PDR Tax Forum 2016 Recent Court Decisions on Tax - Final

7/26/2019 PDR Tax Forum 2016 Recent Court Decisions on Tax - Final

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TAX LEGAL CONSULTING

SUPREME COURT DECISIONS


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INCOME TAX


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The obligation of the payor/employer to deduct andwithhold the related withholding tax arises at the

time the income was paid or accrued or recorded

as expense in the payors/employers books,

whichever comes first


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! One of the issues is whether ING Bank is liable for deficiency

withholding tax on accrued bonuses for the taxable years 1996and 1997.

! The accrued bonuses were recorded in ING Banks books as

expenses for taxable years 1996 and 1997, although no

withholding of tax was effected.

!

ING Bank asserts that the liability of the employer to withholdthe tax does not arise until such bonus is actually distributed.

Since the supposed bonuses were not distributed to the

officers and employees in 1996 and 1997 but were distributed

in the succeeding year when the amounts of the bonuses were

finally determined, ING Bank asserts that its duty as employerto withhold the tax during these taxable years did not arise.


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! The Supreme Court ruled that ING bank is liable for the

withholding tax on the bonuses since it claimed the same asexpenses in the year they were accrued.

! Under Section 72 (now Section 79) of the Tax Code, an

employer is required to deduct and pay the income tax on

compensation paid to its employees, either actually or

constructively.! Under Section 39 (now Section 35), deductions from gross

income are taken for the taxable year in which paid or

accrued or paid or incurred is dependent upon the method of

accounting income and expenses adopted by the taxpayer. If

the taxpayer is on cash basis, the expense is deductible in the

year it was paid, regardless of the year it was incurred. If he is

on the accrual method, he can deduct the expense upon

accrual thereof.


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! An expense is accrued and deducted for tax purposes when

(1) the obligation to pay is already fixed; (2) the amount can bedetermined with reasonable accuracy; and (3) it is already

knowable or the taxpayer can reasonably be expected to have

known at the closing of its books for the taxable year.

! Section 29(j) (now Section 34(K) provides that, as a condition

for deductibility of an expense, the tax required to be withheldon the amount paid or payable must be shown to have been

remitted to the BIR by the withholding agent.

! Reconciling the above provisions, the Supreme Court held that

the obligation of the payor/employer to deduct and withhold the

related withholding tax arises at the time the income was paidor accrued or recorded as an expense in the payors/

employers books, whichever comes first. (ING Bank v.Commissioner of Internal Revenue, G.R. No. 167679, July 22, 2015)


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In claims for excess and unutilized creditablewithholding tax, there is no basis in law or

jurisprudence to say that the BIR Form No. 2307 is

the only evidence to prove that the taxpayer did

not use the claimed creditable withholding tax topay for his/its tax liabilities


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! PNB offered as evidence the Income Tax to show that the

excess withholding tax payments were not used to settle its taxliabilities.

! The CTA denied the Motion for Reconsideration and insisted

that, to sufficiently prove that there was no utilization of the

creditable taxes withheld, PNB should have likewise presented

the Certificate of Creditable Tax Withheld at Source (BIRForms No. 2307)

! Supreme Court ruled that PNBs submitted evidence

sufficiently showed the non-utilization of the taxes withheld

subject of the refund.

!

In claims for excess and unutilized creditable withholding tax,the submission of BIR Forms 2307 is to prove the fact of

withholding of the excess creditable withholding tax being

claimed for refund.


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! The probative value of BIR Form 2307, which is basically a

statement showing the amount paid for the subject transactionand the amount of tax withheld therefrom, is to establish only

the fact of withholding of the claimed creditable withholding

tax. There is nothing in BIR Form No. 2307 which would

establish either utilization or non-utilization, as the case may

be, of the creditable withholding tax.

! PNB was able to establish, through the evidence it presented,

the non-use of the claimed creditable withholding taxes to

settle its tax liabilities, to reiterate: (1) Audited Financial

Statements; (2) ITR; (3) the testimony of accountant; and (4)

the Withholding Tax Remittance Returns (BIR Form 1606).(Philippine National Bank v. Commissioner of Internal Revenue, G.R. No.

206019, March 18, 2015)


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VALUE-ADDED TAX


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Rules on the determination of theprescriptive period for filing a tax refund or

credit of unutilized input VAT


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1.

An administrative claim must be filed with the CIR within

two years after the close of the taxable quarter whenthe zero-rated or effectively zero-rated sales were

made.

2.

The CIR has 120 days from the date of submission of

complete documents in support of the administrativeclaim within which to decide whether to grant a refund or

issue a tax credit certificate. The 120-day period may

extend beyond the two-year period from the filing of the

administrative claim if the claim is filed in the later part of

the two-year period. If the 120-day period expires withoutany decision from the CIR, then the administrative claim

may be considered to be denied by inaction.


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3.

A judicial claim must be filed with the CTA within 30 days

from the receipt of the CIRs decision denying theadministrative claim or from the expiration of the 120-

day period without any action from the CIR.

4.

All taxpayers, however, can rely on BIR Ruling No.

DA-489-03 from the time of its issuance on 10December 2003 up to its reversal by this Court in

Aichi on 6 October 2010, as an exception to the

mandatory and jurisdictional 120+30 day periods.(Cargill Philippines, Inc. v. CIR, G.R. No. 203774, March 11, 2015;

Commissioner of Internal Revenue v. Air Liquide, G.R. No. 210646,

July 29, 2015; Commissioner of Internal Revenue v. Toledo PowerCompany, G.R. No. 195175 & 199645, August 10, 2015;

Commissioner of Internal Revenue v. Toledo Power Company, G.R.

No. 196415 & 196451, December 2, 2015; Commissioner of Internal

Revenue v. Mirant Pagbilao Corporation, G.R. No. 180434, January

20, 2016.


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The 120-day period in a VAT refund is to bereckoned from the filing of the administrative

claim, not from the completion of supporting

documents after the filing of the administrative

claim.


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! Taxpayer filed its administrative claim for the refund of excess

and unused input VAT for the 2ndquarter of taxable year 2008on 28 December 2009. Counting 120+30 days, the taxpayer

should have elevated the same to the CTA on 27 May 2010.

The judicial claim was belatedly filed on 6 July 2010.

! Taxpayer argues that it filed its complete documents on 20

September 2010 and thus the 120-day period should be thencounted from the date.

! The Supreme Court disagreed. To allow petitioners allegations

to prevail would set a dangerous precedent, as the reckoning

period for the 120 days would be at the mercy of taxpayers.

They will then submit complete supporting documents even

after the two-year prescriptive period for filing an administrative

claim has lapsed. This is obviously not the intention of the law.


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In claims for VAT refund that were filed before June14, 2014, the 120 day period shall be counted not

from the filing of the administrative claim but from

the submission of complete documents as

determined by the taxpayer


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! Claims filed prior to June 14, 2014 (RMC 49-2003

prevailing rule)

1.

The CIR has 120 days from the date of submission of

complete documents to decide a claim for tax credit or

refund. Citing RMC No. 49-2003, from the date an

administrative claim for excess unutilized VAT is filed, a

taxpayer has 30 days within which to submit the

documentary requirements sufficient to support his claim.

2.

If in the course of the investigation and processing of the

claim, additional documents are required for the proper

determination of the legitimacy of the claim, the taxpayer-

claimants shall submit such documents within thirty (30)days from request of the investigating/processing office.

Notice, by way of a request from the tax collection

authority to produce the complete documents in these

cases, is essential.


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3.

Then, upon filing by the taxpayer of his complete

documents to support his application, or expiration of the

period given, the BIR has 120 days within which to decidethe claim for tax credit or refund.

