Other Percentage Tax(Sec 116-128,NIRC) 9/14/20152:31:00 PM

CHINA BANKING CORPORATION vs. CA

G.R. No. 146749. June 10, 2003

On 20 July 1994, China Banking Corporation (CBC)

paid P12,354,933.00 as gross receipts tax on its income from

interests on loan investments, commissions, services, collection charges,

foreign exchange profits and other operating earnings during the second

quarter of 1994.

On 30 January 1996, the Court of Tax Appeals in Asian Bank Corporation v.

Commissioner of Internal Revenue ruled that the 20% final withholding

tax on a banks passive interest income does not form part of its

taxable gross receipts.

On 19 July 1996, CBC filed with the Commissioner of Internal

Revenue (Commissioner) a formal claim for tax refund or credit

of P1,140,623.82 from theP12,354,933.00 gross receipts tax that CBC paid

for the second quarter of 1994.

Citing Asian Bank, CBC argued that it was not liable for the gross

receipts tax - amounting to P1,140,623.82 - on the sums withheld by

the Bangko Sentral ng Pilipinas as final withholding tax on CBCs

passive interest income in 1994.

ISSUES:

1. Whether the 20% final withholding tax on interest income should form

part of CBCs gross receipts in computing the gross receipts tax on

banks;

2. Whether CBC has established by sufficient evidence its right to claim

the full refund of P1,140,623.82 representing alleged overpayment of

the gross receipts tax

RULING:

1. YES, it should be part of CBC’s gross receipt

As commonly understood, the term gross receipts means the entire

receipts without any deduction. Deducting any amount from the gross

receipts changes the result, and the meaning, to net receipts. Any

deduction from gross receipts is inconsistent with a law that mandates a

tax on gross receipts, unless the law itself makes an exception. 

As explained by the Supreme Court of Pennsylvania in Commonwealth of

Pennsylvania v. Koppers Company, Inc., -

xxx Under the ordinary basic methods of handling accounts, the term

gross receipts, in the absence of any statutory definition of the

term, must be taken to include the whole total gross receipts

without any deductions. 

The Tax Court erred glaringly in interpreting Section 4(e) of

Revenue Regulations No. 12-80. Income may be taxable either at the

time of its actual receipt or its accrual, depending on the accounting

method of the taxpayer. Section 4(e) merely provides for an exception to

the rule, making interest income taxable for gross receipts tax

purposes only upon actual receipt. 

Interest is accrued, and not actually received, when the interest is due

and demandable but the borrower has not actually paid and remitted the

interest, whether physically or constructively. Section 4(e) does not

exclude accrued interest income from gross receipts but merely

postpones its inclusion until actual payment of the interest to the lending

bank. This is clear when Section 4(e) states that [m]ere accrual shall

not be considered, but once payment is received on such accrual

or in case of prepayment, then the amount actually received shall

be included in the tax base of such financial institutions x x x.

Thus, interest earned by banks, even if subject to the final tax and

excluded from taxable gross income, forms part of its gross

receipts for gross receipts tax purposes. The interest earned refers

to the gross interest without deduction since the regulations do not

provide for any deduction. The gross interest, without deduction, is the

amount the borrower pays, and the income the lender earns, for

the use by the borrower of the lenders money. The amount of the

final tax plainly comes from the interest earned and is consequently part

of the banks taxable gross receipts.

2. NO

CBC has failed to point to any specific provision of law allowing

the deduction, exemption or exclusion, from its taxable gross

receipts, of the amount withheld as final tax. Such amount should

therefore form part of CBCs gross receipts in computing the gross receipts

tax. There being no legal basis for CBCs claim for a tax refund or credit,

the second issue raised in this petition is now moot.

Section 121 of the Tax Code expressly subjects interest income to the

gross receipts tax on banks. Such express inclusion of interest income

in taxable gross receipts creates a presumption that the entire

amount of the interest income, without any deduction, is subject

to the gross receipts tax. 

ANALYSIS:

There is no double taxation when Section 121 of the Tax Code imposes

a gross receipts tax on interest income that is already subjected to the

20% final withholding tax under Section 27 of the Tax Code. The gross

receipts tax is a business tax under Title V of the Tax Code, while the

final withholding tax is an income tax under Title II of the Code. There is

no double taxation if the law imposes two different taxes on the same

income, business or property.

CIR vs PHILIPPINE AIRLINES, INC.

G.R. No. 180043, July 14, 2009

Petitioner is responsible for the assessment and collection of all

national internal revenue taxes, fees, and charges, including the 10%

Overseas Communications Tax (OCT), imposed by Section 120 of the

National Internal Revenue Code (NIRC) of 1997.

Respondent PAL is a domestic corporation and the grantee under

Presidential Decree No. 1590 of a franchise to establish, operate, and

maintain transport services for the carriage of passengers, mail,

and property by air, in and between any and all points and places

throughout the Philippines, and between the Philippines and other

countries.

January to December 2001, the PLDT collected from respondent the

10% OCT on the amount paid by the latter for overseas telephone

calls it had made through the former. In all, PLDT collected from

respondent the amount of P202,471.18 as OCT for 2001

On 8 April 2003, respondent filed with the BIR an administrative

claim for refund of the P202,471.18 OCT it alleged to have

erroneously paid in 2001

RESPONDENT PAL:

Based on its franchise, Section 13 of Presidential Decree No. 1590, which

granted it

the option to pay either the basic corporate income tax on its

annual net taxable income or the two percent franchise tax on its

gross revenues, whichever was lower; and

the exemption from all other taxes, XXX except only real

property tax. 

PETITIONER CIR:

argues that the PAL case is not applicable to the case at bar,

since the former involves final withholding tax on interest

income, while the latter concerns another type of tax, the

OCT.

cannot avail itself of the benefit of the in lieu of all other

taxes proviso in Section 13 of Presidential Decree No. 1590

when it made no actual payment of either the basic

corporate income tax or the franchise tax.

