Government from the coverage of local taxation. Although as a

general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies andinstrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to

impose taxes, fees, or charges on the aforementioned entities. The legislative purpose to withdraw tax privilegesenjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically

withdrawing such exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to

attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided

for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language couldhave been used.

TAX EXEMPTIONS vs. TAX EXCLUSION; IN LIEU OF ALL TAXES PROVISION

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT) vs. CITY OF DAVAO and

ADELAIDA B. BARCELONA, in her capacity as City Treasurer of Davao

GR. No. 143867, March 25, 2003

Facts: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid in lieu

of all taxes on this franchise or earnings thereof pursuant to RA 7082. The exemption from all taxes on thisfranchise or earnings thereof was subsequently withdrawn by RA 7160 (LGC), which at the same time gave local

government units the power to tax businesses enjoying a franchise on the basis of income received or earned by

them within their territorial jurisdiction. The LGC took effect on January 1, 1992.

The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides: Notwithstandingany exemption granted by law or other special laws, there is hereby imposed a tax on businesses enjoying a

franchise, a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the precedingcalendar year based on the income receipts realized within the territorial jurisdiction of Davao City.

Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe) and Smart

Information Technologies, Inc. (Smart) franchises which contained in leiu of all taxes provisos.In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23 of which providesthat any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be

granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accordedimmediately and unconditionally to the grantees of such franchises. The law took effect on March 16, 1995.

In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro exchange, it was required topay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the power of the city

government to collect the local franchise tax and demanded a refund of what had been paid as a local franchise tax

for the year 1997 and for the first to the third quarters of 1998.

Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the

local franchise tax in view of the grant of tax exemption to Globe and Smart.

Held: Petitioner contends that because their existing franchises contain in lieu of all taxes clauses, the same grant

of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications

franchise. But the rule is that tax exemptions should be granted only by a clear and unequivocal provision of lawexpressed in a language too plain to be mistaken and assuming for the nonce that the charters of Globe and of

Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, clear andunequivocal way of communicating the legislative intent.

Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption from


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regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, RA

7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications service from its rate or tariff

regulations if the service has sufficient competition to ensure fair and reasonable rates of tariffs. Another exemptiongranted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits

from the NTC every time a telecommunications company imports equipment.Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain

to be mistaken.

REMEDIES OF A TAXPAYER UNDER THE NIRC; POWER OF THE CTA TO REVIEW RULINGS OR

OPINIONS OF COMMISSIONER

COMMISSIONER OF INTERNAL REVENUE vs. LEAL

GR. No. 113459, November 18, 2002

Facts: Pursuant to Sec. 116 of the Tax Code which imposes percentage tax on dealers in securities and lending

investors, the Commissioner of Internal Revenue issued Memorandum Order (RMO) No. 15-91 dated March 11,

1991, imposing five percent (5%) lending investors tax on pawnshops based on their gross income and requiring all

investigating units of the Bureau to investigate and assess the lending investors tax due from them. The issuance ofRMO No. 15-91 was an offshoot of petitioners evaluation that the nature of pawnshop business is akin to that oflending investors.

Subsequently, petitioner issued Revenue Memorandum Circular No. 43-91 dated May 27, 1992, subjecting the pawnticket to the documentary stamp tax as prescribed in Title VII of the Tax Code.

Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operator of Josefina

Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91 and RMC No. 43-91 but the

same was denied with finality by petitioner in October 30, 1991.Consequently, on March 18, 1992, respondent filed with the RTC a petition for prohibition seeking to prohibit

petitioner from implementing the revenue orders.Petitioner, through the Office of the Solicitor-General, filed a motion to dismiss the petition on the ground that the

RTC has no jurisdiction to review the questioned revenue orders and to enjoin their implementation. Petitioner

contends that the subject revenue orders were issued pursuant to his power to make rulings or opinions inconnection with the Implementation of the provisions of internal revenue laws. Thus, the case falls within theexclusive appellate jurisdiction of the Court of Tax Appeals, citing Sec. 7(1) of RA 1125.