4.

Should the taxpayer, on the date of filing, manifest that he

no longer wishes to submit any other additional

documents to complete his administrative claim, the 120-

day period allowed to the BIR begins to run from the dateof filing.

5.

In all cases, whatever documents a taxpayer intends to

file to support his claim must be completed within the 2-

year period under Section 112(A) of the NIRC.

6.

The 30-day period from denial of the claim or from the

expiration of the 120-day period within which to appeal

the denial or inaction of the BIR to the CTA must be

respected.


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! June 14, 2014 to present (RMC 54-2014 prevailing rule)

1.

As it now stands, RMC 54-2014 dated June 11, 2014

mandates that the application for VAT refund/tax credit

must be accompanied by complete supporting

documents.

2.

Under the current rule, the reckoning of the 120-day

period has been withdrawn from the taxpayer by RMC

54-2014, since it requires him at the time he files his claim

to complete his supporting documents and attest that he

will no longer submit any other document to prove his

claim. Further, the taxpayer is barred from submitting

additional documents after he has filed his administrativeclaim. Thus, the 120-day has to be counted from the filing

of the administrative claim. (Pilipinas Total Gas v.Commissioner of Internal Revenue, G.R. No. 207112, December 8,

2015)


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The failure of the taxpayer to submit all

relevant documents set out in RMO No.

53-98 is not fatal to its claim for refund or

tax credit of unutilized input VAT


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! The CIRs reliance on RMO 53-98 is misplaced. There is

nothing in Section 112 of the NIRC, RR 3-88 or RMO 53-98itself that requires submission of the complete documents

enumerated in RMO 53-98 for a grant of a refund or credit of

input VAT. The subject of RMO 53-98 states that it is a

Checklist of Documents to be Submitted by a Taxpayer upon

Audit of his Tax Liabilities x x x.! Even assuming that RMO 53-98 applies, it specifically states

that some documents are required to be submitted by the

taxpayer if applicable. If the taxpayer indeed failed to submit

the complete documents in support of its application, the CIR

could have informed the taxpayer of its failure. In this case, the

CIR did not inform the taxpayer of the document it failed to

submit, even up to the present petition. (Commissioner of InternalRevenue v. Toledo Power Company, G.R. No. 196415 & 196451, December

2, 2015; Pilipinas Total Gas v. Commissioner of Internal Revenue, G.R.

No. 207112, December 8, 2015)


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For purposes of determining when the

support ing documents have been

completed it is the taxpayer who

ultimately determines when completedocuments have been submitted for the

purpose of commencing and continuing therunning of the 120-day period.


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! To allow the CIR to determine the completeness of the

documents submitted and, thus, dictate the running of the 120-day period, would undermine these objectives, as it would

provide the CIR the unbridled power to indefinitely delay the

administrative claim, which would ultimately prevent the filing

of a judicial claim with the CTA.

!

Whether these documents are actually complete as requiredby law is for the CIR and the courts to determine.

! The benefit given to the taxpayer to determine when it should

complete its submission of documents is not unbridled.

! Under RMC No. 49-2003, if in the course of the investigation

and processing of the claim, additional documents are required

for the proper determination of the legitimacy of the claim, the

taxpayer-claimants shall submit such documents within thirty

(30) days from request of the investigating/processing office.


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! Under Section 112(A) of the NIRC, a taxpayer has two (2)

years, after the close of the taxable quarter when the saleswere made, to apply for the issuance of a tax credit certificate

or refund of creditable input tax due or paid attributable to such

sales. Thus, before the adminstrative claim is barred by

prescription, the taxpayer must be able to submit his complete

documents in support of the application filed. (Pilipinas Total Gasv. Commissioner of Internal Revenue, G.R. No. 207112, December 8, 2015)


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A distinction must, thus, be made betweenadministrative cases appealed due to

inaction and those dismissed at theadministrative level due to the failure of the

taxpayer to submit supporting documents


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If the administrative claim

was dismissed by the CIR

due to the taxpayersfailure to submit complete

documents despite notice/

request

If the judicial claim is an

appeal of an unsuccessful

administrative claim

If the judicial claim is an

appeal due to inaction of

the BIR

The judicial claim before the

CTA would be dismissible,

not for lack of jurisdiction, butfor the taxpayers failure to

substantiate the claim at the

administrative level.

T h e t a x p a y e r h a s t o

convince the CTA that the

CIR had no reason to denyits claim. It, thus, becomes

imperative for the taxpayer to

show the CTA that not only is

he entitled under substantive

law to his claim for refund or

tax credit, but also that he

satisfied all the documentary

and evidentiary requirements

for an administrative claim.

The CTA may give credence

to all evidence presented by

the taxpayer, including thosethat may not have been

submitted to the CIR as the

case is being essentially

decided in the first instance.

The taxpayer must prove

every minute aspect of its

case by presenting and

formally offering its evidence

to the CTA, which must

necessarily include whatever

i s r e q u i r e d f o r t h e

administrative claim


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! Thus, in case of claims dismissed at the administrative level

due to the failure of the taxpayer to submit supportingdocuments, it is, thus, crucial for a taxpayer in a judicial claim

for refund or tax credit to show that its administrative claim

should have been granted in the first place.

! Consequently, a taxpayer cannot cure its failure to submit a

document requested by the BIR at the administrative level byfiling the said document before the CTA. (Pilipinas Total Gas v.

Commissioner of Internal Revenue, G.R. No. 207112, December 8, 2015)


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The absence and non-printing of the word

zero-rated in the taxpayers invoices is

fatal to the claim for refund or tax credit of

unutilized input VAT


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! An applicant for a claim for tax refund or tax credit must

not only prove entitlement to the claim but alsocompliance with all the documentary and evidentiary

requirements

! A claim for the refund of creditable input taxes must be

evidenced by a VAT invoice or official receipt inaccordance with the invoicing requirements.

! The failure to indicate the words zero-rated on the

invoices and receipts issued by a taxpayer would result

in the denial of the claim for refund or tax credit. (E!"#$%&($)$*+,,-&.*!/+&" 01.).22.&$" 34 5+,,."".+&$% +6 7$%&!) 8$3$&-$9 *+,+ -)+

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DOCUMENTARY STAMP TAX


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The transfer of real property to a surviving

corporation pursuant to a merger is not

subject to Documentary Stamp Tax (DST)


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! The BIR argues that DST is levied on the exercise of the privilege to

convey real property regardless of the manner of conveyance .! The Supreme Court ruled that the taxpayer is not liable for DST as

the transfer of real properties from the absorbed corporations to

respondent was pursuant to a merger.

! Section 196 of the NIRC does not include the transfer of real

property from one corporation to another pursuant to a merger. Itpertains only to sale transactions where real property is conveyed to

a purchaser for a consideration. The phrase granted, assigned,

transferred or otherwise conveyed is qualified by the word sold

which means that documentary stamp tax under Section 196 is

imposed on the transfer of realty by way of sale and does not apply

to all conveyances of real property.


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! In a merger, the real properties are not deemed sold to the

surviving corporation and the latter could not be considered aspurchaser of realty since the real properties subject of the merger

were merely absorbed by the surviving corporation by operation of

law and these properties are deemed automatically transferred to

and vested in the surviving corporation without further act or deed.

Therefore, the transfer of real properties to the surviving corporation

in pursuance of a merger is not subject to documentary stamp tax.(Commissioner of Internal Revenue v. La Tondena Distillers, G.R. No. 175188,

July 15, 2015)


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EXCISE TAX


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Petroleum companies are entitled to refundor credit of excise taxes erroneously paid

on its purchase of petroleum products sold

to ecozone enterprises


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! Chevron sold and delivered petroleum products to Clark

Development Corporation (CDC). Chevron did not pass on to CDCthe excise taxes paid on the importation of petroleum products.

