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TAX 2 DIGESTS Lorenzo v.

Posadas Thomas Hanley died in 1922 in Zamboanga leaving a will w/c provided that: o Any money left be given to nephew Matthew o All real estate shall not be sold or disposed of 10 years after his death. It shall be managed by the executors. The proceeds shall be given to nephew Matthew in Ireland to be used only for the education of Hanleys brother's children and their descendants. o 10 years after Thomas death, his property be given to Matthew to be disposed of in the way he thinks most advantageous In 1924, the CFI appointed an administrator, Moore, eventually replaced by Lorenzo (after Moore resigned). CIR assessed the estate inheritance taxes from the time of Thomas death including penalties for deliquency in payment (P2k+). CIR filed a motion before the CFI praying that the Lorenzo be ordered to pay the said amount. The motion was granted. Lorenzo paid under protest and asked for a refund. CIR refused to refund. I: (a) When does the inheritance tax accrue and when must it be satisfied? UPON DEATH Lorenzo asserts that article 657 of the Civil Code (the rights to the succession of a person are transmitted from the moment of his death) operates only in so far as forced heirs are concerned. HOWEVER, there is no distinction between different classes of heirs. The Administrative Code imposes the tax upon the transmission of property of a decedent, made effective by his death. An excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death. Since Thomas Hanley died on May 27, 1922, the inheritance tax accrued as of the date. However, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is fixed by the Revised Administrative Code w/c provides that the payment must be made before entrance into possession of the property of the fideicommissary or cestui que trust. Thus, the tax should have been paid before the delivery of the properties to Moore as trustee in 1924.

(b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? AT THE TIME OF DEATH Plaintiff contends that the estate of Thomas Hanley could not legally pass to Matthew until after the expiration of 10 years from the death of the testator in 1922 and the inheritance tax should be based on the value of the estate in 1932. Upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly. The tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value, or the postponement of the actual possession or enjoyment of the estate by the beneficiary. (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? NO A trustee, no doubt, is entitled to receive a fair compensation for his services. However, it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. First, There is no statute requiring trustees' commissions to be deducted in determining the net value of the estate subject to inheritance tax. Second, though a testamentary trust has been created, the testator intended that the duties of his executors and trustees should be separated. (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? NO The law at the time was section 1544 of the Revised Administrative Code, as amended by Act No. 3031, which took effect on March 9, 1922. Inheritance taxation is governed by the statute in force at the time of the death of the decedent . A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect. CIR v Fisher Walter G. Stevenson was born in the Philippines of British parents, married in Manila to another British subject, Beatrice. He died in 1951 in California where he and his wife moved to. In his will, he instituted Beatrice as his sole heiress to certain real and personal properties, among which are 210,000 shares of stocks in Mindanao Mother Lode Mines (Mines). Ian Murray Statt (Statt), the appointed ancillary administrator of his estate filed an estate and inheritance tax return. He made a preliminary return to secure the waiver of the CIR on the inheritance of the Mines shares of stock.

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In 1952, Beatrice assigned all her rights and interests in the estate to the spouses Fisher. Statt filed an amended estate and inheritance tax return claiming ADDITIOANL EXEMPTIONS, one of which is the estate and inheritance tax on the Mines shares of stock pursuant to a reciprocity proviso in the NIRC, hence, warranting a refund from what he initially paid. The collector denied the claim. He then filed in the CFI of Manila for the said amount. CFI ruled that (a) the share of Beatrice should be deducted from the net estate of Walter, (b) the intangible personal property belonging to the estate of Walter is exempt from inheritance tax pursuant to the reciprocity proviso in NIRC. I: W/N the estate can avail itself of the reciprocity proviso in the NIRC granting exemption from the payment of taxes for the Mines shares of stock R: No. Reciprocity must be total. If any of the two states collects or imposes or does not exempt any transfer, death, legacy or succession tax of any character, the reciprocity does not work. In the Philippines, upon the death of any citizen or resident, or non-resident with properties, there are imposed upon his estate, both an estate and an inheritance tax. But, under the laws of California, only inheritance tax is imposed. Also, although the Federal Internal Revenue Code imposes an estate tax, it does not grant exemption on the basis of reciprocity. Thus, a Filipino citizen shall always be at a disadvantage. This is not what the legislators intended. SPECIFICALLY: Section122 of the NIRC provides that No tax shall be collected under this Title in respect of intangible personal property o (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer of tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or o (b) if the laws of the foreign country of which the decedent was a resident at the time of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country." On the other hand, Section 13851 of the California Inheritance Tax Law provides that intangible personal property is exempt from tax if the decedent

at the time of his death was a resident of a territory or another State of the United States or of a foreign state or country which then imposed a legacy, succession, or death tax in respect to intangible personal property of its own residents, but either:. (a) Did not impose a legacy, succession, or death tax of any character in respect to intangible personal property of residents of this State, or (b) Had in its laws a reciprocal provision under which intangible personal property of a nonresident was exempt from legacy, succession, or death taxes of every character if the Territory or other State of the United States or foreign state or country in which the nonresident resided allowed a similar exemption in respect to intangible personal property of residents of the Territory or State of the United States or foreign state or country of residence of the decedent." CIR v Campos Rueda Maria Cerdeira was a Spanish national by reason of her marriage to a Spanish national. She resided in Tangier, Morocco until she died. She left some intangible properties in the Philippines. The Commissioner of Internal Revenue (CIR) then held the administrator of her estate, Campos Rueda, to be liable for deficiency estate and inheritance taxes after the transfer of Marias intangible properties in the Philippines. Campos Rueda countered this by saying that Section 122 (now sec 104) of the NIRC provided for reciprocity and that in the laws of Tangier, Morocco, "the transfers by reason of death of movable properties, corporeal or incorporeal, including furniture and personal effects as well as of securities, bonds, shares, ..., were not subject, on that date and in said zone, to the payment of any death tax, whatever might have been the nationality of the deceased or his heirs and legatees." Thus, Campos Rueda claimed an exemption in the amount that the CIR was claiming as a deficiency. The CIR on the other hand claimed that the reciprocity clause could not apply since Tangier Morocco is not a foreign country as required in sec 122.