The RTC issued an order denying the motion to dismiss holding that the revenue orders are not assessments toimplement a Tax Code provision, but are in effect new taxes (against pawnshops) which are not provided for under

the Code, and which only Congress is empowered to impose. The Court of Appeals affirmed the order issued bythe RTC.

Issue: Whether or not the Court of Tax Appeals has jurisdiction to review rulings of the Commissioner

implementing the Tax Code.

Held: The jurisdiction to review rulings of the Commissioner pertains to the Court of Tax Appeals and NOT to theRTC. The questioned RMO and RMC are actually rulings or opinions of the Commissioner implementing the Tax

Code on the taxability of the Pawnshops.

Under RA 1125, An Act Creating the Court of Tax Appeals, such rulings of the Commissioner of Internal Revenue

are appealable to that court:Sec. 7 Jurisdiction The Court of Tax Appeals shall exercise 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 imposed in relation thereto, or other matters arising under the


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National Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue.

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tax remedies; section 220; who should institute appeal in tax cases

COMMISSIONER OF INTERNAL REVENUE vs. LA SUERTE CIGAR AND CIGARETTE FACTORY

GR. No. 144942, July 4, 2002

Facts: In its resolution, dated 15 November 2000, the Supreme Court denied the Petition for Review on Certiorari

submitted by the Commissioner of Internal Revenue for non-compliance with the procedural requirement of

verification explicit in Sec. 4, Rule 7 of the 1997 Rules of Civil Procedure and, furthermore, because the appeal wasnot pursued by the Solicitor-General. When the motion for reconsideration filed by the petitioner was likewise

denied, petitioner filed the instant motion seeking an elucidation on the supposed discrepancy between thepronouncement of this Court, on the one hand that would require the participation of the Office of the Solicitor-

General and pertinent provisions of the Tax Code, on the other hand, that allow legal officers of the Bureau of

Internal Revenue (BIR) to institute and conduct judicial action in behalf of the Government under Sec, 220 of the

Tax Reform Act of 1997.

Issue: Are the legal officer of the BIR authorized to institute appeal proceedings (as distinguished fromcommencement of proceeding) without the participation of the Solicitor-General?

Held: NO. The institution or commencement before a proper court of civil and criminal actions and proceedings

arising under the Tax Reform Act which shall be conducted y legal officers of the Bureau of Internal Revenue is

not in dispute. An appeal from such court, however, is not a matter of right. Sec. 220 of the Tax Reform Act must

not be understood as overturning the long-established procedure before this Court in requiring the Solicitor-Generalto represent the interest of the Republic. This court continues to maintain that it is the Solicitor-General who has the

primary responsibility to appear for the government in appellate proceedings. This pronouncement finds justificationin the various laws defining the Office of the Solicitor-General, beginning with Act No. 135, which took effect on

16 June 1901, up to the present Administrative Code of 1987. Sec. 35, Chapter 12, Title III, Book IV of the said

code outlines the powers and functions of the Office of the Solicitor General which includes, but not limited to, itsduty to1. Represent the Government in the Supreme Court and the Court of Appeals in all criminal proceedings; represent

the Government and its officers in the Supreme Court, the Court of Appeals, and all other courts or tribunals in allcivil actions and special proceedings in which the Government or any officer thereof in his official capacity is a

party.2. Appear in any court in any action involving the validity of any treaty, law, executive order, or proclamation, rule

or regulation when in his judgment his intervention is necessary or when requested by the Court.

TAX EXEMPTIONS; EXECUTIVE LEGISLATION

COCONUT OIL REFINERS ASSOCIATION, INC. et al vs. RUBEN TORRES, as Executive Secretary, et alG.R. No. 132527. July 29, 2005

Facts: On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, the sound and balanced

conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in theform of special economic zones in order to promote the economic and social development of Central Luzon in

particular and the country in general. The law contains provisions on tax exemptions for importations of rawmaterials, capital and equipment. After which the President issued several Executive Orders as mandated by the law

for the implementation of RA 7227. Herein petitioners contend the validity of the tax exemption provided for in the


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law.