ISSUE:

WON the exemption includes OCT

WON THE PHRASE IN LIEU OF ALL OTHER TAXES IN SECTIONS 13 AND

14 OF PRESIDENTIAL DECREE NO. 1590 REQUIRE A CONDITION(Actual

Payment) BEFORE THE EXEMPTION FROM ALL OTHER TAXES MAY BE

APPLIED;

TAX REFUNDS ARE IN THE NATURE OF TAX EXEMPTIONS. AS SUCH,

THEY SHOULD BE CONSTRUED STRICTISSIMI JURIS AGAINST THE

PERSON OR ENTITY CLAIMING THE EXEMPTION.

RULING:

1. YES

The language used in Section 13 of Presidential Decree No. 1590, granting

respondent tax exemption, is clearly all-inclusive. 

Even a meticulous examination of Presidential Decree No. 1590 will not

reveal any provision therein limiting the tax exemption of

respondent to final withholding tax on interest income or excluding from

said exemption the OCT.

2. No, no need of actual payment

A careful reading of Section 13 rebuts the argument of the CIR

that the in lieu of all other taxes proviso is a mere incentive that

applies only when PAL actually pays something. It is clear that PD

1590 intended to give respondent the option to avail itself of Subsection

(a) or (b) as consideration for its franchise. Either option excludes the

payment of other taxes and dues imposed or collected by the national or

the local government. PAL has the option to choose the alternative that

results in lower taxes. It is not the fact of tax payment that exempts

it, but the exercise of its option.

Petitioner places too much reliance on the use of the word pay in

the first line of Section 13 of Presidential Decree No. 1590.

 

It must do well for petitioner to remember that a statutes clauses and

phrases should not be taken as detached and isolated

expressions, but the whole and every part thereof must be considered

in fixing the meaning of any of its parts.

 

3. Yes but..

when the claim for refund has clear legal basis and is sufficiently

supported by evidence, as in the present case, then the Court shall not

hesitate to grant the same.

In its previous discussion, the Court has already established that by

merely exercising its option to pay for basic corporate income tax

even if it had zero liability for the same due to its net loss

position in 2001 respondent was already exempted from all other

taxes, including the OCT. 

Also, the CTA, both in Division and en banc, found that respondent

submitted ample evidence to prove its payment of OCT to PLDT

during the second, third, and fourth quarters of 2001, in the total amount

of P126,243.80, which, in turn, was paid by PLDT to the BIR. Said finding

by the CTA, being factual in nature, is already conclusively binding

upon this Court. Under our tax system, the CTA acts as a highly

specialized body specifically created for the purpose of reviewing tax

cases.  Accordingly, its findings of fact are generally regarded as

final, binding, and conclusive on this Court, and will not ordinarily

be reviewed or disturbed on appeal when supported by

substantial evidence, in the absence of gross error or abuse on its part.[

ANALYSIS:

It is true that the discussion in the PAL case on gross income is immaterial

to the case at bar. OCT is not even an income tax. It is a business tax,

which the government imposes on the gross annual sales of

operators of communication equipment sending overseas dispatches,

messages or conversations from the Philippines. According to Section 120

of the NIRC, the person paying for the services rendered

(respondent, in this case) shall pay the OCT to the person

rendering the service (PLDT); the latter, in turn, shall remit the

amount to the BIR. 

If this Court deems that final tax on interest income which is also an

income tax, but distinct from basic corporate income tax is included

among all other taxes from which respondent is exempt, then with all

the more reason should the Court consider OCT, which is

altogether a different type of tax, as also covered by the said

exemption.

CIR vs. SOLIDBANK CORPORATION

[G.R. No. 148191. November 25, 2003]

Respondent Solidbank Corp seasonably filed its Quarterly

Percentage Tax Returns reflecting gross receipts (pertaining to 5%

[Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44

with corresponding gross receipts tax payments in the sum

of P73,734,584.60

[Respondent] alleges that the total gross receipts in the amount

of P1,474,691,693.44 included the sum of P350,807,875.15

representing gross receipts from passive income which was already

subjected to 20% final withholding tax.

On January 30, 1996, [the Court of Tax Appeals] rendered a decision in

CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of

Internal Revenue[,] wherein it was held that the 20% final

withholding tax on [a] banks interest income should not form part

of its taxable gross receipts for purposes of computing the gross

receipts tax.

On June 19, 1997, on the strength of the aforementioned decision,

[respondent] filed with [BIR] a letter-request for the refund or

issuance of [a] tax credit certificate in the aggregate amount

of P3,508,078.75, representing allegedly overpaid gross receipts tax for

the year 1995,

ISSUE:

Whether or not the 20% final withholding tax on [a] banks interest income

forms part of the taxable gross receipts in computing the 5% gross

receipts tax.

RULING:

YES

Although the 20% FWT on respondents interest income was not actually

received by respondent because it was remitted directly to the

government, the fact that the amount redounded to the banks

benefit makes it part of the taxable gross receipts in computing

the 5% GRT.

A perusal of these provisions clearly shows that two types of taxes are

involved in the present controversy: 

(1) the GRT, which is a percentage tax; and

(2) the FWT, which is an income tax. As a bank, petitioner is covered by

both taxes.

The 5% GRT is included under Title V. Other Percentage Taxes of the Tax

Code and is not subject to withholding. The banks and non-bank

financial intermediaries liable therefor shall, under Section 125(a)(1),[16] file quarterly returns on the amount of gross receipts and pay the taxes

due thereon within twenty (20) days after the end of each taxable quarter.

The 20% FWT, on the other hand, falls under Section 24(e)(1)[19] of Title II.

Tax on Income. It is a tax on passive income, deducted and withheld at

source by the payor-corporation and/or person as withholding agent

pursuant to Section 50,[  and paid in the same manner and subject to the

same conditions as provided for in Section 51.

A percentage tax is a national tax measured by a certain percentage of

the gross selling price or gross value in money of goods sold,

bartered or imported; or of the gross receipts or earnings derived

by any person engaged in the sale of services.[22] It is not subject to

withholding.

An income tax, on the other hand, is a national tax imposed on the net

or the gross income realized in a taxable year.[23] It is subject to

withholding.