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I: W/N Tangier, Morocco is a Foreign country within the meaning of section 122 (now sec 104) of the NIRC R: YES, Tangier is a foreign country The expression "foreign country", used in the last proviso of Section 122 of the National Internal Revenue Code, refers to a government of that foreign power which, although not an international person in the sense of international law, does not impose transfer or death taxes upon intangible personal properties. It is, therefore, not necessary that Tangier should have been recognized by our Government order to entitle the petitioner to the exemption benefits of the proviso of Section 122 of our Tax. Code. Court also cited previous cases: o CIR v. De Lara: State of California was considered a Foreign country within the meaning of sec 122. o Kiene v. CIR: Liechtenstein was considered a foreign country within the meaning of sec 122. In this case, it was stated that while US decisions held that intangible personal property in the Philippines belonging to a nonresident foreigner, who died outside of this country is subject to the estate tax, the congress, in including sec 122 in the NIRC clearly provided for an exemption (reciprocity) and this exemption must be honored.

Zapanta v Posadas Father Braulio Pineda died without any ascendants or descendants leaving a will in which he instituted his sister Irene Pineda as his sole heiress. During his lifetime Father Braulio donated some of his property to the six plaintifffs, his relatives, severally, with the condition that some of them would pay him a certain amount of rice, and others of money every year, and with the express provision that failure to fulfill this condition would revoke the donations ipso facto. The donations contained another clause that they would take effect upon acceptance. They were accepted during Father Braulio's lifetime by every one of the donees. CIR then imposed upon the 6 plaintiffs separate inheritance taxes on the property donated to them in accordance with Section 1536 of the Administrative Code, as amended, which states that Every transmission by virtue of inheritance, devise, bequest, gift mortis causa or advance in anticipation of inheritance, devise, or bequest of real property located in the Philippine Islands and real rights in such property

The 6 plaintiffs paid the inheritance tax under protest and subsequently filed a separate civil action against the CIR. The trial court in deciding these six cases, held that the donations to the six plaintiffs made by the deceased Father Braulio Pineda are donations inter vivos, and therefore, not subject to the inheritance tax, and ordered the CIR to return to each of the plaintiffs the sums paid by the latter. I: W/n the donation made by Father Braulio was in fact a donation mortis causa, and thus taxable. R: NO, the donation was inter vivos. It was thus not taxable. Donations were inter vivos considering that not only was it stated as such in the instruments in which they appeared, but they were also made in the nature of a donation inter vivos. In donations mortis causa, it is the donors death that determines the acquisition of, or the right to, the property, and that it is revocable at the will of the donor. In donations inter vivos, as in the present case, the donees acquired the right to the property while the donor was still alive, subject only to their acceptance and the condition that they pay the donor rice and/or money. The nature of these donations is not affected by the fact that they were subject to the condition of payment since it was imposed as a resolutory condition, and in this sense, it is necessarily implies that the right came into existence first, otherwise there would be nothing to resolve upon the nonfulfillment of the condition imposed. If the donor's life is mentioned in connection with this condition, it is only fix the donor's death as the end of the term within which the condition must be fulfilled, and NOT because such death of the donor is the cause which determines the birth of the right to the donation. The property donated passed to the ownership of the donees from the acceptance of the donations, and these could not be revoked except upon the nonfulfillment of the condition imposed, or for other causes prescribed by the law, but not by mere will of the donor. (However, considering that these donations had onerous conditions, they are not donations to the full extent. Rather, they are partly contractual and partly donations. They are donations inter vivos only insofar as they exceed to the incumbrance imposed.) Neither can these donations be considered as an advance on inheritance or legacy, since they were not heirs or legatees of their predecessor in interest upon his death (Sec. 1540 of the Administrative Code). Neither can it be said that they obtained this

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inheritance or legacy by virtue of a document which does not contain the requisites of a will (Sec. 618 of the Code of Civil Pocedure). Besides, if the donations made by the plaintiffs are, as the appellants contended, mortis causa, then they must be governed by the law on testate succession (art. 620 of the Civil Code). In such a case, the documents in which these donations appear, being instruments which do not contain the requisites of a will, are not valid to transmit the property to the donees (Sec. 618, Code of Civil Procedure.) Then the defendants are not justified in collecting from the donees the inheritance tax, on property which has not been legally transferred to them, and in which they acquired no right. Dissenting Opinion by Justice Street: Justice Street strongly believed that the present case involved advances in anticipation of inheritance considering that the donees were entitled to receive an inheritance if no will had been made by the decedent. He believed that what transpired in the present case is an attempt by the donor to evade the payment of taxes by disposing of the bulk of his property before his death.

Tuason v Posadas In 1922, Esperanza Tuason Chuajap made a donation inter vivos of certain property to Mariano Tuason. In 1923, she made another donation inter vivos, this time to Alfredo Tuason. She died 3 years after leaving a will bequeathing P5,025 to Mariano Tuason after the judicial administratix paid the prescribed inheritance tax on these two bequests. Consequently, Posadas collected the sums of P3, 809.76 and P6, 653.64 from both the petitioners as inheritance tax upon the gifts inter vivos made to them against their opposition and protest. They filed their protest and the judgment was that the defendant must return the amount claimed by the plaintiff. Posadas appealed and argued that the collection of these amounts as inheritance tax is authorized by the law. I: W/n Posadas was correct in collecting inheritance tax R: YES. Section 1536 of the Administrative Code provides that every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest shall be subject to tax. Section 1540 then provides that after deductions have been made, there shall be added to the resulting amount the value of all gifts or advances made by the predecessor to any of those who,

after his death, shall prove to be his heirs, devisees, legatees, or donees mortis causa. When the law say all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the letter and the spirit of the law leave no room for any other interpretation. The language refers to donation that took effect before the donor's death, and not to mortis causa donations, which can only be made with the formalities of a will, and can only take effect after the donor's death. In this case, it appears that the Tuazons, after the death of Espereanza, were found to be legatees under her will. Thus, the donation inter vivos she had made to them in 1922 and 1923, must be added to the net amount that is to be taxed. If the donee inter vivos was found to be legatees, heirs, devisees OR donees mortis causa of the decedent, then they would have to pay the inheritance tax. The reason for this is because the donation inter vivos is deemed to be a transfer in anticipation of inheritance/death, meaning that it is a scheme to evade payment of taxes.