Issue: Whether or not the Executive Orders issued by President for the implementation of the tax exemptionsconstitutes executive legislation.

Held: To limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw

materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port wherethe free flow of goods or capital within, into, and out of the zones is insured.

The phrase tax and duty-free importations of raw materials, capital and equipment was merely cited as an example

of incentives that may be given to entities operating within the zone. Public respondent SBMA correctly argued that

the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support their restrictiveinterpretation, does not apply when words are mentioned by way of example. It is obvious from the wording of RA

No. 7227, particularly the use of the phrase such as, that the enumeration only meant to illustrate incentives thatthe SSEZ is authorized to grant, in line with its being a free port zone.

The Court finds that the setting up of such commercial establishments which are the only ones duly authorized to

sell consumer items tax and duty-free is still well within the policy enunciated in Section 12 of RA No. 7227 that . .

.the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and

investment center to generate employment opportunities in and around the zone and to attract and promoteproductive foreign investments. However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3of Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited

amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of RA No. 7227.Said Section clearly provides that exportation or removal of goods from the territory of the Subic Special Economic

Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and

Tariff Code and other relevant tax laws of the Philippines.

TAX EXEMPTIONS; NULLITY OF TAX DECLARATIONS AND TAX ASSESSMENTS

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), vs. PROVINCIAL ASSESOR OF SOUTH

COTABATO, et al.

G.R. No. 144486. April 13, 2005

Facts: RCPI was granted a franchise under RA 2036, the law provides tax exemption for several properties of the

company. Section 14 of RA 2036 reads: In consideration of the franchise and rights hereby granted and anyprovision of law to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be

required by law from other individuals, co partnerships, private, public or quasi-public associations, corporations orjoint stock companies, on real estate, buildings and other personal property except radio equipment, machinery and

spare parts needed in connection with the business of the grantee, which shall be exempt from customs duties, tariffs

and other taxes, as well as those properties declared exempt in this section. In consideration of the franchise, a tax

equal to one and one-half per centum of all gross receipts from the business transacted under this franchise by thegrantee shall be paid to the Treasurer of the Philippines each year, within ten days after the audit and approval of the

accounts as prescribed in this Act. Said tax shall be in lieu of any and all taxes of any kind, nature or descriptionlevied, established or collected by any authority whatsoever, municipal, provincial or national, from which taxes the

grantee is hereby expressly exempted. Thereafter, the municipal treasurer of Tupi, South Cotabato assessed RCPI

real property taxes from 1981 to 1985. The municipal treasurer demanded that RCPI pay P166,810 as real property

tax on its radio station building in Barangay Kablon, as well as on its machinery shed, radio relay station tower andits accessories, and generating sets. The Local Board of Assessment Appeals affirmed the assessment of the

municipal treasurer. When the case reach the C A, it ruled that, petitioner is exempt from paying the real propertytaxes assessed upon its machinery and radio equipment mounted as accessories to its relay tower. However, the

decision assessing taxes upon petitioners radio station building, machinery shed, and relay station tower is valid.


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Issue: (1) Whether or not appellate court erred when it excluded RCPIs tower, relay station building and machinery

shed from tax exemption.(2) Whether or not appellate court erred when it did not resolve the issue of nullity of the tax declarations and

assessments due to non-inclusion of depreciation allowance.

Held: (1) RCPIs radio relay station tower, radio station building, and machinery shed are real properties and arethus subject to the real property tax. Section 14 of RA 2036, as amended by RA 4054, states that in consideration

of the franchise and rights hereby granted and any provision of law to the contrary notwithstanding, the grantee shall

pay the same taxes as are now or may hereafter be required by law from other individuals, co partnerships, private,

public or quasi-public associations, corporations or joint stock companies, on real estate, buildings and otherpersonal property. The clear language of Section 14 states that RCPI shall pay the real estate tax.

(2) The court held the assessment valid. The court ruled that, records of the case shows that RCPI raised before theLBAA and the CBAA the nullity of the assessments due to the non-inclusion of depreciation allowance. Therefore,

RCPI did not raise this issue for the first time. However, even if we consider this issue, under the Real Property Tax

Code depreciation allowance applies only to machinery and not to real property.