ANALYSIS:

Under the Tax Code, the earnings of banks from passive income are

subject to a 20% FWT. This tax is withheld at source and is thus

not actually and physically received by the banks, because it is paid

directly to the government by the entities from which the banks derived

the income. Apart from the 20% FWT, banks are also subject to a five

percent gross receipts tax (5% GRT) which is imposed by the Tax

Code on their gross receipts, including the passive income.

Since the 20% FWT is constructively received by the banks and forms part

of their gross receipts or earnings, it follows that it is subject to the 5%

GRT. After all, the amount withheld is paid to the government on their

behalf, in satisfaction of their withholding taxes. That they do

not actually receive the amount does not alter the fact that it is remitted

for their benefit in satisfaction of their tax obligations.

Stated otherwise, the fact is that if there were no withholding tax

system in place in this country, this 20 percent portion of the

passive income of banks would actually be paid to the banks and

then remitted by them to the government in payment of their

income tax. The institution of the withholding tax system does not alter

the fact that the 20 percent portion of their passive income

constitutes part of their actual earnings, except that it is paid

directly to the government on their behalf in satisfaction of the 20

percent final income tax due on their passive incomes.

Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop Inc., G.R.

No. 150947, [July 15, 2003], 453 PHIL 1043-1059

On 11 March 1991, CIR  issued Revenue Memorandum Order (RMO)

No. 15-91 imposing a 5% lending investor's tax on pawnshops.

On 11 September 1997, pursuant to these issuances, the (BIR) issued

Assessment Notice against Lhuillier demanding payment of

deficiency percentage tax in the sum of P3,360,335.11 for 1994

inclusive of interest and surcharges.

On 3 October 1997, Lhuillier filed an administrative protest with the Office

of the Revenue Regional Director contending that

(1) neither the Tax Code nor the VAT Law expressly imposes 5%

percentage tax on the gross income of pawnshops;

(2) pawnshops are different from lending investors, which are

subject to the 5% percentage tax under the specific provision of the Tax

Code;

(3) RMO No. 15-91 is not implementing any provision of the Internal

Revenue laws but is a new and additional tax measure on pawnshops,

which only Congress could enact;

(4) RMO No. 15-91 impliedly amends the Tax Code and is therefore

taxation by implication, which is proscribed by law; and

(5) RMO No. 15-91 is a "class legislation" because it singles out

pawnshops among other lending and financial operations.

ISSUE:

Are pawnshops included in the term lending investors for the purpose of

imposing the 5% percentage tax under then Section 116 of the National

Internal Revenue Code (NIRC) of 1977, as amended by Executive Order

No. 273?

RULING: NO

RMO No. 15-91 and RMC No. 43-91 are hereby declared null and void.

Consequently, Lhuillier is not liable to pay the 5% lending investor's

tax.

While it is true that pawnshops are engaged in the business of lending

money, they are not considered "lending investors" for the

purpose of imposing the 5% percentage taxes for the following

reasons:

First. Pawnshops and lending investors were subjected to different tax

treatments; thus:

(3) Other Fixed Taxes. — The following fixed taxes shall be collected as

follows, the amount stated being for the whole year, when not otherwise

specified:

xxx xxx xxx

(dd) Lending investors —

(ff) Pawnshops, one thousand pesos

Second. Congress never intended pawnshops to be treated in the

same way as lending investors. Both the NIRC of 1986 and the NIRC of

1977 dealt with pawnshops and lending investors differently. Verily then,

it was the intent of Congress to deal with both subjects differently.

Hence, we must likewise interpret the statute to conform with such

legislative intent.

Third. Section 116 of the NIRC of 1977, as amended by E.O. No. 273,

subjects to percentage tax dealers in securities and lending

investors only. There is no mention of pawnshops. Under the

maxim expressio unius est exclusio alterius, the mention of one thing

implies the exclusion of another thing not mentioned.

Fourth. Since Section 116 of the NIRC of 1977, which breathed life on the

questioned administrative issuances, had already been repealed, RMO

15-91 and RMC 43-91, which depended upon it, are deemed

automatically repealed. Hence, even granting that pawnshops are

included within the term lending investors, the assessment from 27 May

1994 onward would have no leg to stand on.

RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as

implementing rules or corrective measures revoking in the process

the previous rulings of past Commissioners. In so doing, the CIR did

not simply interpret the law. The due observance of the

requirements of notice, hearing, and publication should not have

been ignored.

Section 116 of the NIRC, as amended, which provided:

SEC. 116. Percentage tax on dealers in securities; lending investors. —

Dealers in securities and lending investors shall pay a tax equivalent to six

(6) per centum of their gross income. Lending investors shall pay a tax

equivalent to five (5%) percent of their gross income.

It is clear from the aforequoted provision that pawnshops are not

specifically included.

Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue, G.R. No.

179085, [January 21, 2010], 624 PHIL 507-517)

CIR sent the Tambunting Pawnshop, Inc. (petitioner) an assessment notice

dated January 15, 2003 for

P3,055,564.34 deficiency value-added tax (VAT),

P406,092.50 deficiency documentary stamp tax on pawn tickets,

P67,201.55 deficiency withholding tax on compensation, and

P21,723.75 deficiency expanded withholding tax, all inclusive of

interests and surcharges

for the taxable year 1999. 

ISSUE:

1. whether pawnshops are liable to pay VAT

2. won liable to pay DST

RULING:

1. Not liable

Since the imposition of VAT on pawnshops, which are non-bank

financial intermediaries, was deferred for the tax years 1996 to

2002, petitioner is not liable for VAT for the tax year 1999.

From 1996 to 2002 , since petitioner is a non-bank financial

intermediary, it is subject to l0% VAT but deferred by law

Starting January 1, 2003 , with the full implementation of the VAT

system on non-bank financial intermediaries starting, petitioner

is liable for 10% VAT for said tax year.

B eginning 2004   up to the present , by virtue of R.A. No. 9238,

petitioner is no longer liable for VAT but it is subject to

percentage tax on gross receipts from 0% to 5%, as the

case may be.

In First Planters Pawnshop, Inc. v. Commissioner of Internal

Revenue, held:

In fine, prior to the [passage of the] EVAT Law [in 1994], pawnshops were

treated as lending investors subject to lending investor's tax.