Dizon v Posadas Dizon was assessed to pay P2k+ as inheritance tax from the properties he received from his father prior to his fathers death through a deed of gift inter vivos. Dizon alleged that the tax was illegally collected because he received the property prior to the death of his father, through a deed of gift inter vivos which was duly accepted and registered before the death of his father making the property not an inheritance. He further states that he was not trying to evade the inheritance tax that is imposed on heirs when his father donated all his properties to him. Thus, no inheritance tax under Act No. 2601 (Chapter 40 of the Administrative Code), being the inheritance tax statute, should be imposed upon the said properties. The Court, however, ruled in favor of Posadas, hence, this appeal. I:W/N the inheritance tax was correctly imposed upon the properties transferred through donation inter vivos R: YES. Section 1540 of the Administrative Code states that after deductions have been made, there shall be added to the resulting amount the value of all gifts or advances made by the predecessor

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to any of those who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis causa In this case facts conveyance was made by the donor five days before his death and accepted by the donee one day before the donor's death. Obviously, this was fraudulently made for the purpose of evading the inheritance tax. As to Dizons contention that the he is not an heir because there is no property to inherit anymore because he already received the properties of the father through a donation inter vivos, SC said that even if they dont know w/n the father left a will, Dizon should NOT be deprived of his share of the inheritance because the Civil Code confers upon him the status of a forced heir. Thus, an advance made by the decedent to Dizon is subject to tax. As to Dizons contention that Section 1540 is unconstitutional in taxing gifts or donations because the act would then embrace two subjects, the Court states that: When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor of the language which refers to donations that took effect before the donor's death, and not to mortis causa donations, which can only be made with the formalities of a will, and can only take effect after the donor's death. The law presumes that such gifts have been made in ancitipation of inheritance in order to EVADE tax. Thus, to prevent this, they are added to the resulting amount. "

donations inter vivos. If it does, it is null and void as it violates uniformity of taxation. I: W/n donations inter vivos is included in Sec. 1540 of the Administrative Code R: No. The gifts referred to in section 1540 of the Revised Administration Code are, obviously, those donations inter vivos that take effect immediately or during the lifetime of the donor but are made in consideration or in contemplation of death. Gifts inter vivos, the transmission of which is NOT MADE IN CONTEMPLATION OF THE DONOR'S DEATH should not be understood as included within the said legal provision for the reason that it would amount to imposing a direct tax on property and not on the transmission. This act does not come within the scope of the provisions contained in Article XI of Chapter 40 of the Administrative Code which deals expressly with the tax on inheritances, legacies and other acquisitions mortis causa.

Vidal de Roces v Posadas Esperanza Tuazon by public document donated parcels of land situated in Manila to plaintiffs Vidal de Roces, etc. with their respective husbands, accepted them in the same public documents, which were duly recorded in the registry of deeds. The plaintiffs took possession of the said lands, received the fruits and obtained TCTs. The donor then died w/o any forced heir and in her will, she bequeathed to each of the donees the sum of P5,000. After the estate had been distributed among the instituted legatees and before delivery of their respective shares, the CIR ruled that the donees should pay inheritance tax. They thus paid under protest, contending that Art 1540 of the Revised Administrative Code (after deductions have been made, there shall be added to the resulting amount the value of all gifts / advances made by the predecessor to any of those who after his death prove to be heirs, devisees, legatees or donees mortis causa) does NOT include

CIR v CA and Pajonar Pedro Pajonar, a member of the Philippine Scout during WWII was a part of the infamous Death March by reason of which he suffered shock and became insane. His sister Josefina became the guardian over his person, while his property was placed under the guardianship of the PNB by the RTC of Dumaguete. After his death, PNB filed an accounting of his property under guardianship valued at 3M in Special Proceedings. However, PNB did NOT file and estate tax return, instead it advised his heirs to execute an extrajudicial settlement and to pay taxes on the estate. Pursuant to BIRs assessment, the estate of Pedro paid taxes in the amount of 2k. Josefina then filed a petition w/ RTC of Dumaguete for the issuance in her favor of letters of administration of the estate of her brother. RTC appointed Josefina as regular administratrix of Pedros estate. The BIR then made a 2nd amendment for deficiency estate tax, w/c Josefina paid under protest. Without waiting for her protest to be resolved by the BIR, Josefina then filed a petition for review w/ the CTA praying for the refund of 1.5M OR the alternative 840k as erroneously paid estate tax.