Hence, it filed a claim for tax refund.

! The Supreme Court held that Chevron is entitled to refund based on

Section 135(c) of the NIRC. Section 135(c) provides that petroleumproducts sold to entities which are by law exempt from direct

and indirect taxes are exempt from excise tax.

! CDC has been exempt from paying direct and indirect taxes

pursuant to the Special Economic Zone Act of 1995.


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! Excise Tax imposed on petroleum products is a tax on property.

Section 135 should be construed as an exemption on the petroleum

products on which the excise tax was levied upon.

! It is the statutory taxpayer, not the party who only bears the

economic burden, who is entitled to claim the tax refund or tax

credit. However, this rule does not apply where the law grants the

party (to whom the economic burden of the tax is shifted) an

exemption from both direct and indirect taxes. Such party may

claim the refund or tax credit even if it is not the statutory taxpayer.

The general rule applied in the case because Chevron did not pass

on the excise taxes. (51$3%+& 01.).22.&$" 34 5+,,."".+&$% +6 7$%&!) 8$3$&-$2 *+,+-)+ 6.7/092 :&; .2 67.18


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Petroleum companies are entitled to refund orcredit of excise taxes erroneously paid on its

purchase of petroleum products sold to

international carriers


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! Pilipinas Shell sold and delivered petroleum products to various

international carriers and Philippines or foreign registry for their useoutside the Philippines, net of excise tax. Hence, it filed claims for

the refund or credit of the excise taxes paid.

! The Supreme Court granted Shells claim as its petroleum productsare exempt from excise tax under Section 135(a) of the NIRC.

!

The Court applied its ruling in Commissioner of Internal Revenue v.Pilipinas Shell Petroleum Corporation, G.R. No. 188497, February

19, 2014 (which reversed the earlier April 25, 2012 decision)

! Section 135(a) of the NIRC provides that petroleum products sold to

international carriers of Philippine or foreign registry on their use or

consumption outside the Philippines are exempt from excise tax.(Commissioner of Internal Revenue v. Pilipinas Shell, G.R. No. 180402, February10, 2016)


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TAX REMEDIES


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A waiver of the statute of limitations thatdoes not comply with the requisites for its

validity specified under RMO No. 20-90 and

RDAO 01-05 is generally invalid, but may

still be valid due to peculiar circumstances


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! 5 waivers were executed. The CTA found the following defects: (1)

they were executed without a notarized board authority; (2) thedates of acceptance by the BIR were not indicated therein; and (3)

the fact of receipt by respondent of its copy of the Second Waiver

was not indicated on the face of the original Second Waiver.

! The Supreme Court ruled that the general rule is that a waiver of thestatute of limitations that does not comply with the requisites for its

validity specified under RMO No. 20-90 and RDAO 01-05 is

generally invalid and ineffective to extend the prescriptive period to

assess taxes. However, due to peculiar circumstances and as

exception to the general rule, the supposedly invalid waivers may be

considered valid for the following reasons:


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1.

If the parties are in pari delictoor in equal fault and thus they shall

have no action against each other. Taxpayer violated violated RMONo. 20-90 which states that in case of a corporate taxpayer, the

waiver must be signed by its responsible officials and RDAO 01-05

which requires the presentation of a written and notarized authority

to the BIR. Similarly, BIR violates its own rules when it did not

ensure that the waiver is duly signed by an authorized

representative and by not ensuring that the delegation of authority

is in writing and duly notarized.

2.

Parties who do not come to Court with clean hands cannot beallowed to benefit from their own wrongdoing. Taxpayer should not

be allowed to benefit from the flaws in its own waivers and

successfully insist on their invalidity in order to evade itsresponsibility to pay taxes.


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3.

Taxpayer is estopped from questioning the validity of its waivers.

The taxpayer executed 5 waivers and delivered them to the BIRand did not raise any objection against their validity until the BIR

assessed taxes against it. In its Letter Protest to the BIR,

respondent did not even question the validity of the Waivers or call

attention to their alleged defects.

4.

The Court cannot tolerate a highly suspicious situation. In thiscase, after the taxpayer voluntarily executing the waivers, insisted

on their invalidity by raising the very same defects it caused. On

the other hand, the BIR miserably failed to exact from the taxpayer

compliance with its rules. The BIRs negligence in the compliance

of its duties was so gross such that it seemed that it consented to

the mistakes in the waivers. Such a situation is dangerous andopen to abuse by unscrupulous taxpayers who intend to escape

their responsibility to pay taxes by mere expedient of hiding behind

technicalities.


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! The Supreme Court said that while the BIR was also at fault here

because it was careless in complying with the requirements of RMONo. 20-90 and RDAO 01-05, such negligence may be addressed by

enforcing the provisions imposing administrative liabilities upon the

officers responsible for these errors. The BIR's right to assess and

collect taxes should not be jeopardized merely because of the

mistakes and lapses of its officers, especially in cases like this

where the taxpayer is obviously in bad faith. (Commissioner of InternalRevenue v. Next Mobile, G.R. No. 212825, December 7, 2015)


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The courts have no assessment powers,and therefore, cannot issue assessments

against taxpayers


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! Taxpayers sale of electricity was found to be not zero-rated for

failure to present the Certificate of Compliance from the ERC.

!

The BIR sought to have the Supreme Court impose thedeficiency VAT on said sales.

! The Supreme Court ruled, citing the recent case of SMI-ED

Philippines v. Commissioner of Internal Revenue, G.R. No.

175410, November 12, 2014, offsetting is allowed if there is a

need for the court to determine if a taxpayer claiming refund of

erroneously paid taxes is more properly liable for taxes other

than that paid. The determination of the proper category of tax

that should have been paid is not an assessment but is an

incidental issue that must be resolved in order to determine

whether there should be a refund.

!

While offsetting is allowed, the BIR can no longer assess thetaxpayer for deficiency taxes in excess of the amount claimed

for refund if prescription has already set in.


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! Offsetting of taxes is allowed only if the determination of the

taxpayers liability is intertwined with the resolution of the claim

for tax refund of erroneously or illegally collected taxes underSection 229 of the NIRC.

! In this case, the taxpayer filed a claim for tax refund or credit

under Section 112 of the NIRC, where the issue to be resolved

is whether TPC is entitled to a refund or credit of its unutilizedinput VAT for the taxable year 2002. And since it is not a claim

for refund under Section 229 of the NIRC, the correctness of

TPCs VAT returns is not an issue. Thus, there is no need for

the court to determine whether TPC is liable for deficiency VAT.(Commissioner of Internal Revenue v. Toledo Power Company, G.R. No.

196415 & 196451, December 2, 2015)


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LOCAL TAXATION


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LGUs do not have the power to impose taxes onpersons or entities engaged in the business of

manufacturing and distribution of petroleum

products


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! The Batangas City Government denied Shells protest

and declared that the City Government has the power towithhold the issuance of the Mayors permit for failure of

Shell to pay business tax.

! Among the common limitations on the taxing powers of

LGUs provided under Section 133 of the LGC: Excisetaxes on articles enumerated under the National Internal

Revenue Code, as amended, and taxes, fees or

charges on petroleum products

! The prohibition with respect to petroleum products

extends not only to excise taxes thereon, but all taxes,

fees or charges.


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! On January 15, 2007, CBC protested, thru a Letter, the imposition of

business tax under Section 21 of the Manila Revenue Code on the

ground that it constitutes double taxation. The City Treasurer

acknowledged receipt of the letter but said the she will await the

formal protest. On March 27, 2007, CBC wrote a letter-reply

reiterating that CBC already protested. On April 17, 2007, CBC filed

a Petition for Review with RTC. On appeal, the CTA ruled that CBC

belatedly filed its petition with RTC by 1 day.