SECRETARY OF FINANCE CANNOT PROMULGATE REGULATIONS FIXING A RATE OF PENALTY ONDELINQUENT TAXES

The Honorable Secretary of Finance vs. THE HONORABLE RICARDO M. ILARDE, Presiding Judge, RegionalTrial Court, 6th Judicial Region, Branch 26, Iloilo City, and CIPRIANO P. CABALUNA, JR

G.R. No. 121782. May 9, 2005

Facts: Cabaluna with his wife owns several real property located in Iloilo City. Cabaluana is the Regional Directorof Regional Office No. VI of the Department of Finance in Iloilo City. After his retirement, there are tax

delinquencies on his properties; he paid the amount under protest contending that the penalties imposed to him are inexcess than that provided by law. After exhausting all administrative remedies, he filed a suit before the RTC which

found that Section 4(c) of Joint Assessment Regulation No. 1-85 and Local Treasury Regulation No. 2-85 issued on

August 1, 1985 by respondent Secretary (formerly Minister) of Finance is null and void; (2) declaring that thepenalty that should be imposed for delinquency in the payment of real property taxes should be two per centum onthe amount of the delinquent tax for each month of delinquency or fraction thereof, until the delinquent tax is fully

paid but in no case shall the total penalty exceed twenty-four per centum of the delinquent tax as provided for inSection 66 of P.D. 464 otherwise known as the Real Property Tax Code.

Issue: Whether or not the then Ministry of Finance could legally promulgate Regulations prescribing a rate of

penalty on delinquent taxes other than that provided for under Presidential Decree (P.D.) No. 464, also known as the

Real Property Tax Code.

Held: The Ministry of Finance now Secretary of Finance cannot promulgate regulations prescribing a rate of penalty

on delinquent taxes. The Court ruled that despite the promulgation of E.O. No. 73, P.D. No. 464 in general andSection 66 in particular, remained to be good law. To accept the Secretarys premise that E.O. No. 73 had accorded

the Ministry of Finance the authority to alter, increase, or modify the tax structure would be tantamount to saying

that E.O. No. 73 has repealed or amended P.D. No. 464. Repeal of laws should be made clear and expressed.

Repeals by implication are not favored as laws are presumed to be passed with deliberation and full knowledge of alllaws existing on the subject. Such repeals are not favored for a law cannot be deemed repealed unless it is clearly

manifest that the legislature so intended it. Assuming argumenti that E.O. No. 73 has authorized the petitioner toissue the objected Regulations, such conferment of powers is void for being repugnant to the well-encrusted doctrine

in political law that the power of taxation is generally vested with the legislature. Thus, for purposes of computation


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of the real property taxes due from private respondent for the years 1986 to 1991, including the penalties and

interests, is still Section 66 of the Real Property Tax Code of 1974 or P.D. No. 464. The penalty that ought to be

imposed for delinquency in the payment of real property taxes should, therefore, be that provided for in Section 66of P.D. No. 464, i.e., two per centum on the amount of the delinquent tax for each month of delinquency or fraction

thereof but in no case shall the total penalty exceed twenty-four per centum of the delinquent tax.

EVIDENCE IN TAX ASSESSMENTS; MACHINE COPIES OF RECORDS/ DOCUMENTS HAVE NOPROBATIVE VALUE

COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC

G.R. No. 136975. March 31, 2005

Facts: Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of plastic products,it imports synthetic resin and other chemicals for the manufacture of its products. For this purpose, it is required to

file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under

Section 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of

Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential

information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declaredP45,538,694.57. Thus, Hentex receive a subpoena to present its books of account which it failed to do. The bureaucannot find any original copies of the products Hentex imported since the originals were eaten by termites. Thus, the

Bureau relied on the certified copies of the respondents Profit and Loss Statement for 1987 and 1988 on file withthe SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as well as

excerpts from the entries certified by Tomas and Danganan. The case was submitted to the CTA which ruled that

Hentex have tax deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the income and

sales tax deficiency assessments issued by the petitioner were unlawful and baseless since the copies of the importentries relied upon in computing the deficiency tax of the respondent were not duly authenticated by the public

officer charged with their custody, nor verified under oath by the EIIB and the BIR investigators.