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CTA ordered CIR to refund Josefina the amount of 252k, representing erroneously paid estate tax. Among the deductions from the gross estate allowed by CTA were the amounts of 60K representing notarial fee for Extrajudicial Settlement plus attys fees for guardianship proceedings. I: W/N the notarial fee and attys fees paid for the EJ Settlement may be allowed as deductions fro the gross estate of decedent in order to arrive at the value of the net estate. R: YES, they are allowed deductions. ATTYs FEES: Under American Jurisprudence, expenses incurred in the EJ Settlement of the estate should be allowed as deduction from the gross estate. There is not requirement of formal administration. It is sufficient that the expense be a NECESSARY contribution toward the settlement to the case. Attys fees in order to be deductible from the gross estate must be essential and related to the settlement of estate. In this case, the attys fees paid for guardianship proceeding was necessary for the distribution of the property of the late Pedro Pajonar to his rightful heirs. Thus, it was deductible. Necessary expenses of administration are such expenses as are entailed for the preservation and productivity of the estate and for its management for the purposes of liquidation, payment of debts and distribution of the residue among the persons entitled. NOTARIAL FEES: Although tax code specifies judicial expenses of the testamentary or intestate proceedings, there is no reason why expenses incurred in the administration and settlement of an estate in EJ proceedings should not be allowed. However, deduction is limited to such administration expenses as are actually and necessarily incurred in the collection of the assets of the estate, payment of debts, and distribution of the remainder among those entitled thereto. Such expenses may include executors or administrators fees, attys fees, court fees and charges, appraisers fees, clerk hire, costs of preserving and distributing the estate and storing or maintaining it, brokerage fees or commissions for selling or disposing of the estate. It is clear that the EJ settlement was for the purpose of payment of taxes and the distribution of the estate to the heirs. The execution of EJ settlement necessitated the notarization of the same. Thus the 60k for notarial fee for the EJ Settlement should be allowed as a deduction from the gross estate. Judicial expenses are expenses for administration. Administration expenses are deductible from the gross estate. Expenses must be essential to the proper settlement of the estate.

Testate Estate of the late Felix de Guzman v de Guzman-Carillo Felix Guzman died and was survived by eight children. One of the properties he left was a residential house located in the poblacion. In conformity with his last will, that house and the lot on which it stands were adjudicated to his eight children, each being given a one-eighth proindiviso. The administrator submitted four accounting reports for the period from June 16, 1964 to September, 1967. Three of the heirs Crispina de Guzmans-Carillo Honorata de Guzman-Mendiola and Arsenio de Guzman interposed objections to the administrator's disbursements in the total sum of P13,610.48. I: W/n expenses incurred by the administrator are deductible R: YES. (Deductible) 1. Expenses for the renovation and improvement of the family residence P10,399.59. These expenses consisted of disbursements for the repair of the terrace and interior of the family home, the renovation of the bathroom, and the construction of a fence. The probate court allowed those expenses because an administrator has the duty to "maintain in tenantable repair the houses and other structures and fences belonging to the estate, and deliver the same in such repair to the heirs or devises" when directed to do so by the court (Sec. 2, Rule 84, Rules of Court). (Non-deductible) 2. Expenses incurred by Librada de Guzman as occupant of the family residence without paying rent These were PERSONAL expenses of Librada de Guzman, inuring to her benefit. Those expenses, not being reasonable administration expenses incurred by the administrator, should not be charged against the income of the estate. Librada de Guzman, as an heir, is entitled to share in the net income of the estate. She occupied the house without paying rent. She should use her income for her living expenses while occupying the family residence. The STENOGRAPHIC NOTES, REPRESENTATION EXPENSES and EXPENSES DURING THE CELEBRATION OF THE 1ST DEATH ANNIVERSARY OF THE DECEASED should be disallowed. They have no connection with the care, management and settlement of the decedent's estate (Nicolas vs. Nicolas 63 Phil 332).

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The other expenses, namely, P19.30 for the lawyer's subsistence and P144 as the cost of the gift to the physician who attended to the testator during his last s are allowable expenses. (Deductible) 4. Irrigation fee was properly allowed as a legitimate expense of administration.

Dizon in his capacity as Administrator of the deceased Fernandez v CIR Justice Arsenio Dizon and petitioner Atty. Dizon were appointed as Special and Assistant Special Administrator, respectively, of the Estate of Jose Fernandez. Justice Dizon authorized Atty. Gonzales to sign and file the required estate tax return. Atty. Gonzales filed the estate tax return with the BIR Regional Office of San Pablo City, showing a NIL estate tax liability (no tax liability- in this case, because the deductions exceed the gross estate). Ten days after, the BIR Regional Director issued Certifications stating that the taxes due on the transfer of real and personal properties of Jose had been fully paid and said properties may be transferred to his heirs. Justice Dizon died thus the probate court appointed petitioner as the administrator of the Estate. Atty. Dizon requested the probate courts authority to sell several properties of the Estate to pay its creditors. HOWEVER, BIR issued a notice demanding the payment of P66k+ deficiency estate tax. Atty. Gonzales moved for a reconsideration of the Assessment but the CIR denied the request and reiterated the Estates liability. A petition for Review was filed with the CTA. I: W/n deficiency estate tax must be imposed against the Estate R: No. Claims existing at time of death should be allowed as deductions to the gross estate. Even in the United States, there is some dispute as to whether the deductible amount for a claim against the estate is fixed as of the decedent's death which is the general rule, or the same should be adjusted to reflect post-death developments, such as where a settlement between the parties results in the reduction of the amount actually paid. On one hand, the U.S. court ruled that the appropriate deduction is the "value" that the claim had at the date of the decedent's death. On the other hand, the Internal Revenue Service (IRS) opines that post-death settlement should be taken into consideration and the

claim should be allowed as a deduction only to the extent of the amount actually paid. SC agreed w/ date-of-death valuation rule. First, there is no law, nor any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments must be considered in determining the net value of the estate . It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or activity is taxable is generally resolved against taxation. Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death . Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions.