! CBC countered it timely filed now claiming that reckoning pointshould be from March 27, 2007

! The Supreme Court ruled that the period within which the City

Treasurer must act on the protest, and the consequent period to

appeal a denial due to inaction, should be reckoned from January

15, 2007, the date CBC filed its protest, and not March 27, 2007.


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! Section 195 of the Local Government Code states that the taxpayer

shall have thirty (30) days from the receipt of the denial of the

protest or from the lapse of the sixty (60)-day period prescribed

herein within which to appeal with the court of competent jurisdiction

otherwise the assessment becomes conclusive and unappealable.

! At any rate, the RTC has no jurisdiction. Following R.A. No. 9282,the authority to exercise either original or appellate jurisdiction over

local tax cases depended on the amount of the claim. In cases

where the amount sought to be refunded is below the jurisdictional

amount of the RTC, the Metropolitan, Municipal, and Municipal

Circuit Trial Courts have jurisdiction. RTC has jurisdiction if amount

does not exceed P200,000 (P400,000 in Metro Manila); MTC if

amount does not exceed P100,000 (P200,000 in Metro Manila).Amount here is P154,398.50 and, thus, MTC has jurisdiction (ChinaBanking Corporation v. City Treasurer of Manila, G.R. No. 204117, July 1, 2015)


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TARIFF AND CUSTOMS DUTIES


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Distinction between unlawful importation underSection 3601 of the Tariff and Customs Code

(TCCP) and various fraudulent practices against

customs revenue under Section 3602 of the TCCP


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Unlawful Importation (Outright

smuggling)

Fraudulent Practices

(Technical Smuggling)

Goods and articles of commerce are

brought into the country without the

required importation documents, or are

disposed of in the local market without

having been cleared by the BOC or other

authorized government agencies, to

evade the payment of correct taxes,

duties and other charges. Such goods

and articles do not undergo the

processing and clearing procedures at

the BOC, and are not declared through

submission of import documents, such

as the import entry and internal revenuedeclaration.

Goods and articles are brought into the

country through fraudulent, falsified or

erroneous declarations, to substantially

reduce, if not totally avoid, the payment

of correct taxes, duties and other

charges. Such goods and articles pass

through the BOC, but the processing and

clearing procedures are attended by

fraudulent acts in order to evade the

payment of correct taxes, duties, and

other charges. Often committed by

means of misclassification of the nature,

quality or value of goods and articles,undervaluation in terms of their price,

quality or weight, and misdeclaration of

their kind.

(Bureau of Customs v. Hon. Devanadera, G.R. No. 193253,

September 8, 2015)


60/144


JUDICIAL REMEDIES AND CTA

JURISDICTION


61/144


The proper remedy to assail a Revenue Regulationis a special civil action for declaratory relief under

Rule 63 of the Rules of Court filed with the

Regional Trial Court, not a special civil action for

certiorari under Rule 65


62/144


! Taxpayer filed with the Supreme Court a petition for certiorari

assailing RR No. 2-2012, which imposes VAT and excise tax on the

importation of petroleum products from abroad into the Freeport or

economic zones.

! The Supreme Court dismissed the petition for being an improperremedy.

!

A petition for certiorari under Rule 65 of the 1997 Rules of CivilProcedure, as amended, is a special civil action that may be invoked

only against a tribunal,board, or officer exercising judicial or quasi-

judicial functions.

! RR 2-2012 was issued in the exercise of the quasi-legislative or

rule-making powers of the Secretary of Finance, and not judicial or

quasi-judicial functions. Being quasi-legislative in nature, RR 2-2012

is outside the scope of a petition for certiorari.


63/144


! The proper remedy is one for declaratory relief over which the

Supreme Court has only appellate, not original jurisdiction.

! Under Rule 63 of the Rules of Court, t(- #?-6$). 6$D$. )62,* ,CB-6.)5)%,54 5-.$-C C)..# "*B-5 %(- -F6."#$D- M"5$#B$62,* ,C %(- S-E$,*). '5$).

3,"5%#G

! Although the Supreme Court, the Court of Appeals and the Regional

Trial Courts have concurrent jurisdiction to issue writs of certiorari,prohibition, mandamus, quo warranto, habeas corpus and

injunction, such concurrence does not give the taxpayer unrestricted

freedom of choice of court forum. (Clark Investors and LocatorsAssociation v. Secretary of Finance, G.R. No. 200670, July 6, 2015)


64/144


The CTA is a court of special jurisdiction, withpower to review by appeal decisions involving tax

disputes rendered by either the CIR or the COC.

Conversely, it has no jurisdiction to determine the

validity of a ruling issued by the CIR or the COC inthe exercise of their quasi-legislative powers tointerpret tax laws


65/144


! Petron imported alkylate, a blending component, and paid VAT.

!

Based on the Final Computation, the said importation was subjectedto excise taxes pursuant to CMC No. 164-2012 which states that

alkylate is a product of distillation and is thus subject to excise tax

! Petron filed a Petition for Review with the CTA.

! The BIR questioned the jurisdiction of the CTA. The BIR argued that

the interpretation in CMC No. 164-2012 is an exercise of quasi-legislative function, which is reviewable by the Secretary of Finance

and then appealable to the Office of President and ultimately to the

regular courts.

! The Supreme Court ruled that the CTA has no jurisdiction to

determine the validity of a ruling issued by the CIR or the COC in theexercise of their quasi-legislative powers to interpret tax laws.


66/144


! The phrase "other matters arising under this Code," as stated in the

second paragraph of Section 4 of the NIRC, should be understood

as pertaining to those matters directly related to the preceding

phrase "disputed assessments, refunds of internal revenue taxes,

fees or other charges, penalties imposed in relation thereto" and

must therefore not be taken in isolation to invoke the jurisdiction of

the CTA.

!

In other words, the subject phrase should be used only in referenceto cases that are, to begin with, subject to the exclusive appellate

jurisdiction of the CTA, i.e., those controversies over which the CIR

had exercised her quasi-judicial functions or her power to decide

disputed assessments, refunds or internal revenue taxes, fees or

other charges, penalties imposed in relation thereto, not to thosethat involved the CIR's exercise of quasi-legislative powers.


67/144


! Also, Petron prematurely invoked the jurisdiction of the CTA. Under

Section 7 of RA 1125, as amended by RA 9282, what is appealable

to the CTA is the decision of the COC over a customs collector's

adverse ruling on a taxpayer's protest.

! It should be stressed that the CTA has no jurisdiction to review byappeal, decisions of the customs collector. A party adversely

affected by a ruling or decision of the customs collector may protest

such ruling or decision upon payment of the amount due and, if

aggrieved by the action of the customs collector on the matter under

protest, may have the same reviewed by the COC. It is only after the

COC shall have made an adverse ruling on the matter may the

aggrieved party file an appeal to the CTA. (Commissioner of Internal

Revenue v. Court of Tax Appeals and Petron Corporation, G.R. No. 207843, July15, 2015)


68/144


The CTA en banc has jurisdiction over finalorders or judgments but not over

interlocutory orders issued by the CTA in

division.


69/144


! Petitioners counsel failed to appear in the Pre-Trial Conference and

thus the Respondent moved to have Petitioner declared in default.

The same was granted. Petitioner filed a Motion to Lift Order of

Default. CTA denied the Motion. CBK then filed a Motion for

Reconsideration, which was also denied. Petitioner then filed a

Petition for Certiorari with Supreme Court.

