Commisioner of Internal Revenue vs John Gotamco & Sons, Inc. and the Court of Tax Appeals (143 SCRA 36) G.R. No. L-31092 February 27,1987

FACTS: The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. An agreement was entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes.” The WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila. A bidding was held for the building construction. The WHO informed the bidders that the building to be constructed belonged to an international organization exempted from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies." Thereafter, the construction contract was awarded to John Gotamco & Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of for the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building. WHO. The WHO issued a certification that the bid of John Gotamco & Sons, should be exempted from any taxes in connection with the construction of the World Health Organization office building because such can be considered as an indirect tax to WHO. However, The Commissioner of Internal Revenue contends that the 3% contractor's tax is not a direct, nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, and thus not covered by the tax exemption agreement

ISSUE: Whether or not the said 3% contractor’s tax imposed upon petitioner is covered by the “direct and indirect tax exemption” granted to WHO by the government.

HELD: Yes. The 3% contractor’s tax imposed upon petitioner is covered by the “direct and indirect tax exemption” granted to WHO. Hence, petitioner cannot be held liable for such contractor’s tax. The Supreme Court explained that direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. While it is true that the contractor's tax is payable by the contractor, However in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax against the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO.

BAYAN vs Executive Secretary (G.R. Nos. 138570, 138572, 138587, 138680, & 128698) October 10, 2000

FACTS: On March 14, 1947, the Philippines and the United States of America forged a Military Bases Agreement which formalized, among others, the use of installations in the Philippine territory by United States military personnel. In view of the impending expiration of the RP-US Military Bases Agreement in 1991, the Philippines and the United States negotiated for a possible extension of the military bases agreement. On September 16, 1991, the Philippine Senate rejected the proposed RP-US Treaty of Friendship, Cooperation and Security which, in

effect, would have extended the presence of US military bases in the Philippines. On July 18, 1997, the United States panel, headed by US Defense Deputy Assistant Secretary for Asia Pacific Kurt Campbell, met with the Philippine panel, headed by Foreign Affairs Undersecretary Rodolfo Severino Jr., to exchange notes on “the complementing strategic interests of the United States and the Philippines in the Asia-Pacific region.” Both sides discussed, among other things, the possible elements of the Visiting Forces Agreement (VFA for brevity). Thereafter, then President Fidel V. Ramos approved the VFA, which was respectively signed by public respondent Secretary Siazon and Unites States Ambassador Thomas Hubbard. On October 5, 1998, President Joseph E. Estrada, through respondent Secretary of Foreign Affairs, ratified the VFA. On October 6, 1998, the President, acting through respondent Executive Secretary Ronaldo Zamora, officially transmitted to the Senate of the Philippines, the Instrument of Ratification, the letter of the President and the VFA, for concurrence pursuant to Section 21, Article VII of the 1987 Constitution

ISSUES: Whether or not petitioners have legal standing as concerned citizens, taxpayers, or legislators to question the constitutionality of the VFA

HELD: No. Petitioners failed to show that they have sustained, or are in danger of sustaining any direct injury as a result of the enforcement of the VFA. As taxpayers, petitioners have not established that the VFA involves the exercise by Congress of its taxing or spending powers. On this point, it bears stressing that a taxpayer’s suit refers to a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation.

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al. vs. THE SECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT

GR. No. 143076. June 10, 2003

FACTS: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under PD 269 which are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners are electric cooperatives of Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1). Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National Government, local government, and municipal taxes and fees, including franchise, fling recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings in which it may be party.

From 1971 to 1978, the Philippine Government acting through the National Economic council (now National Economic Development Authority) and the NEA, in order to finance the electrification projects envisioned by PD 269, entered into six loan agreements with the government of the United States of America, through the United States Agency for International Development (USAID) with electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Petitioners allege that with the passage of the Local Government Code their tax exemptions have been validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the withdrawal of

tax exemption privileges granted to all persons, whether natural or juridical, except cooperatives duly registered under RA 6938, while Sec. 234 exempts the same cooperatives from payment of real property tax.

ISSUE: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection clause since the provisions unduly discriminate against petitioners who are duly registered cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines?

(2) Is there an impairment of the obligations of the contract under the loan entered into between the Philippine and the US Governments?

HELD: (1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonable classification. Classification, to be reasonable must (a) rest on substantial classifications; (b) germane to the purpose of the law; (c) not limited to the existing conditions only; and (d) apply equally to all members of the same class. We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by PD 269 and electric cooperatives under RA 6938.

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

a. Capital Contributions by Members – Nowhere in PD 269 does it require cooperatives to make equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under PD 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative. However, under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least 25% of the total subscription has been paid and in no case shall the paid-up share capital be less than P2,000.00.

b. Extent of Government Control over Cooperatives – The extent of government control over electric cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of these electric cooperatives. Consequently, amendments were primarily geared to expand the powers of NEA over the electric cooperatives to ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under RA 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation.

Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that “every local government unit shall enjoy local autonomy,” does not mean that the exercise of the power by the local governments is

beyond the regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon the local government units and to limit exemptions from local taxation to entities specifically provided therein.

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

(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax exemption is granted therein.