Gov of the Phils v Pamintuan Florentino Pamintuan filed an income tax return for the year 1919 and paid an amount on the basis of said return. When Florentino died in 1925, intestate proceedings were instituted where the court appointed commissioners for the appraisal of the value of the property left by Florentino. The court then ordered the delivery to the heirs of their respective shares of the inheritance after paying the corresponding inheritance taxes which were duly paid. During the pendency of the intestate proceedings, the administrator Jose Ramirez filed income tax returns for the estate of the deceased corresponding to the years 1925 and 1926. The intestate proceedings were then closed in 1926. In 1927, subsequent to the distribution of Florentinos estate, the government discovered that Florentino had not paid P462 as additional income for 1919 on account of the sale of his house, from which he realized an income of P11,000 which was not included in his income tax return filed in 1919. The government demanded payment of the income tax but the heirs refused to pay. The lower court ruled that the government was barred from collecting the income tax due to its failure to file its claim with the committee on claims and appraisals.

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I: W/n the gov can still collect the income tax despite its failure to file its claim with the committee on claims and appraisals R: Yes. A claim for taxes and assessments whether assessed before or after the death of the decedent, are not required to be presented to the committee. Heirs are liable for the deficiency income taxes, in proportion to their share in the inheritance. The administration proceedings of the late Florentino having been closed, and his estate distributed among his heirs, the heirs are responsible for the payment of the income tax here in question. The claims for income taxes need not be filed with the committee on claims and appraisals appointed in the course of testate proceedings and may be collected even after the distribution of the decedents estate among his heirs, who shall be liable therefor in proportion to their share in the inheritance.

CIR v Pineda Atanasio Pineda died and was survived by his wife Felicisima (the appointed administratrix) and 15 children. Estate proceedings were instituted in the CFI of Manila. The estate was divided among and awarded to the heirs and the proceedings terminated on June 8, 1948. After the estate proceedings, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. The CIR found the estate liable for Deficiency Income Tax (DIT), Additional residence tax for 1945 (ART 45), and Real Estate dealer's tax for the 4th qtr of 1946 and the whole year of 1947 (REDT 46-47) . Manuel, the eldest child, contested the assessment. Subsequently, he appealed to the CTA alleging that he was appealing "only that proportionate part or portion pertaining to him as one of the heirs." CTA held that Manuel was liable for payment corresponding to his share of such taxes. On the other hand, CIR insisted that Manuel should be liable for the payment of ALL the taxes found by the Tax Court to be due from the estate instead of only for the amount of taxes corresponding to his share in the estate. Manuel opposed the proposition on the ground that as an heir he is liable for unpaid income tax due the estate only up to the extent

of and in proportion to any share he received, relying on on Government of the Philippine Islands v. Pamintuan. 1 I: W/n Manuel can be required to pay the FULL amount of the tax assessed by the BIR. R: YES, he can be required to pay the full amount. Pineda is liable for the assessment as (1) AN HEIR and as (2) A HOLDER-TRANSFEREE of property belonging to the estate/taxpayer. o As an HEIR: As an heir he is individually answerable for the part of the tax proportionate to the share he received from the inheritance. His liability, however, cannot exceed the amount of his share. o As a HOLDER OF PROPERTY belonging to the estate: Pineda is liable for the tax up to the amount of the property in his possession. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code.2 Therefore, the Government has TWO WAYS of collecting the tax in question: o One, by going after ALL the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. This remedy was adopted in Government of the Philippine Islands v. Pamintuan. In said case, the Government filed an action against all the heirs for the collection of the tax. This action rests on the concept that hereditary property consists only of that part which remains after the settlement of all lawful claims against the estate, for the settlement of which the entire estate is first liable. The reason for filing a suit is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares of each heir in the distributed estate as lessened by the tax.

The SC held that "after the partition of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property they have respectively received from the estate." 2 If any person, corporation, partnership, joint-account ( cuenta en participacion), association, or insurance company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner of Internal Revenue until paid with interest, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: . . .

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Another remedy is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due, the estate. This second remedy is the very avenue the Government took in this case to collect the tax. The BIR should be given the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the 315, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need. And as afore-stated in this case the suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the Government recovered said tax. o

CIR v Gonzales Matias Yusay died leaving his two children as his heirs, Jose & Lilia. Jose was appointed administrator who filed with BIR an estate and inheritance tax return declaring personal & real properties of their father but the return did not mention any heir. On January 25, 1955, BIR demanded payment of assessed estate and inheritance taxes (approx P30k in total). Jose requested for an extension of time within which to pay the tax, which the CIR denied. During the pendency of the said proceedings in Iloilo and after reinvestigation, BIR reassessed the estate and inheritance tax liability and issued a reassessment of taxes in a total of P69k. Lilia disputed the legality of the 1958 assessment alleging that the right to make the same has prescribed since more than 5 years had elapsed since the filing of estate and inheritance tax return on May 11, 1949. CTA ruled in favor of Lilia. CIR appealed to the SC alleging that the right to assess the taxes in question has not been lost by prescription since the return which did not name the heirs cannot be considered true and complete return to start the running of the period of limitations of 5 years under Sec 331 of Tax Code and pursuant to Sec 332 he has 10 years within which to make the assessment counted from the discovery on September 24, 1953 of the identity of the heirs. I: W/n the right of the CIR to assess the estate and inheritance taxes in question has prescribed - NO W/n the return filed by Jose sufficient to commence the running of the prescriptive period to assess said taxes NO R: When tax return is considered sufficient

A return need not be complete in all particulars. It is sufficient if it complies substantially with law. There is substantial compliance (1) when the return is made in good faith & is not false or fraudulent; (2) when it covers the entire period involved; (3) when it contains information as to the various items of income, deductions and credits with such definiteness as to permit the computation and assessment of the tax. In this case, the estate and inheritance tax filed by Jose was substantially defective: It was incomplete. It declared only 93 parcels of land and leaving out 92 others. This was a huge underdeclaration. Moreover, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law, on the basis of return, there would be no occasion for the imposition of estate and inheritance taxes, When there is no heir, the estate is escheated to the State. The state does not tax itself. The deficient return did not start the running of the period of limitations BECAUSE the return was made on the wrong form. The taxpayer failed to observe the law (Sec 332) w/c grants the CIR 10 years (starting from date the fraud was discovered) within which to bring action for tax collection, applies. He is obligated to make a return or amend one already filed based on his own knowledge & information obtained through testimony or otherwise, & subsequently to assess taxes due.