Subsequently, under Section 108 (A) of the Tax Code of 1997, as

amended. R.A. No. 9238   [which was passed in   2004 ] finally classified

pawnshops as Other Non-bank Financial Intermediaries .

With the enactment of R.A. No. 9238 in 2004, the services of banks,

non-bank financial intermediaries, finance companies, and other financial

intermediaries not performing quasi-banking functions were specifically

exempted from VAT, 28 and the 0% to 5% percentage tax on gross

receipts on other non-bank financial intermediaries was

reimposed under Section 122 of the Tax Code of 1997. 

2. Yes, liable to pay DST; pawn ticket being a pledge

In Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue:

. . . A Documentary Stamp] Tax]is an excise tax on the exercise of a right

or privilege to transfer obligations, rights or properties incident

thereto. . . . 

xxx xxx xxx

Pledge is among the privileges, the exercise of which is subject to

DST. A pledge may be defined as an accessory, real and unilateral

contract by virtue of which the debtor or a third person delivers

to the creditor or to a third person movable property as security

for the performance of the principal obligation, upon the fulfillment of

which the thing pledged, with all its accessions and accessories, shall be

returned to the debtor or to the third person. xxxx

Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:

"Pawn ticket" is the pawnbrokers' receipt for a pawn. It is neither a

security nor a printed evidence of indebtedness."

True, the law does not consider said ticket as an evidence of security or

indebtedness. However, for purposes of taxation, the same pawn ticket

is proof of an exercise of a taxable privilege of concluding a

contract of pledge. There is therefore no basis in petitioner's assertion

that a DST is literally a tax on a document and that no tax may be

imposed on a pawn ticket. 

Documentary Stamp Tax (173-201)As amended by RA 9243 9/14/2015 2:31:00 PM

Philippine Banking Corp. v. Commissioner of Internal Revenue,

G.R. No. 170574, [January 30, 2009], 597 PHIL 363-389

Philippine Banking Corporation, now, Global Business Bank, Inc.,

(petitioner) is a banking institution. For the taxable years 1996 and 1997,

petitioner offered its Special/Super Savings Deposit Account"

(SSDA) to its depositors. The SSDA is a form of a savings deposit

evidenced by a passbook and earning a higher interest rate than a

regular savings account. Petitioner believes that the SSDA is not subject

to Documentary Stamp Tax (DST)

On 10 January 2000, the CIR(respondent) sent petitioner a Final

Assessment Notice assessing deficiency DST based on the

outstanding balances of its SSDA, including increments, in the total

sum of P17,595,488.75 for 1996 and P47,767,756.24 for 1997.

PETITIONER Philippine Banking:

the SSDA is in the nature of a regular savings account.

a passbook, cannot be construed as a certificate of deposit

subject to DST under Section 180 of the 1977 NIRC.

prior to the passage of Republic Act No. 9243  (RA 9243), there

was no law subjecting SSDA to DST during the taxable years

1996 and 1997 admitting that with this new taxing clause, its

SSDA is now subject to DST.

RESPONDENT CIR:

the SSDA is a time deposit account, albeit in the guise of a

regular savings account evidenced by a passbook.

Petitioner's passbook evidencing its SSDA is considered a

certificate of deposit, and being very similar to a time deposit

account, it should be subject to the payment of DST.

ISSUE:

whether petitioner's SSDAs are "certificates of deposits drawing interest"

as used in Section 180 of the 1977 NIRC making it subject to DST?

RULING: YES

SSDA is a certificate of deposit drawing interest subject to DST

even if it is evidenced by a passbook and non-negotiable in character.

The SSDA is for depositors who maintain savings deposits with

substantial average daily balance and which earn higher

interest rates.

The holding period of an SSDA floats at the option of the

depositor at 30, 60, 90, 120 days or more and for maintaining a

longer holding period, the depositor earns higher interest rates.

There is no pre-termination of accounts in an SSDA because

the account is simply reverted to an ordinary savings status in

case of early or partial withdrawal or if the required holding

period is not met.

Based on the foregoing, the SSDA has all of the distinct features of a

certificate of deposit.

In International Exchange Bank v. Commissioner of Internal Revenue,  this

Court categorically ruled that a passbook representing an interest

earning deposit account issued by a bank qualifies as a certificate

of deposit drawing interest and should be subject to DST. The Court

added that "a document to be deemed a certificate of deposit requires no

specific form as long as there is some written memorandum that the

bank accepted a deposit of a sum of money from a depositor." 

DST is imposed on Certificates of Deposits Bearing Interest

including a special savings account evidenced by a passbook.

In Far East Bank and Trust Company v. Querimit,  the Court defined a

certificate of deposit is also defined as "a receipt issued by a bank for an

interest-bearing time deposit coming due at a specified future

date." 

NOTE: In this case, although it was ruled that SSDA is subject to DST, the

petitioner was adjudged not to pay DST since it was able to comply with

the Tax Amnesty requirement.

ANALYSIS:

Documentary stamp tax is a tax on documents, instruments, loan

agreements, and papers evidencing the acceptance, assignment,

sale or transfer of an obligation, right or property incident thereto. A

DST is actually an excise tax because it is imposed on the

transaction rather than on the document. A DST is also levied on the

exercise by persons of certain privileges conferred by law for the creation,

revision, or termination of specific legal relationships through the

execution of specific instruments. Hence, in imposing the DST, the Court

considers not only the document but also the nature and

character of the transaction.

FORT BONIFACIO DEVELOPMENT CORPORATION vs. CIR

G.R. Nos. 164155 & 175543. February 25, 2013

In 1992 Congress enacted RA 7227 creating the Bases Conversion

Development Authority (BCDA) for the purpose of raising funds

through the sale to private investors of military camps located in

bustling Metro Manila.

on February 3, 1995 the BCDA established the Fort Bonifacio to Fort

Bonifacio Development Corporation (FBDC) for the purpose of

enabling it to develop a 440-hectare area in Fort Bonifacio, Taguig

City, for mixed residential, commercial, business, institutional,

recreational, tourism, and other purposes. At the time of its incorporation,

FBDC was a wholly-owned subsidiary of BCDA.