Issue: Whether or not the final assessment of the petitioner against the respondent for deficiency income tax and

sales tax for the latters 1987 importation of resins and calcium bicarbonate is based on competent evidence and thelaw.

Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that theCommissioner of Internal Revenue has the power to make assessments and prescribe additional requirements for tax

administration and enforcement. Among such powers are those provided in paragraph (b), which provides thatFailure to submit required returns, statements, reports and other documents. When a report required by law as a

basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or

regulation or when there is reason to believe that any such report is false, incomplete or erroneous, the

Commissioner shall assess the proper tax on the best evidence obtainable. This provision applies when theCommissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against

a taxpayer, to make a return in case of a taxpayers failure to file one, or to amend a return already filed in the BIR.The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting

records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers

engaged in the same line of business, including their gross profit and net profit sales. Such evidence also includes

data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who hadpersonal transactions or from whom the subject taxpayer received any income; and record, data, document and

information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines, theBureau of Customs, and the Tariff and Customs Commission. However, the best evidence obtainable under Section

16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The petitioner, in


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making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on

mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight

if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are ofno probative value as basis for any deficiency income or business taxes against a taxpayer.

Companies exempt from zero-rate tax

COMMISSIONER OF INTERNAL REVENUE vs. AMERICAN EXPRESS INTERNATIONAL, INC.

(PHILIPPINE BRANCH),

G.R.No. 152609. June 29, 2005

Facts: American Express international is a foreign corporation operating in the Philippines, it is a registered

taxpayer. On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of its 1997 excess inputtaxes in the amount of P3,751,067.04, which amount was arrived at after deducting from its total input VAT paid of

P3,763,060.43 its applied output VAT liabilities only for the third and fourth quarters of 1997 amounting to

P5,193.66 and P6,799.43, respectively. The CTA ruled in favor of the herein respondent holding that its services are

subject to zero-rate pursuant to Section 108(b) of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of

Revenue Regulations 5-96. The CA affirmed the decision of the CTA.

Issue: Whether or not the company is subject to zero-rate tax pursuant to the Tax Reform Act of 1997.

Held: Services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or

repacking of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency

and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. Respondent is a VAT-

registered person that facilitates the collection and payment of receivables belonging to its non-resident foreignclient, for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in conformity with

BSP rules and regulations. Certainly, the service it renders in the Philippines is not in the same category asprocessing, manufacturing or repacking of goods and should, therefore, be zero-rated. In reply to a query of

respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent earned from its parent

companys regional operating centers (ROCs) was automatically zero-rated effective January 1, 1988. Service hasbeen defined as the art of doing something useful for a person or company for a fee or useful labor or workrendered or to be rendered by one person to another. For facilitating in the Philippines the collection and payment

of receivables belonging to its Hong Kong-based foreign client, and getting paid for it in duly accounted acceptableforeign currency, respondent renders service falling under the category of zero rating. Pursuant to the Tax Code, a

VAT of zero percent should, therefore, be levied upon the supply of that service.As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax.

Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while

imports are taxed. VAT rate for services that are performed in the Philippines, paid for in acceptable foreign

currency and accounted for in accordance with the rules and regulations of the BSP. Thus, for the supply of serviceto be zero-rated as an exception, the law merely requires that first, the service be performed in the Philippines;

second, the service fall under any of the However, the law clearly provides for an exception to the destinationprinciple; that is, for a zero percent categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable

foreign currency accounted for in accordance with BSP rules and regulations. Indeed, these three requirements for

exemption from the destination principle are met by respondent. Its facilitation service is performed in the

Philippines. It falls under the second category found in Section 102(b) of the Tax Code, because it is a service otherthan processing, manufacturing or repacking of goods as mentioned in the provision. Undisputed is the fact that

such service meets the statutory condition that it be paid in acceptable foreign currency duly accounted for inaccordance with BSP rules. Thus, it should be zero-rated.


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