EUSEBIO VILLANUEVA, et al. vs. CITY OF ILOILO G.R. No. L-26521 December 28, 1968

FACTS: On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees on tenement houses. This Court, in City of Iloilo vs. Remedios San Villanueva and Eusebio Villanueva declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of RA 2264,Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11 (AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES). By virtue of the ordinance in question, the appellant City collected from appellee Villanueva, for the years 1960-1964, the sum of P5,824.30, and from other appellees, for the same year, the sum of P1,317.00. Hence, plaintiffs-appellees filed a complaint, against the City of Iloilo, praying that Ordinance 11 be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. Lower court rendered judgment declaring the ordinance illegal.

ISSUE: Is Ordinance 11 of the City of Iloilo, illegal because it imposes double taxation?

HELD: The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the NIRC, besides the tenement tax under the said ordinance." While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the NIRC as real

estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof.

The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question is also devoid of merit. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. To constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax. It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not of the same kind or character.

Nestle Philippines, Inc. vs. Honorable Court of Appeals, Court of Tax Appeals and Commissioner of Customs G.R. No. 134114 July 6, 2001

FACTS: Between July and November 1984, Nestle transacted sixteen (16) separate importations of milk and milk products from different countries. Nestle was assessed customs duties and advance sales taxes by the Collector of Customs of Manila for each of these separate importations on the basis of the published Home Consumption Value (HCV) indicated in the Bureau of Customs Revision Orders. Nestle paid the same but seasonably filed the corresponding protests before the said Collector of Customs from October 25 to December 5, 1984, alleging therein that the latter erroneously applied higher home consumption values in determining the dutiable value for each of these separate importations. In the said protests, petitioner claims for refund of both the alleged overpaid import duties amounting to P5,008,029.00 and advance sales taxes aggregating to P4,564,179.30. On October 14, 1986, Nestle formally filed a claim for refund of allegedly overpaid advance sales taxes with the BIR amounting to P4,564,179.30 covering the same sixteen (16) importations of milk and milk products from different countries.  Not long after, on October 15, 1986 and within the two-year prescriptive period provided for under the NIRC for claiming a tax refund, petitioner filed the corresponding petition for review with the CTA.  On January 3, 1994, the tax court ruled in favor of Nestle and ordered the BIR to refund the sum of P4,489,661.94 representing the overpaid Advance Sales Taxes on the aforesaid importations.

On the other hand, the sixteen (16) protest cases for refund of alleged overpaid customs duties amounting to P5,008,029.00 were left with the Collector of Customs of Manila.  However, the said Collector of Customs failed to render his decision thereon after almost six (6) years since petitioner paid under protest the customs duties on the said sixteen (16) importations of milk and milk products and filed the corresponding protests. Consequently, in order to prevent these claims from becoming stale on the ground of prescription, Nestle immediately filed a petition for review with the CTA on August 2, 1990 despite the absence of a ruling on its protests from both

the Collector of Customs of Manila and the Commissioner of Customs. On May 30, 1995, the CTA rendered judgment dismissing the case for want of jurisdiction.

Commissioner of Customs, on August 21, 2000, admitted with regret, their official inaction adverted to by the petitioner.  The Commissioner expressed that Nestle’s claim for refund of customs duties should not outrigthly be denied by virtue of the strict adherence to the rules to prevent grave injustice to hapless taxpayers; that this does not justify, however, an outright award of the refund of alleged overpayment of customs duties in favor of petitioner and that there is no definite factual determination yet that the customs duties and taxes in question  were overpaid and refundable, and if refundable how much is the refundable amount.  The fact that the Collector of Customs of Manila failed to act or decide on the petitioner’s protest cases filed before his Office does not relieve the petitioner of its burden to prove that it is entitled to the refund sought for.  Thus, Commissioner of Customs recommended that this case be remanded to the court of origin, namely, the CTA.

After a meticulous consideration, recommended remand of this case to the CTA was found warranted for the proper verification and  determination of the factual basis and merits of this petition.

ISSUE: Whether or not Nestle was entitled to be given an award of the refund for alleged overpayment of customs duties.

HELD: “Customs duties” is ‘the name given to taxes on the importation and exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign country.’ Any claim for refund of customs duties, therefore, take the nature of tax exemptions that must be construed strictissimi juris against the claimants and liberally in favor of the taxing authority. This power of taxation being a high prerogative of sovereignty, its relinquishment is never presumed.  Any reduction or diminution thereof with respect to its mode or its rate must be strictly construed, and the same must be couched in clear and unmistakable terms in order that it may be applied.

Thus, any outright award for the refund of allegedly overpaid customs duties in favor of Nestle on its subject sixteen (16) importations is not favored in this jurisdiction unless there is a direct and clear finding thereon.  The fact alone that the tax court awarded in favor of Nestle the refund of overpaid Advance Sales Tax involving the same sixteen (16) importations does not in any way excuse it from proving its claims for refund of alleged overpayment of customs duties. The decision rendered by the tax court has been found to have no clear indication therein that the tax court has ruled on petitioner’s claims for alleged overpayment of customs duties. The case has been REINSTATED and REMANDED to the Court of Tax Appeals for hearing and reception of evidence relative to petitioner’s claims for refund of alleged overpayment of customs duties.