On February 7, 1995 the Republic of the Philippines transferred by

land grant to FBDC, through Special Patent 3596, a 214-hectare

land in Fort Bonifacio. FBDC in turn executed a Promissory Note for

P71.2 billion plus in favor of the Republic.

On February 8, 1995 the Republic executed a Deed of Absolute Sale

with Quitclaim in favor of FBDC covering the same 214-hectare land

also for P71.2 billion.

On February 24, 1995, within the same month of the issuance of the

Special Patent and the execution of the deed of absolute sale, Congress

enacted R.A. 7917, declaring exempt from all forms of taxes the

proceeds of the Government sale of the Fort Bonifacio land.

On December 10, 1999 the Commissioner issued a Final Assessment

Notice to FBDC for deficiency documentary stamp tax of

P1,068,412,560.00 based on the Republic's 1995 sale to it of the Fort

Bonifacio land.

PETITIONER FBDC:

invoking R.A. 7917, which exempted the proceeds of the sale

of the Fort Bonifacio land from all forms of taxes.

During the pendency of these petitions or on December 17, 2004 the

FBDC filed a manifestation and motion informing the Court that the

disputed assessment had already been paid through a Special

Allotment Release Order issued by the Department of Budget and

Management (DBM) to BCDA for P1,189,121,947.00.

CTA:

while the Special Patent that the Republic issued to FBDC was exempt

from the payment of DST, the Deed of Absolute Sale that the

Republic subsequently executed in FBDC's favor covering the

same land is NOT EXEMPT

ISSUES:

1. Whether or not FBDC was liable for the payment of the DST and a 20%

delinquency interest on the Deed of Absolute Sale of the 214-hectare

Fort Bonifacio land that the Republic executed in FBDC's favor; and

2. Whether or not the case is already moot and academic by the fact of

payment of the DST assessment by BCDA.

RULING:

1. NO

The sale of Fort Bonifacio land was not a privilege but an obligation

imposed by law which was to sell lands in order to fulfill a public

purpose. To charge DST on a transaction which was basically a

compliance with a legislative mandate would go against its very nature as

an excise tax.

Republic's subsequent execution of a Deed of Absolute Sale cannot be

regarded as a separate transaction subject to the payment of

DST. The Republic's sale of the land to FBDC under the Special Patent was

a complete and valid sale that conveyed ownership of the land to the

buyer. 

In acknowledging that the Republic "has issued . . . a Special Patent which

will absolutely and irrevocably grant and convey" the legal title over the

land to FBDC, the Republic in effect admitted that the Deed of Absolute

Sale was only a formality, not a vehicle for conveying ownership,

that it thought essential for the issuance of an Original Certificate of Title

(OCT) covering the land.

2. No longer ruled upon

It would be useless to resolve the further issue of whether or not the

case has been rendered moot and academic by BCDA's payment of the

DST assessment.

ANALYSIS:

DST is by nature, an excise tax since it is levied on the exercise by

persons of privileges conferred by law. These privileges may cover

the creation, modification or termination of contractual

relationships by executing specific documents like deeds of sale,

mortgages, pledges, trust and issuance of shares of stock. 

Commissioner of Internal Revenue v. First Express Pawnshop Co., Inc.,

G.R. Nos. 172045-46, [June 16, 2009], 607 PHIL 227-251

Petitioner CIR issued assessment notices against First Express

Pawnshop Company, Inc. (respondent):

RESPONDENT FIRST EXPRESS PAWNSHOP:

no deficiency DST was due because Section 180 of theNational Internal

Revenue Code (Tax Code) does not cover any document or

transaction which relates to respondent.

PETITIONER CIR:

also cited BIR Ruling No. 221-91 which provides that pawnshop tickets

are subject to DST. 

ISSUE: WON respondent is liable to pay P12,328.45 as DST on “deposit

on subscription of capital stock”

RULING:

NO

The deposit on stock subscription as reflected in respondent's Balance

Sheet as of 1998 is not a subscription agreement subject to the

payment of DST. There is no P800,000 worth of subscribed capital stock

that is reflected in respondent's GIS. The deposit on stock subscription

is merely an amount of money received by a corporation with a

view of applying the same as payment for additional issuance of

shares in the future, an event which may or may not happen.

The person making a deposit on stock subscription does not have

the standing of a stockholder and he is not entitled to dividends,

voting rights or other prerogatives and attributes of a stockholder. Hence,

respondent is not liable for the payment of DST on its deposit on

subscription for the reason that there is yet no subscription that

creates rights and obligations between the subscriber and the

corporation.

In Section 175 of the Tax Code, DST is imposed on the original issue of

shares of stock. The DST, as an excise tax, is levied upon the privilege,

the opportunity and the facility of issuing shares of stock.

In Section 176 of the Tax Code, DST is imposed on the sales,

agreements to sell, memoranda of sales, deliveries or transfer of

shares or certificates of stock in any association, company, or

corporation, or transfer of such securities by assignment in blank, or by

delivery, or by any paper or agreement, or memorandum or other

evidences of transfer or sale whether entitling the holder in any manner to

the benefit of such certificates of stock, or to secure the future payment of

money, or for the future transfer of certificates of stock.

ANALYSIS:

DST is a tax on documents, instruments, loan agreements, and papers

evidencing the acceptance, assignment, sale or transfer of an obligation,

right or property incident thereto. DST is actually an excise tax

because it is imposed on the transaction rather than on the

document.  DST is also levied on the exercise by persons of certain

privileges conferred by law for the creation, revision, or termination of

specific legal relationships through the execution of specific instruments.

CIR vs. MANILA BANKERS' LIFE INSURANCE CORPORATION

[G.R. No. 169103. March 16, 2011.]

Respondent Manila Bankers' Life Insurance Corporation is

engaged in the life insurance business. 

On December 14, 1999, petitioner issued a Preliminary Assessment

Notice against the respondent for the year 1997.