On MR filed by Lilia: Lilia insists that since she administers only 1/3 of the estate of her father, she should not be liable for the whole tax. And she suggests that the intestate estate of Matias Yusay should be liable for the said taxes, 1/3 to be paid by Lilia and 2/3 to be paid by Florencia (wife of deceased Jose). Ruling of the Court: Estate and inheritance taxes are satisfied from the estate and are to be paid by the executor or administrator. Where there are 2 or more executors, all of them are severally liable for the payment of the estate tax. The inheritance tax, although charged against the account of each beneficiary, should be paid by the executor or administrator. Failure to pay the estate and the inheritance taxes before distribution of the estate would subject the executor or administrator to criminal liability. It is immaterial that Lilia administers only 1/3 of the estate & will receive as her share only said portion, for her right to the estate comes after taxes. As an administratrix, she is liable for the entire estate tax. As an heir, she is liable for the entire inheritance tax although her liability would not exceed the amount of her share in the estate.

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DONORS TAX Tang Ho v. CIR Li Seng Giap, his wife Tang Ho and their 13 children were stockholders of two close family corporations. BIR examiners made an examination of the books of the two corporations and found that each of Li Seng Giaps children had a total investment there of approximately P63k+ in shares issued to them by their father (who was the manager and controlling stockholder of the two corporations) CIR regarded these transfers as undeclared gifts made in the respective years, and assessed against Li Seng Giap and his children donor's and donee's taxes due to delayed payment (P76k+). They thus paid the sum of P53k+ representing the amount of the basic taxes, and put up a surety bond to guarantee payment of the balance demanded. Sometime later, they requested the CIR for a revision of their tax assessments, and submitted donor's and donee's gift tax returns showing that the children received gifts inter vivos and proper nuptias. o each child received by way of gift inter vivos, every year from 1939 to 1950 (except in 1947 and 1948) P4,000 in cash; o each of the eight children who married during the period aforesaid, were given an additional P20,000 as dowry or gift propter nuptias; o unmarried children received roughly an equivalent amount in 1949, also by way of gifts inter vivos, so that the total donations made to each and every child, as of 1950, stood at P63,190. They contended that since the cash donated came from the conjugal funds, they are be considered as donations by BOTH

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spouses, for which two separate TAX exemptions may be claimed in each instance, one for each spouse. I: W/n the donations made by Li Seng Giap to his children from the conjugal property should be taxed against husband and wife R: No. A donation of property belonging to the conjugal partnership, made during its existence, by the husband alone in favor of the common children, is taxable to him exclusively as sole donor. To be a donation by both spouses, taxable to both, the wife must expressly join the husband in making the gift. Her participation cannot be implied. THUS, in this case, ONLY ONE exemption or deduction can be claimed for every such gift, and not two, as claimed by petitioners. Speculation on the Tang Ho case: Why were they insisting that the dowry was made in cash? Does the law say that for a dowry to be considered as exemption, it has to be in cash? No. The reason why they were insisting that it was made in cash and then this cash was used to buy stock so that it can fall within the time period that the dowry should be given before celebration or within 1 year thereafter.

Gibbs v. CIR Allison and Esther Gibbs executed documents entitled Deed of Sale and Declaration of Trust whereby they transferred 53, 000 Lepanto Consolidated Mines shares of stock to their 5 children, in consideration of the sum of P26, 227.70 to be paid on or before December 1950. The instituted trustee was Allisons brother, Finley Gibb. Spouses Gibb sent a letter to the CIR asking for a ruling on whether or not gift taxes should be paid. CIR initially assessed the spouses a donee gift tax of P75 on each of the beneficiaries or a total of about P750. These assessments were based upon the DIFFERENCE between said market value of the shares of stock and the stipulated consideration for transfer thereof. Subsequently, CIR revised the assessment by INCREASING them. The spouses paid within the period fixed by law but SOUGHT a refund. Their demand was denied. Trustee Finley Gibb appealed to the Secretary of Finance and instituted a civil suit in the CFI for recovery of the amount. Spouses Gibb again executed 10 additional and separate trusts containing the same stipulations and conditions. These additional deeds of trust impelled CIR to assess donor gift taxes. CIR held that the gift taxes are available on the FULL MARKET VALUE of all the shares of stock thus placed in trust instead of upon

the difference between said market value and the stipulated considerations. CTA agreed. I: W/n CTA was correct in ruling that the gift taxes on the transfer of the shares of stock should be based on the full market value of shares of stock (NOT diff between market value and stipulated consideration) R: YES, CTA was correct, tax should be based on full MV. CTA was correct in finding that the agreements made by the parties were mere devises to avoid and evade the payment of the corresponding gift taxes: o If the trustors were earnestly concerned in providing ample funds to assure the support, maintenance, care, health, higher education and travel of their children and the launching of their career after they had become of age, the trustors would not have really meant to require them to pay the consideration stipulated in the trust agreements. o If the intent was really that the stipulated interest be paid, the trustee could have authorized the trustors to sell, mortgage, hypothecate or otherwise dispose of the stocks to raise the necessary funds. o The compromise agreements were made with knowledge of the fact that the CIR was already investigating whether the stipulated consideration was real or fictitious. There being no real consideration for the transfer, gift taxes should be based on the full market value of the shares of stock at the time of the respective transfer, and not merely on the difference between the said market value and the consideration stipulated in the trust agreements.