! The Court ruled that the CTA en banc has jurisdiction over finalorder or judgment but not over interlocutory orders issued by the

CTA in division.

! A final judgment or order is one that finally disposes of a case,

leaving nothing more to be done by the Court in respect thereto

while an order that does not finally dispose of the case is

interlocutory. An interlocutory order may not be questioned onappeal.


70/144


! The CTA in Division Order granting the respondent's motion to

declare petitioner as in default and allowing respondent to present

its evidence ex parte, is an interlocutory order as it did not finally

dispose of the case on the merits but will proceed for the reception

of the former's evidence to determine its entitlement to its judicial

claim for tax credit certificates.

! Note, however, that Petitioner was allowed by the Court, in theinterest of justice, to present her claims on the merits. The Court

noted that there was no intention to delay the case since Petitioner

filed its Pre-Trial Brief (Commissioner of Internal Revenue v. Court of TaxAppeals and CBK Power, G.R. No. 203054-55, July 29, 2015)


71/144


C'6D6="4 A('63:6


72/144


! The elementary rule is that the CA has jurisdiction to review the

resolution of the DOJ through a petition for certiorari under Rule 65

of the Rules of Court on the ground that the Secretary of Justice

committed grave abuse of his discretion amounting to excess or lack

of jurisdiction. However, with the enactment of Republic Act (RA) No.

9282 expanding the CTAs jurisdiction, it is no longer clear which

between the CA and the CTA has jurisdiction to review through a

petition for certiorari the DOJ resolution in preliminary investigationsinvolving tax and tariff offenses.

! The Supreme Court declared that the Court of Appeals originaljurisdiction over a petition for certiorariassailing the DOJ resolution

in a preliminary investigation involving tax and tariff offenses was

necessarily transferred to the CTA pursuant to Section 7 of RA No.9282, amending R.A. No. 1125. (Bureau of Customs v. Hon. Devanadera,G.R. No. 193253, September 8, 2015)


73/144


SIGNIFICANT DECISIONS OF THE

COURT OF APPEALS


74/144


INCOME TAX


75/144


!./


76/144


! The list of direct cost under RR No. 11-05 is not all-inclusive and

intended merely as a guide in determining the items that may be

considered for income tax deduction purposes.

! The criteria in determining whether the item of cost or expenseshould be part of direct cost is the direct relation of such item in the

rendition of the PEZA-registered services. If the item of cost or

expense can be directly attributed in providing the PEZA-registered

services, then it should be treated as direct cost.

! RR 11-05 provides that the following direct costs are included in the

allowable deductions to arrive at gross income earned xxx. The use

of the word included shows that the list it not meant to be exclusive(Netherlands) B.V. Philippine Branch vs. Commissioner of Internal Revenue,

CTA Case Nos. 8421 and 6561, May 21, 2015; Commissioner of Internal Revenuev. East Asia Utilities Corporation, CTA Case EB No. 1207, February 3, 2016)


77/144


P)1'&1/'42 "


78/144


! While the improperly accumulated earnings tax, as a rule, is

imposable on domestic corporations, the said tax may not be

imposed on the specifically enumerated corporations under Section

29(8)(2) of the NIRC of 1997 and Section 4 (a) to o(g) of RR No. 02-

01, one of which class includes "(e)nterprises duly registered with

the Philippine Economic Zone Authority (PEZA) under R.A. 7916".

! As regards enterprises duly registered with the Philippine Economic

Zone Authority (PEZA) under R.A. 7916, as among those fallingwithin the exceptions on the imposition of improperly accumulated

earnings tax, it is noted said Section 4(g) of RR No. 02- 01 does not

qualify whether or not the said corporation or enterprise enjoys an

ITH or the special tax regime at the rate of 5% on its registered

activities. (Commissioner of Internal Revenue v. Yumex Philippines, CTA EBNo. 1139, August 11, 2015)


79/144


VALUE-ADDED TAX


80/144


!./ ;"


81/144


! The taxpayer entered into an agreement with a non-resident entity

where the former shall distribute the latters software products. The

non-resident entity shall pay distribution fees to the taxpayer. In

another agreement, the non-resident entity granted the taxpayer the

right to grant to subscribers, non-exclusive, non-transferable

licenses, or access rights to the non-residents software products.

The taxpayer shall then pay to the non-resident entity software

payments (royalties).! The taxpayer filed a claim for refund of unutilized input taxes

attributable to its sale of services to a non-resident entity.

! The CTA ruled that that taxpayer failed to meet the third requisite

requisite for a zero-rated sale of service under Section 108(B)(2) in

that the recipient of the service must be doing business outside thePhilippines.


82/144


! The CTA held that since based on the monthly VAT remittance

returns, the taxpayer withholds VAT from the non-resident entity, the

latter is doing business in the Philippines. (Amadeus MarketingPhilippines vs. Commissioner of Internal Revenue, CTA Case No. 8628, January

25, 2016)


83/144


Filing of BIR Form No. 1914 is sufficientcompliance with the requirement for filing

an administrative refund claim


84/144


! The BIR argued the taxpayer is not entitled to the refund since it

only submitted BIR Form No. 1914 (Application for Tax Credits/

Refunds Form). According to the BIR, there must be a written claim

categorically demanding recovery of taxes.

! According to the Court, Section 112(A) of the NIRC does not requirea specific form for refund. BIR Form No. 1914 filed by the taxpayer

showing among others, the name of the taxpayer, the amount being

claimed for refund, tax type, period covered, reason for filing theclaim, printed name and signature of taxpayers representatives and

the receiving stamps constitute sufficient compliance because the

taxpayers intention to effect a claim for refund is clearly indicated

therein. (01.)4 :+); 0%+*$"".&< = 8$>&.&< 5+%24 34 5+,,."".+&$% +6 7$%&!) 8$3$&-$2 ?@A

?"B& -)+ /99C2 3"#45 692 67.18


85/144


DONORS TAX


86/144


Liability to pay donor's tax is with the donorand not with the donee.


87/144


! Toenec Japan infused additional paid-in capital in the amount of

P30,000,000.00 to Toenec Philippines. Teonec Philippines was

assessed for the payment of deficiency donors tax relative to the

capital infusion.

! Since Toenec Philippines is the entity that received theP30,000,000.00 cash, it is considered as the donee. The CTA then

ruled that, consequently, as the donee, Teonec Philippines is not

liable to pay donor's tax, pursuant to Section 98 of the NIRC of1997, as amended. The liability to pay donor's tax is not

transferable. The burden to pay the donor's tax is imposed upon the

donor and not upon the donee.

! Note that whether infusion of additional paid-in capital is a donation

was no longer addressed by the CTA. ((+$&$* 3"4 5789 5(? 5!"$ @+4ABCD2 D"'%"#E 6/2 67.98


88/144


TAX REMEDIES


89/144


Deficiency Interest may be imposed only on

income tax, donors tax and estate tax


90/144


! Section 249 of the NIRC of 1997 reads:

"SEC. 249. Interest.

(A) In General. - There shall be assessed and collected on any unpaid amount oftax, interest at the rate of twenty percent (20%) per annum, or such higher rate

as may be prescribed by the rules and regulations, from the date prescribed for

its payment until the amount is fully paid.

(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in

this Code, shall be subject to the interest prescribed in Subsection (A) hereof,which interest shall be assessed and collected from the date prescribed for its

payment until the full payment thereof.

(C) Delinquency Interest. - In case of failure to pay:

XXX XXX XXX

(3) A deficiency tax, or any surcharge or interest thereon on the due dateappearing in the notice and demand of the Commissioner, there shall be

assessed and collected on the unpaid amount, interest at the rate prescribed

in Subsection (A) hereof until the amount is fully paid, which interest shall

form part of the tax." (Emphases supplied)


91/144


! Based on the foregoing Section 249(B), the "Deficiency Interest"

shall be imposed on [a]ny deficiency in the tax due, as term is

defined in this Code", i.e., as the term "deficiency" is defined in theNIRC of 1997.