The respondent agreed to all the assessments issued against it except to

the amount of P2,351,680.90 representing deficiency documentary

stamp taxes on its policy premiums and penalties. 

The tax deficiency was computed by including the increases in the life

insurance coverage or the sum assured by some of respondent's

life insurance plans.

The amount of P818,919,000.00 comprises the increases in the sum

assured for the respondent's ordinary insurance —

the "Money Plus Plan" (P74,755,000.00), and

group insurance (P744,164,000.00). 

PETITIONER CIR:

Under the Money Plus Plan, since the documentary stamp tax

was affixed on the policy based only on the first period

premiums, then the succeeding premium payments should

likewise be subject to documentary stamp tax.

In the case of respondent's group insurance, petitioner concluded

that any additional member to the group of employees

should similarly be subjected to documentary stamp tax. 

ISSUE:

WON imposition of documentary stamp tax on increases in the coverage

or sum assured by existing life insurance policies, even without the

issuance of new policies is valid

RULING:

On Documentary Stamp Tax on the "Money Plus Plan": No but

because it renewed the policy

The availment of the option in the guaranteed continuity clause will

effectively renew the Money Plus Plan policy, which is indisputably

subject to the imposition of documentary stamp tax under Section 183 as

an insurance renewed upon the life of the insured.

The increase in the life insurance coverage was only corollary to

the new premium rate imposed based upon the insured's age at the

time the continuity clause was availed of. It was not automatic, was never

guaranteed, and was certainly neither definite nor determinable at the

time the policy was issued.

Therefore, the increases in the sum assured brought about by the

guaranteed continuity clause cannot be subject to documentary

stamp tax under Section 183 as insurance made upon the lives of

the insured.

However, it is clear from the text of the guaranteed continuity clause that

what the respondent was actually offering in its Money Plus Plan

was the option to renew the policy, after the expiration of its original

term. Consequently, the acceptance of this offer would give rise to the

renewal of the original policy.

Although the two cases(Lincoln) are similar in many ways, they must be

distinguished by the nature of the respective "clauses" in the life

insurance policies involved, where we note a major difference. In Lincoln,

the relevant clause is the "Automatic Increase Clause" which provided

for the automatic increase in the amount of life insurance coverage upon

the attainment of a certain age by the insured, without any need for

another contract. In the case at bar, the clause in contention is the

"Guaranteed Continuity Clause" in respondent's Money Plus Plan.

A simple reading of respondent's guaranteed continuity clause will

show that it is significantly different from the "automatic increase

clause" in Lincoln. The only things guaranteed in the respondent's

continuity clause were: the continuity of the policy until the stated expiry

date as long as the premiums were paid within the allowed time;

On Documentary Stamp Tax on Group Life Insurance: No but an

insurance is made

Everytime the respondent registers and attaches an Enrollment Card to an

existing master policy, it exercises its privilege to conduct its business of

insurance and this is patently subject to documentary stamp tax as

insurance made upon a life under Section 183.

In the case of a company group insurance plan, the premiums paid on the

issuance of the master policy cover only those employees enrolled at the

time such master policy was issued. When the employer hires additional

employees during the life of the policy, the additional employees may

be covered by the same group insurance already taken out

without any need for the issuance of a new policy.

Whenever a master policy admits of another member, another life is

insured and covered. This means that the respondent, by approving the

addition of another member to its existing master policy, is once more

exercising its privilege to conduct the business of insurance, because it is

yet again insuring a life.

IN CONCLUSION:

This Court would like to make it clear that the assessment for deficiency

documentary stamp tax is being upheld NOT because the additional

premium payments or an agreement to change the sum assured during

the effectivity of an insurance plan are subject to documentary stamp tax,

but because documentary stamp tax is levied on every document

which establishes that insurance was made or renewed upon a

life.

ANALYSIS:

This Court ruled that the increase in the sum assured brought about by

the "automatic increase" clause incorporated in Lincoln's Junior

Estate Builder Policy was still subject to documentary stamp tax,

notwithstanding that no new policy was issued, because the date of the

effectivity of the increase, as well as its amount, were already definite

and determinable at the time the policy was issued. As such, the

tax base under Section 183, which is "the amount fixed in the policy," is

"the figure written on its face and whatever increases will take effect in

the future by reason of the 'automatic increase clause. '" This Court added

that the automatic increase clause was "in the nature of a conditional

obligation under Article 1181, by which the increase of the insurance

coverage shall depend upon the happening of the event which constitutes

the obligation." 

Documentary stamp tax is levied on the exercise of certain

privileges granted by law for the creation, revision, or termination of

specific legal relationships through the execution of specific instruments.

Examples of these privileges, the exercise of which are subject to

documentary stamp tax, are leases of lands, mortgages, pledges, trusts

and conveyances of real property. Documentary stamp tax is thus

imposed on the exercise of these privileges through the execution

of specific instruments, independently of the legal status of the

transactions giving rise thereto. The documentary stamp tax must be

paid upon the issuance of these instruments, without regard to

whether the contracts which gave rise to them are rescissible,

void, voidable, or unenforceable. 

H. TAMBUNTING PAWNSHOP, INC. vs CIR

G.R. No. 171138, April 7, 2009

A Pre-Assessment Notice issued by the CIR (CIR) against H.

Tambunting Pawnshop, Inc. (Tambunting) for, among others,

deficiency documentary stamp tax (DST) of P50,910.

Petitioner TAMBUNTING:

further contends that the DST is imposed on the documents issued, not

the transactions so had or accomplished. It insists that the document to

be taxed under the transaction contemplated should be the pledge

agreement, if any is issued, not the pawn ticket.

Respondent CIR:

further argues that the pawn ticket is the pledge contract itself and

thus, it is subject to documentary stamp tax.

ISSUE:

WON Tambunting liable for documentary stamp taxes based on the pawn

tickets that it issued

RULING: YES

The law imposes DST on documents issued in respect of the

specified transactions, such as pledge, and not only on papers

evidencing indebtedness. Therefore, a pawn ticket, being issued in

respect of a pledge transaction, is subject to documentary stamp

tax.

True, the pawn ticket is neither a security nor a printed evidence of

indebtedness. But, precisely being a receipt for a pawn, it documents

the pledge. 