PIROVANO vs. CIR Enrico Pirovano was the father Carla Pirovano. De la Rama Steamship Co. insured the life of said Enrico Pirovano (then its President and General Manager) with various Philippine and American insurance companies for 1M, designating itself as the beneficiary. Enrico Pirovano died during the World War II. The BOD of De la Rama Steamship Co. adopted a resolution granting the proceeds expected to be collected on Enricos life insurance policies w/c was P400k for equal division among his 4 minor children, to be convertible into 4k shares of stock (1k shares / child0. The Company received the total sum of P643K as proceeds of the said life insurance policies obtained from American insurers.

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The BOD modified their resolution by renouncing all its rights title, and interest to the said amount of P643k in favor of the minor children of the deceased, subject to the express condition that said amount should be retained by the Company in the nature of a loan to it, drawing interest at the rate of 5% per annum, and payable to the Pirovano children after the Company shall have first settled its bonded indebtedness of 5M. This resolution was allowed by the childrens guardian. BOD again modified their resolution by providing that the Company shall pay the proceeds of said life insurance policies to the heirs after the Company shall have settled in full the balance of its present remaining bonded indebtedness, but the annual interests accruing on the principal shall be paid to the heirs of Pirovano whenever the Company is in a position to meet said obligation. The mother of the children ACCEPTED this resolution with a PUBLIC DOCUMENT. The SH of the Company ratified the resolutions with certain clarifying modifications that the payment of the donation shall not be effected until such time as the Company shall have first duly liquidated its present bonded indebtedness (P3.2M) with the Natl Devt Company and that any and all taxes, legal fees, and expenses in any way connected with the above transaction shall be chargeable and deducted from the proceeds of the life insurance policies. HOWEVER, the majority stockholders of the Company voted to revoke the donation. As a consequence of this revocation and refusal of the Company to pay the balance of the donation amounting to P564K despite demands, the PIROVANOS brought an action for the recovery of said amount. The RTC ordered that the donation was valid. Thus, the CIR assessed the amount of P60K as donees' gift tax against each of the heir, and a donor's gift tax in the total amount of P34K assessed against De la Rama Steamship Co., which the latter paid. The PIROVANOS contested CIRs assessment and imposition of the donees' gift taxes and donor's gift tax and also made a claim for refund of the donor's gift tax so collected. I: W/n the PRIVANOS are obliged to pay donees' gift taxes as well as the imposition of surcharge and interest on the amount of donees' gift taxes R: YES. A donation made by the corporation to the heirs of a deceased officer out of gratitude for the officer's past services is considered a donation and is subject to donee's gift tax. Art. 726 of the CivCode states that When a person gives to another a thing ... on account of the latter's merits or of the services

rendered by him to the donor, provided they do not constitute a demandable debt, ..., there is also a donation. The fact that his services contributed in a large measure to the success of the company did not give rise to a recoverable debt, and the conveyances made by the company to his heirs remain a gift or donation. ALSO, the value of such services which do not constitute a recoverable debt is NOT deductible from the donation. The actual consideration for the cession of the policies was the Company's gratitude to Pirovano. Gratitude has no economic value and is not "consideration" in the sense that the word is used under the Tax Code. OTHERS: Sec111 [where property is transferred for less than adequate consideration, amt exceeding consideration deemed a gift ] is NOT applicable). Whether remuneratory or simple, the conveyance remained a gift. The definition of CONSIDERATION is anything that is bargained for by the promisor and given by the promisee in exchange for the promise Pirovano's successful activities as officer of the De la Rama Steamship Co. cannot be deemed such consideration for the gift to his heirs, since the services were rendered long before the Company ceded the value of the life policies to said heirs; cession and services were not the result of one bargain or of a mutual exchange of promises. A subsequent promise to pay for past services is a nudum pactum i.e., one that is unenforceable in view of the common law rule that consideration must consist in a legal benefit to the promisee or some legal detriment to the promisor.

SPS. Gestopa vs. CA ad Mercedes Danlag Diego and Catalina Danlag were owners of 6 parcels of unregistered lands. They executed 3 deeds of donation mortis causa in favor of Mercedes Danlag-Pilapil covering 4 parcels. All deeds contained the reservation of rights of donors to amend / revoke the donation during their lifetime AND to sell, mortgage / encumber the properties if necessary. Diego w/ the consent of Catalina then executed a deed of donation inter vivos covering the aforementioned lots plus 2 other parcels again in favor of respondent Mercedes. This contained two conditions

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(1) that Danlag spouses shall continue to enjoy the fruits of land during their lifetime o (2) the donee cannot sell or dispose of the land during the lifetime of the said spouses w/o their consent. The Danlags sold parcels 3 and 4 to petitioners Gestopa and executed a deed of revocation recovering 6 parcels of land subject to deed of donation inter vivos. Mecedes filed with RTC against the Gestopas and the Danlags for quieting of title over the parcels of land. She alleged that she was an illegitimate daughter of Diego Danlag that she lived and rendered incalculable beneficial services to Diego and his mother Maura, when she was still alive. In recognition of her services, Diego executed Deed of Donation conveying to her 6 parcels of land. She accepted the donation in the same instrument, openly and publicly exercised rights of ownership over the donated properties, and caused the transfer of the tax declarations in her name. Through the machination, intimidation and undue influence, Diego persuaded the husband of Mercedes, Eulalio Pilapil to buy 2 of the 6 parcels covered by the deed of donation. The inter vivos donation was coupled with conditions she complied with. She alleges she had not been guilty of any act of ingratitude and that the revocation had no legal basis. Gestopas and Danlags opposed by saying that the deed of donation was null and void because it was obtained by Mercedes through machination and undue influence. Even assuming it was validly executed, the intention was for the donation to take effect upon death of donor. Further, the donation was void for it left the donor Diego w/o any property at all. I: W/n the donation was inter vivos or mortis causa inter vivos W/n the revocation was valid NO, it was not. R: The donation is INTER VIVOS. Revocation was not proper. (ruling in favor of Mercedes) Crucial in resolving whether the donation was inter vivos or mortis causa is the determination of whether the donor intended to transfer ownership over the properties upon the execution of the deed. In ascertaining the intention of the donor, all the deeds provisions must be read together: o IRST, the granting clause shows that Diego donated the properties out of love and affection for Mercedes. This is a mark of a donation inter vivos. o SECOND, the reservation of lifetime usufruct indicates that the donor intended to transfer the naked ownership of the properties. As correctly posed by the CA, what was o