! There are only three (3) instances where it defines the term"deficiency", and this relates only and respectively to three (3) types

of internal revenue taxes, namely, income tax, estate tax, and

donor's tax, pursuant to Sections 56(8), 93 and 104

! Thus, the deficiency interest under Section 249(8) should be applied

only whenever there is a deficiency income tax, a deficiency estate

tax, and a deficiency donor's tax. For this reason, in this case, with

the exception of the deficiency income tax, no deficiency under

Section 249(8) should be imposed on the deficiency VAT, deficiencyEWT, and deficiency WTC (Liquigaz Philippines Corporation v.Commissioner of Internal Revenue, CTA EB No. 1117 & CTA EB No. 1119,

September 21, 2015;Ace/Saatchi & Saatchi Advertising, Inc. v. Commissioner of

Internal Revenue,CTA Case No. 8439, December 9, 2015)


92/144


! Based on the foregoing Section 249(B), the "Deficiency Interest"

shall be imposed on [a]ny deficiency in the tax due, as term is

defined in this Code", i.e., as the term "deficiency" is defined in theNIRC of 1997.

! There are only three (3) instances where it defines the term"deficiency", and this relates only and respectively to three (3) types

of internal revenue taxes, namely, income tax, estate tax, and

donor's tax, pursuant to Sections 56(8), 93 and 104

! Thus, the deficiency interest under Section 249(8) should be applied

only whenever there is a deficiency income tax, a deficiency estate

tax, and a deficiency donor's tax. For this reason, in this case, with

the exception of the deficiency income tax, no deficiency under

Section 249(8) should be imposed on the deficiency VAT, deficiencyEWT, and deficiency WTC (Liquigaz Philippines Corporation v.Commissioner of Internal Revenue, CTA EB No. 1117 & CTA EB No. 1119,

September 21, 2015;Ace/Saatchi & Saatchi Advertising, Inc. v. Commissioner of

Internal Revenue,CTA Case No. 8439, December 9, 2015)


93/144


! Note, however, that in a recent case, the 20% deficiency interest

was imposed on (1) withholding tax on compensation; (2) expanded

withholding tax; and (3) fringe benefit tax (Lourdes College v.Commissioner of Internal Revenue, CTA EB No. 1164, February 2, 2016)


94/144


Deficiency interest extends only up to thetime when the taxpayer is required to pay

the assessed after being informed thereof

while delinquency interest shall commence

from the time when the concerned taxpayer

failed to pay the assessed tax within the

time allowed as stated in the formal letter of

demand


95/144


Tax Code Provision CTA Ruling (based on illustrations in

RR 12-99)

Deficiency interest shall apply fromthe date prescribed for its payment

until the full payment thereof.

The imposition of deficiency interestunder Section 248(B) extends only

up to the time when the taxpayer isrequired to pay the assessed after

being informed thereof

Delinquency interest shall apply untilthe amount is fully paid in case of:

(1) Failure to pay the amount of taxdue on any return required to be filed;

(2) Failure to pay the amount of taxdue for which no return is required; or

(3) Failure to pay a deficiency tax orsurcharge or interest thereon onthe due date appearing on the

notice and demand of the CIR.

The imposition of the delinquencyinterest under Section 249(8) shall

commence from the time when theconcerned taxpayer failed to pay

the assessed tax within the timeallowed as stated in the formal

letterofdemand


96/144


! In other words, under this interpretation, the deficiency interest

would not accrue at the same that the delinquency interest begins to

accrue and therefore avoiding a 40% interest rate per annum.(Liquigaz Philippines Corporation v. Commissioner of Internal Revenue, CTA EB

No. 1117 & CTA EB No. 1119, September 21, 2015)


97/144


There must first be a grant of letter ofauthority before an officer can conduct an

examination or issue an assessment.


98/144


! Taxpayer was issued an assessment by the Bureau of Internal

Revenue, which was elevated to the CTA by the taxpayer. Upon the

cross examination of the revenue officer by the taxpayers counsel,the examiner admitted that there was no letter of authority (LOA)

issued by the BIR for the examination of the taxpayer that gave rise

to the issuance of the assessment.

! The Court agreed with the taxpayer. Section 13 of the National

Internal Revenue Code of 1997 requires the issuance of LOA. Thus,the assessment in the instant case is void having been issued

without LOA. (Cebu Mitsumi, Inc. vs. Commissioner of Internal Revenue, CTACase No. 8531, May 21, 2015)


99/144


A letter of authority and the resultingassessment issued by the region to a

taxpayer who was transferred from the

region to the jurisdiction of the LTS is not

valid.


100/144


! Taxpayer was informed that it was transferred from the jurisdiction of

the region to the large taxpayers service.

!

On March 7, 2007, the region issued a letter of authority (LOA)authorizing its revenue examiners to examine taxpayers books of

accounts and other accounting records for all internal revenue taxes

for the period June 1, 2005 to May 31, 2006.

! Taxpayer was informed that since it falls under the jurisdiction of the

LTS, all LOAs/Tax Verification Notices/Letter Notices issued/to be

issued after December 30, 2006 shall be issued by the LTS.

! Pursuant to the LOA issued on March 7, 2007 by the region,

taxpayer was issued an assessment for deficiency taxes.


101/144


! The CTA ruled that the TKN $##"-B ,* 0)56( 7/ 8997 B$B *,% ()D- )*4

C,56- )*B -U-6% ()D$*E A--* $##"-B I(-* %)F?)4-5 I)# ).5-)B4

%5)*#C-55-B %, %(- M"5$#B$62,* ,C %(- T'PG '("#/ I(-* %(- 5-E$,*

?5,6--B-B I$%( $%# )##-##@-*%/ $% B$B #, I$%(,"% %(- *-6-##)54 )"%(,5$%4G

VE&.3$%".#F +6 G!+ (+,!" H+"2.#!)9 7&*4 3"4 5+,,."".+&$% +6 7$%&!)

8$3$&-$/ 3'N 3)#- W,G X8Y8/ 0)56( 8/ 89:>Z


102/144


! . / Y / ) & ' " = : ( ) N / ; / ' ' " 4 7 Y N 9 & 'Y/)&'"=:() &; I336D=)/=0 7YCI9 )(30 ?/

36D=/: ?2 0./ N/D6&="4 E6'/


103/144


! When the conduct of an investigation/audit of a taxpayer is

transferred or reassigned, the BIR issues a document called a

Memorandum Referral (MR) or Memorandum of Assignment (MOA)which would state that the entire docket, relative to the investigation

of the taxpayer, has been referred to a new Revenue Officer.

! The MRs and MOAs are normally signed by Revenue DistrictOfficers. Revenue Officers invoke the same as their authority to

conduct an audit or investigation of cases reassigned to them.! The CTA ruled that a MR/MOA must be signed by the Regional

Director, and not the Revenue District Officer. A MR/MOA signed

only by the Regional Director is a contravention of the Tax Code

which specifically provides that the authority of a Revenue Officer

must be signed by the Revenue Regional Director. (StrawberryCorporation v. Commissioner of Internal Revenue, CTA Case No. 8569, January7, 2016)


104/144


!./ CZL!! H&)1(0"B&= [.//0 63 =&0 0./"33/33)/=0


105/144


! An assessment informs the taxpayer that he or she has tax

liabilities. Likewise, an assessment contains not only a computation

of tax liabilities, but also a demand for payment within a prescribedperiod".