A pledge is an accessory, real and unilateral contract by virtue of

which the debtor or a third person delivers to the creditor or to a

third person movable property as security for the performance of the

principal obligation, upon fulfillment of which the thing pledged, with all

its accessions and accessories, shall be returned to the debtor or to the

third person. The pawn ticket is required to contain the same

essential information that would be found in a pledge

agreement. Only the nomenclature of the requirements in the pawn

ticket is changed to refer to the specific kind of pledge transactions

undertaken by pawnshops. The property or thing pledged is referred

to as the pawn, the creditor (pledgee) is referred to as the pawneeand

the debtor (pledgor) is referred to as the pawner.

ANALYSIS:

SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments

and Papers. Upon documents, instruments, loan agreements and

papers, and upon acceptances, assignments, sales and transfers

of the obligation, right or property incident thereto, there shall be

levied, collected and paid for, and in respect of the transaction so

had or accomplished, the corresponding documentary stamp taxes

prescribed in the following Sections (Emphasis supplied.)

SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. On

every mortgage or pledge of lands, estate, or property, real or personal,

heritable or movable, whatsoever, where the same shall be made as a

security for the payment of any definite and certain sum of money lent at

the time or previously due and owing or forborne to be paid, being

payable, and on any conveyance of land, estate, or property whatsoever,

in trust or to be sold, or otherwise converted into money which shall be

and intended only as security, either by express stipulation or

otherwise, there shall be collected a documentary stamp tax 

CIR vs LINCOLN PHILIPPINE LIFE INSURANCE COMPANY

[G.R. No. 119176. March 19, 2002]

RESPONDENT Lincoln Philippine Life Insurance Co., Inc., (now

Jardine-CMA Life Insurance Company, Inc.) is engaged in life insurance

business. In the years prior to 1984, private respondent issued a special

kind of life insurance policy known as the Junior Estate Builder Policy,

the distinguishing feature of which is a clause providing for an

automatic increase in the amount of life insurance coverage upon

attainment of a certain age by the insured without the need of

issuing a new policy. Documentary stamp taxes due on the policy were

paid by petitioner only on the initial sum assured.

Subsequently, petitioner issued deficiency documentary stamps tax

assessment for the year 1984 in the amounts of (a) P464,898.75,

corresponding to the amount of automatic increase of the sum

assured on the policy issued by respondent,

ISSUE: WON Lincoln is liable to pay the deficiency of DST when it did not

include the amount of the automatic increase of the sum assured?

RULING: YES

Although the automatic increase in the amount of life insurance coverage

was to take effect later on, the date of its effectivity, as well as the

amount of the increase, was already definite at the time of the

issuance of the policy. Thus, the amount insured by the policy at the

time of its issuance necessarily included the additional sum covered by

the automatic increase clause because it was already determinable at

the time the transaction was entered into and formed part of the

policy.

From Section 173 that the payment of documentary stamp taxes is

done at the time the act is done or transaction had and the tax

base for the computation of documentary stamp taxes on life insurance

policies under Section 183 is the amount fixed in policy, unless the

interest of a person insured is susceptible of exact pecuniary

measurement.[7] What then is the amount fixed in the policy? Logically, we

believe that the amount fixed in the policy is the figure written on

its face and whatever increases will take effect in the future by

reason of the automatic increase clause embodied in the policy

without the need of another contract.

INTERNATIONAL EXCHANGE BANK vs CIR

G.R. No. 171266, April 4, 2007

On January 6, 2000, petitioner was personally served with an

undated Pre-Assessment Notice (PAN) assessing it of deficiency

on its purchases of securities from the Bangko Sentral ng Pilipinas or

Government Securities Purchased-Reverse Repurchase Agreement (RRPA)

and its FSD for the taxable years 1996 and 1997.

On January 12, 2000, petitioner received a Formal Assessment

Notice (FAN) for deficiency DST on its RRPA and FSD, including

surcharges, in the amounts of P25,180,492.15 for 1996

and P75,383,751.55 for 1997, and an accompanying demand

letter requesting payment thereof within 30 days.

PETITIONER INT’L EXCHANGE BANK:

It cannot be considered a certificate of deposit subject to

DST under Section 180 of the Tax Code for, unlike a certificate of

deposit which is a negotiable instrument, the passbook it

issued for its FSD was not payable to the order of the depositor

or to some other person as the deposit could only be withdrawn

by the depositor or by a duly authorized representative.

Regular savings account not subject to tax

ISSUE:

Is a Savings Account-Fixed Savings Deposit (FSD) evidenced by a

passbook issued by International Exchange Bank (petitioner) subject to

documentary stamp tax (DST) for the years 1996 and 1997

RULING: YES

The FSD, like a time deposit, provides for a higher interest rate when

the deposit is not withdrawn within the required fixed period; otherwise, it

earns interest pertaining to a regular savings deposit. Having a fixed

term and the reduction of interest rates in case of pre-

termination are essential features of a time deposit. 

A regular savings account with a passbook which is withdrawable at

any time is NOT subject to DST, unlike a time deposit which is payable

on a fixed maturity date and subject to DST.

A passbook representing an interest earning deposit account issued

by a bank qualifies as a certificate of deposit drawing interest.

 

A document to be deemed a certificate of deposit requires no specific

form as long as there is some written memorandum that the bank

accepted a deposit of a sum of money from a depositor. What is

important and controlling is the nature or meaning conveyed by the

passbook and not the particular label or nomenclature attached to it,

inasmuch as substance, not form, is paramount.

A certificate of deposit may or may not be negotiable as gathered

from the use of the conjunction or, instead of and, in its definition. A

certificate of deposit may be payable to the depositor, to the order of the

depositor, or to some other person or his order.

If at all, the further amendment was intended to eliminate precisely

the scheme used by banks of issuing passbooks to cloak its time

deposits as regular savings deposits.