! The ONETT Computation Sheet states the computation of taxliabilities which a taxpayer is required to pay. However, it does not

formally inform petitioner of its tax liabilities and there is no formal

demand to pay the same.! Therefore, the ONETT Computation Sheet is not the assessment

contemplated under Section 228 of the NIRC of 1997, as amended,

that would require a protest from the taxpayer. (Land Bank of thePhilippines v. Commissioner of Internal Revenue, CTA No. 8684, January 21,

2016)


106/144


P0 63 " '/Q(6'/)/=0 &; :(/ 1'&


107/144


! The rules provide that: The formal letter of demand and

assessment notice shall be issued by the Commissioner or his duly

authorized representative. The letter of demand calling for paymentof the taxpayer's deficiency tax or taxes shall state the facts, the law,

rules and regulations, or jurisprudence on which the assessment is

based, otherwise, the formal letter of demand and assessment

notice shall be void.

!

An assessment notice is "notice to the effect that the amount thereinstated is due as tax and a demand for payment thereof."

! In the said case, the CTA found that the statements in the FLD and

attached Details of Discrepancies do not amount to an assessment

notice as there was no mention of a definite time when payment was

due and demandable. Since there was no demand to pay within aspecified period of time to be found in the FLD and the attached

Details of Discrepancies, the issuance of the same did not amount

to a FAN. (Derek Arthur P. Ramsay vs. Commissioner of Internal Revenue,CTA Case No. 8456, September 17, 2015)


108/144


The issuance of a Formal Letter of Demandand Assessment Notices before the lapse

of the 15-day period for the taxpayer to

respond to the Preliminary Assessment

Notice does not violate the due process

requirement


109/144


! The CTA has held that failure to observe the 15-day period shall

render the assessment void (Commissioner of Internal Revenue v.

Hermano (San) Miguel Febres, CTA EB Case No. 1151, February 17, 2015;Polymer Products v. Commissioner of Internal Revenue, CTA EB Case No. 8299,

January 30, 2015)

! In one case, the CTA held that the issuance of the FLD and

Assessment Notices before the lapse of the 15-day period does not

violate the due process requirement under the law. This must be so

because the essence of due process in administrative proceedings

is the opportunity to explain ones side or seek a reconsideration of

the action or ruling complained of. In this case, the taxpayer was

given ample opportunity to explain its side or to contest the PAN and

the FLD. (Merial Philippines, Inc. vs. Commissioner of Internal Revenue, CTA

Case No. 8370, May 13, 2015)


110/144


! In a more recent case, the CTA held that fairness was ignored by the

BIR when it did not provide an opportunity on the part of the

taxpayer to contest the issued PAN within the 15-day period. Forlack of said opportunity, there was a violation of respondent's right to

due process. (Commissioner of Internal Revenue v. Yumex Philippines, CTAEB No. 1139, August 11, 2015)


111/144


Issuance of final decision on disputedassessment before the lapse of a 60-day

period from the filing of the protest

deprives the taxpayer of due process


112/144


! Taxpayer filed its letter-protest on December 20, 2011 contesting the

validity of the formal letter of demand issued by the BIR on

November 9, 2011. Thirty-five days thereafter or on January 25,2012, the BIR issued the final decision on disputed assessment

(FDDA).

! The CTA ruled that the issuance of the FDDA before the expirationof the 60-day period is premature. It is the BIRs duty to remain

passive until the lapse of the 60-day period. Failure to observe thesame, the BIR has violated taxpayers right to due process, thus

rendering the assessments null and void. (?F!)! H+#$)"9 7&*4 3"45+,,."".+&$% +6 7$%&!) 8$3$&-$/ 3'N 3)#- W,G X[QX/ 0)56( Q:/ 89:>Z


113/144


! Note, however, that the CTA has held in another case that despite

the finding that the FDDA is void on the ground of failure to observe

due process requirement, the same does not result to the automaticdeclaration that the assessments subject of the FDDA are likewise

void. Prematurity in the issuance of FDDA on the ground of failure to

observe due process requirement is not one of the grounds provided

by law, rules and jurisprudence when an assessment may be

considered void. (AB Capital and Investment Corporation vs. Commissionerof Internal Revenue, CTA Case No. 8411, April 30, 2015)


114/144


When a decision of a duly authorizedrepresentative of the Commissioner is

appealed to the latter, the running of the

180-day period should still be counted from

the date when taxpayer submitted relevant

supporting documents in support of its

protest.


115/144


! Section 228 of the NIRC of 1997 provides only one 180-day period

for the Commissioner or his authorized representative to decide a

protest. RR No. 12-99, which implements the provision, does notprovide for a fresh 180-day period for the Commissioner to decide

the appealed decision of her authorized representative.

! In this case, taxpayer submitted all the relevant documents onMarch 19, 2009. From said date, the Commissioner of his duly

authorized representative had 180 days or until September 15, 2009to decide the protest. Since the Regional Director issued a decision

partially granting the protest, for which taxpayer elevated its protest

to the Commissioner on August 29, 2009, the Commissioner had

only the remaining 18 days of the 180-day period or until September

15, 2009, within which to decide the protest. From September 15,2009, taxpayer had until October 15, 2009 to appeal to the CTA.


116/144


! Section 228 of the NIRC of 1997 provides only one 180-day period

for the Commissioner or his authorized representative to decide a

protest. RR No. 12-99, which implements the provision, does notprovide for a fresh 180-day period for the Commissioner to decide

the appealed decision of her authorized representative.

! In this case, taxpayer submitted all the relevant documents onMarch 19, 2009. From said date, the Commissioner of his duly

authorized representative had 180 days or until September 15, 2009to decide the protest. Since the Regional Director issued a decision

partially granting the protest, for which taxpayer elevated its protest

to the Commissioner on August 29, 2009, the Commissioner had

only the remaining 18 days of the 180-day period or until September

15, 2009, within which to decide the protest. From September 15,2009, taxpayer had until October 15, 2009 to appeal to the CTA.


117/144


! However, instead of appealing, taxpayer submitted additional

documents on October 15, 2009 and counted another 180-day

period from October 15, 2009 or until April 23, 2010 for theCommissioner to decide its appeal. The appeal filed within thirty

days thereafter (specifically filed on May 13, 2010) was filed out of

time. (Commissioner of Internal Revenue vs. Sarangani ResourcesCorporation, CTA EB No. 1098, April 29, 2015)


118/144


A letter issued by the Revenue DistrictOfficer following a re-investigation after a

protest is filed by a taxpayer may be

considered a final decision, appealable to

the CTA, depending on its tenor.


119/144


! The taxpayer received a letter, dated September 19, 2011, signed by

the RDO, stating that: After considering your protest and its

supporting documents, the following findings still stand. xxx xxx

! The CTA ruled that there is no doubt that the September 19, 2011letter is the denial of the protest. A power to assess may be

delegated to an RDO, hence a letter issued by an RDO may also

constitute a final decision which is ripe for appeal to the CTA. (Jumbo

East Realty, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8380,March 16, 2015)

! A final letter of demand and a letter by the Revenue District Officer

does not constitute final decision appealable to the CTA absent the

words decision and appeal. FI%.J#+& 7&3$"#,$ 5+%2+%!/+& 3"45+,,."".+&$% +6 7$%&!) 8$3$&-$2 ?@A GH -)+ .7CC2 A;#IJ 712 67.18


120/144


The Oplan Kandado 48-hour Notice and the5-day VAT Compliance Notice must indicate

the factual basis of the results of the

surveillance

Oth th t t t th t th lt f th ill lt d i


121/144


! Other than a statement that the result of the surveillance resulted in

a VAT liability, the basis thereof must likewise be disclosed.