ANALYSIS:

Section 180 of the Tax Code, as amended by R.A. 7660, which reads:

SEC. 180. Stamp tax on all loan agreements, promissory notes, bills of

exchange, drafts, instruments and securities issued by the government or

any of its instrumentalities, certificates of deposit bearing interest and

others not payable on sight or demand. - On all loan agreements signed

abroad wherein the object of the contract is located or used in the

Philippines; bills of exchange (between points within the Philippines),

drafts, instruments and securities issued by the Government or any of its

instrumentalities or certificates of deposits drawing interest, or

orders for the payment of any sum of money otherwise than at sight or on

demand, or on all promissory notes, whether negotiable or non-

negotiable, except bank notes issued for circulation, and on each renewal

of any such note,

PHILIPPINE HEALTH CARE PROVIDERS, INC. vs CIR

G.R. No. 167330, June 12, 2008

Petitioner is a domestic corporation whose primary purpose is [t]o

establish, maintain, conduct and operate a prepaid group practice

health care delivery system or a health maintenance organization

to take care of the sick and disabled persons enrolled in the health care

plan.

On January 27, 2000, respondent CIR sent petitioner a formal demand

letter and the corresponding assessment notices demanding the payment

of deficiency taxes.

The deficiency DST assessment was imposed on petitioners health

care agreement with the members of its health care program pursuant

to Section 185 of the 1997 Tax Code

PETITIONER Philippine Healthcare:

its health care agreement is not a contract of insurance but a

contract for the provision on a prepaid basis of medical services,

including medical check-up, that are not based on loss or

damage.

It is a health maintenance organization regulated by the

Department of Health, not an insurance company under

the jurisdiction of the Insurance Commission.

For these reasons, petitioner asserts that the health care

agreement is not subject to DST.

ISSUE:

Is a health care agreement in the nature of an insurance contract and

therefore subject to the documentary stamp tax (DST) imposed under

Section 185 of Republic Act 8424 (Tax Code of 1997)?

RULING: Yes, a non-life insurance policy thus subject to DST

Petitioners health care agreement is primarily a contract of indemnity.

And in the recent case of Blue Cross Healthcare, Inc. v. Olivares, this Court

ruled that a health care agreement is in the nature of a non-life

insurance policy.

Petitioner assumes the risk of paying for the costs of the services even if

they are significantly and substantially more than what the member has

prepaid. Petitioner does not bear the costs alone but distributes or

spreads them out among a large group of persons bearing a

similar risk, that is, among all the other members of the health care

program. This is insurance.

Moreover, DST is not a tax on the business transacted but an

excise on the privilege, opportunity, or facility offered at exchanges

for the transaction of the business.  It is an excise on the facilities

used in the transaction of the business, separate and apart from the

business itself.

In particular, the DST under Section 185 of the 1997 Tax Code is

imposed on the privilege of making or renewing any policy of

insurance (except life, marine, inland and fire insurance), bond or

obligation in the nature of indemnity for loss, damage, or liability.

ANALYSIS:

It is also incorrect to say that the health care agreement is not based on

loss or damage because, under the said agreement, petitioner assumes

the liability and indemnifies its member for hospital, medical and

related expenses (such as professional fees of physicians). The term

loss or damage is broad enough to cover the monetary expense or

liability a member will incur in case of illness or injury.

Under the health care agreement, the rendition of hospital, medical

and professional services to the member in case of sickness, injury or

emergency or his availment of so-called out-patient services is the

contingent event which gives rise to liability on the part of the

member.

 The insurable interest of every member of petitioners health care

program in obtaining the health care agreement is his own health.

Under the agreement, petitioner is bound to indemnify any member

who incurs hospital, medical or any other expense arising from

sickness, injury or other stipulated contingency to the extent agreed upon

under the contract.

MICHEL J. LHUILLIER PAWNSHOP, INC vs CIR (RESOLUTION)

G.R. No. 166786, September 11, 2006

This resolves petitioners motion for reconsideration of the May 3, 2006

Decision of the Court holding that contracts of pledge entered into by

pawnshops are subject to (DST). We ruled therein that DST is

essentially an excise tax; it is not an imposition on the document itself but

on the privilege to enter into a taxable transaction of pledge.

The gist of the motion for reconsideration:

it is indispensable that the transaction must be embodied in

and evidenced by a document. Since a pawn ticket as defined

in (P.D.) No. 114 or the Pawnshop Regulation Act is merely the

pawnbrokers receipt for a pawn and not a security nor a

printed evidence of indebtedness.

it cannot be made to pay surcharges and interest because

it acted in good faith and the confusion as to whether it is liable

to pay DST is partly attributable to the divergent rulings of the

Bureau of Internal Revenue (BIR) on the matter.

ISSUES:

1. WON liable for DST

2. WON liable for interest and surcharge?

RULING:

1. YES

The entries contained in a pawnshop ticket spell out a contract of

pledge and that the exercise of the privilege to conclude such a contract

is taxable under Section 195 of the NIRC.

Section 195 of the National Internal Revenue Code (NIRC) imposes a DST

on every   pledge regardless of whether the same is a conventional

pledge governed by the Civil Code or one that is governed by the

provisions of P.D. No. 114. All pledges are subject to DST, unless

there is a law exempting them in clear and categorical language. 

For purposes of Section 195, pawnshop tickets need not be an

evidence of indebtedness nor a debt instrument because it taxes

the same as a pledge instrument. Neither should the definition of

pawnshop ticket, as not a security, exempt it from the imposition of

DST. It was correctly defined as such because the ticket itself is not the

security but the pawn or the personal property pledged to the

pawnbroker.

Moreover, it should be pointed out that the provisions of the NIRC on DST

has recently been amended by R.A. No. 9243. Among the highlights

thereof were the amendments to Section 199,[  which incorporated 12

more categories of documents in addition to the initial two categories

exempted from DST. As stated in our May 3, 2006 Decision, pawnshop

tickets is not one of them. Expressio unious est exclusion

alterius. The omission of pawnshop tickets only means that it is

not among the documents exempted from DST.

2. Not

Good faith and honest belief that one is not subject to tax on the basis

of previous interpretation of government agencies tasked to implement

the tax law, are sufficient justification to delete the imposition of

surcharges and interest.

9/13/15 4:52 PM