!

Absent any explanation regarding the factual basis of the results ofthe surveillance, the taxpayer cannot be deemed to be sufficiently

informed about the basis for the assessment of the VAT liability, in

order to adequately respond to or specifically refute the computed

VAT liability. (Commissioner of Internal Revenue v. Elric Auxiliary Services,Inc., CTA EB No. 1174, March 3, 2016)


122/144


An application for refund of erroneouslypaid tax invoking exemption pursuant to a

tax treaty may be filed with the International

Tax Affairs Division of the BIR


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! Taxpayer (a Singapore entity) was a shareholder of Maynilad Water

Services, Inc. (Maynilad). Taxpayer sold the share to a Philippine

entity. It then applied for a tax treaty relief, invoking that the sale isexempt from capital gains tax (CGT) pursuant to the provisions of

the Philippines Singapore tax treaty. But in order to secure a

Certificate Authorizing Registration from the Bureau of Internal

Revenue, it paid the CGT. Taxpayer then later filed a claim for refund

of the CGT payment through the International Tax Affairs Division(ITAD) of the BIR.

! The BIR, argued, among others, that the taxpayer did not properlyfile an administrative claim for refund. According to the BIR, ITAD is

not given authority to receive or process application and/or claims

for tax refund/credit certificates.


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! The CTA disagreed. ITAD is the office of the BIR tasked to process

claims for tax refund arising from the application of tax treaty

provisions. (Commissioner of Internal Revenue vs. LAWL Pte Ltd., CTA EB No.1118, May 12, 2015)


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! Taxpayer made an overpayement of output taxes due to its failure to

declare some of its input taxes in its VAT returns. It would have paid

lesser net output taxes equivalent to the undeclared input taxes. Forthis reason, taxpayer filed for a refund of the erroneously paid output

taxes under Section 204 and 229 of the 1997 Tax Code.

! The refund claim was denied on the ground that the input taxeswere not reported in the VAT returns. Input taxes should be declared

in the VAT returns so that they can be credited against output taxes.Hence, they could not be claimed as credit or offset against output

taxes. As the input taxes could not be claimed as credit against

output taxes, there could be no overpayment or erroneous payment

of output taxes. (Coca-Cola Bottlers Philippines, Inc. v. Commissioner ofInternal Revenue, CTA EB Case No. 1061, April 10, 2015)


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LOCAL TAXATION


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A holding company is not subject to localbusiness tax on dividend income.


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! The taxpayer was assessed by the City Treasurer of Makati fordeficiency local business tax on dividend income. The taxpayer

protested the assessment, arguing that as a holding company it is notliable to business tax on dividend income.

! Section 143 of the Local Government Code (LGC) is the law on local

business taxes. Section (f) thereof expressly allows local taxation on

banks and other financial institutions on their income from dividends,

based on gross receipts of the preceding year. Section 131(e) of theLGC defines banks and other financial institutions to include non-bank

financial intermediaries, lending investors, finance and investment

companies, pawnshops, money shops, insurance companies, stock

markets, stock brokers and dealers in securities and foreign exchange,

as defined under applicable laws, or rules and regulations thereunder.

This enumeration appears to be exclusive of other entities. Nowhere inthe entirety of Section 131 is a holding company mentioned. (MichiganHoldings, Inc. v. The City Treasurer of Makati City, CTA EB No. 1093, June 17,

2015)


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JUDICIAL REMEDIES AND CTA

JURISDICTION


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The CTA has no jurisdiction over casesdecided by the RTC involving petitions for

injunction to restrain the collection of

national internal revenue taxes.

! The BIR issued an adverse ruling which was upheld by the


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! The BIR issued an adverse ruling, which was upheld by the

Secretary of Finance, upon review. The taxpayer filed a Petition for

Review with the CTA. The BIR argued that the CTA has no

jurisdiction over the validity of the BIR Rulings. The same should

have been elevated to the Office of the President and eventually to

the regular courts.

! The CTA explained that its jurisdiction is provided under Section 7(a)(1) of Republic Act (RA) No. 1125, as amended by RA No. 928218,

which provides that the Court shall exercise exclusive appellate

jurisdiction to review by appeal decisions of the CIR in cases

involving

1.

disputed assessments;

2.

refunds of internal revenue taxes, fees or other charges,

penalties in relation thereto; or

3.

other matters arising under the NIRC or other laws

administered by the Bureau of Internal Revenue.

! The CTA held that it has the authority to review the rulings or


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! The CTA held that it has the authority to review the rulings or

opinions of the CIR which were issued to interpret the provisions of

the NIRC and other laws administered by the BIR as it falls under

the phrase "other matters" arising under the NIRC or other laws

administered by the BIR. (Delta Airlines v. Purisima and Henares, CTA EBNo. 1113, September 10, 2015)


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The CTA has no jurisdiction over casesdecided by the RTC involving petitions for

injunction to restrain the collection of

national internal revenue taxes


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! Taxpayer filed a Petition for Injunction with the Regional Trial Court

(RTC) questioning the Warrant of Garnishment issued by the BIR to

enforce the collection of the taxpayers deficiency taxes. The RTCdismissed the petition and denied the subsequent motion for

reconsideration on jurisdictional ground. This prompted the taxpayer

to file a Petition for Review with the CTA.

! The CTA ruled that it had no jurisdiction to entertain the petition.

According to the Court, there is nothing in Section 7 of RA No. 1125,as amended, as well as Sections 2 and 3 of the Revised Rules of

the CTA which give the CTA whether in Division or En Banc -

jurisdiction over cases decided by the RTC involving petitions for

injunction to restrain the collection of national internal revenue

taxes. (San Francisco Water District vs. The Bureau of Internal Revenue, CTAEB No. 1107, June 30, 2015)


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The CTA has jurisdiction to determinewhether or not a previously denied

application for abatement of surcharge

should be granted

! Taxpayers application for abatement of surcharge was denied.


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Taxpayer s application for abatement of surcharge was denied.

Taxpayer filed a Petition for Review with the CTA.

!

The CTA explained that its jurisdiction is provided under Section 7(a)(1) of Republic Act (RA) No. 1125, as amended by RA No. 928218,

which provides that the Court shall exercise exclusive appellate

jurisdiction to review by appeal decisions of the CIR in cases

involving

1.

disputed assessments;2.

refunds of internal revenue taxes, fees or other charges,

penalties in relation thereto; or

3. other matters arising under the NIRC or other laws

administered by the Bureau of Internal Revenue.

! Based on the said provision, the CTA has the power to determine


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Based on the said provision, the CTA has the power to determine

whether or not a taxpayers previously denied application for

abatement of surcharge should be granted, because such lies within

the jurisdiction of the Court. (K!#!% 5+,2!&F 34 5+,,."".+&$% +6 7$%&!)8$3$&-$2 ?@A ?"B& -)+ /C.92 D"'%"#E 662 67.9Z


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The CTA has jurisdiction to determine if the48-Hour Notice and 5-Day VAT Compliance

Notice issued by the BIR under its Oplan

Kandadoare valid

! Taxpayer received a 48-Hour Notice, alleging that as a result of a


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p y , g g

ten-day surveillance, the BIR has found the taxpayer liable for

alleged deficiency VAT. Taxpayer filed its explanation under oath.

Thereafter, taxpayer received the 5-day VCN, reiterating demand for

payment of the alleged deficiency VAT. Taxpayer sent a follow-up

letter requesting a response to their explanation under oath.

Taxpayer then received a letter-response from the BIR denying the

taxpayers plea. Taxpayer filed its Petition for Review with the CTA.

PDR Tax Forum 2016 Recent Court Decisions on Tax - Final

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