the need for such reservation if the donor and his spouse remained the owners of the properties? o THIRD, the donor reserved sufficient properties for his maintenance w/ his standing in society, indicating that the donor intended to part w/ 6 parcels. o Lastly the donee accepted the donation. Alejandro vs. Geraldez: An acceptance clause is a mark that the donation is inter vivos. Acceptance is a requirement for donations inter vivos. Donations mortis causa, being in a form of a will, are not required to be accepted by the donees during the donors lifetime. THUS, the right to dispose the properties belonged to Mercedes. Diegos right to give consent was merely intended to protect his usufructuary interests. The limitation on the right to sell during the donors lifetime implied that ownership had passed to the donees and donation was effective during the donors lifetime. Circumstances show that the intention of the donor was to transfer ownership to Mercedes. Prior to the donation inter vivos, the Danlag spouses already executed 3 donations mortis causa. The Danlag spouses were aware of the difference between the two donations. If they did not intend to donate inter vivos, they would not again donate the four lots already donated mortis causa. Was the revocation valid? A valid donation, once accepted, becomes irrevocable, EXCEPT on account of inofficiousness, failure by donee to comply with charges imposed in donation, or ingratitude. The Danlag spouses did NOT invoke any of these. Finally, the records do not show that the donor-spouses instituted any action to revoke the donation in accordance w/ Art. 769. The revocation has no legal effect.

ACCRA v. CIR During the 1987 national elections, petitioners, who are partners ACCRA law firm contributed about P882k+ each to the campaign funds of Senator Angara, then running for the Senate. BIR assessed each of the petitioners donors tax for their contributions. Petitioners questioned the assessment through a letter to the BIR. They claimed that political or electoral contributions are NOT considered gifts under the NIRC and that, therefore, they are not liable for donors tax. The claim for exemption was denied by the Commissioner.

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I: W/n political contributions can be considered a donation and w/n petitioners are liable for Donors tax R: YES, political contributions ARE donations and petitioners ARE liable for donors tax. A donation has the following elements: o (a) the reduction of the patrimony of the donor; o (b) the increase in the patrimony of the donee; and, o (c) the intent to do an act of liberality / animus donandi The present case falls squarely within the definition of a donation. Petitioners, each contributed to the campaign funds of Senator Edgardo Angara, without any material consideration. All three elements of a donation are present. The patrimony of the four petitioners were reduced by P882k+, while Senator Edgardo Angaras patrimony correspondingly increased. There was intent to do an act of liberality / animus donandi was present since each of the petitioners gave their contributions without any consideration. 2) Petitioners attempt is strained. The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute, in no way amounts to a valuable material consideration so as to remove political contributions from the purview of a donation. Senator Angara was under no obligation to benefit the petitioners. The proper performance of his duties as a legislator is his obligation as an elected public servant of the Filipino people and not a consideration for the political contributions he received. In fact, as a public servant, he may even be called to enact laws that are contrary to the interests of his benefactors, for the benefit of the greater good. In fine, the purpose for which the sums of money were given, which was to fund the campaign of Senator Angara in his bid for a senatorial seat, cannot be considered as a material consideration so as to negate a donation. Finally, this Court takes note of the fact that subsequent to the donations involved in this case, Congress approved Republic Act No. 7166 on November 25, 1991, providing in Section 13 thereof that political/electoral contributions, duly reported to the Commission on Elections, are NOT subject to the payment of any gift tax. This all the more shows that the political contributions herein made are subject to the payment of gift taxes, since the

same were made PRIOR to the exempting legislation, and Republic Act No. 7166 provides no retroactive effect on this point.

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VAT Commissioner of Internal Revenue v. Mirant Pagbilao Corporation Mitsubishi MPC NPC MPC, formerly Southern Energy Quezon, Inc., is a domestic firm engaged in the generation of power which it sells to the National Power Corporation (NPC). For the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant, MPC secured the services of Mitsubishi Corporation (Mitsubishi) of Japan. Under R.A. 6395, NPC is exempt from all taxes (which covers both direct and indirect taxes). In the light of the NPC's tax exempt status, MPC, on the belief that its sale of power generation services to NPC is zero-rated for VAT purposes, filed an Application for Effective Zero Rating. CIR issued a ruling stating that the supply of electricity by MPC to the NPC shall be subject to zero percent (0%) VAT. Consistent with its belief to be zero-rated, MPC opted not to pay the VAT component of the progress billings from Mitsubishi for the period covering April 1993 to September 1996 - for the E & M Equipment Erection Portion of MPC's contract with Mitsubishi. This prompted Mitsubishi to advance the VAT component as this serves as its output VAT which is essential for the determination of its VAT payment. MPC, while awaiting approval of its application, filed its quarterly VAT return for the second quarter of 1998 where it reflected an input VAT of P148M+, as supported by an OR. MPC filed an administrative claim for refund of unutilized input VAT. BIR failed to act on its claim for refund. MPC went to the CTA via a petition for review to forestall the running of the two-year prescriptive period. BIR asserted that MPC's claim for refund CANNOT be granted since MPC's sale of electricity to NPC is NOT zero-rated for its failure to secure an approved application for zero-rating.

The CTA granted MPC's claim for input VAT refund or credit for PhP 10,766,939.48. The CA rendered its assailed decision modifying that of the CTA decision by granting most of MPC's claims for tax refund or credit for P146,760,509.48. I: W/n MPC is entitled to the refund of its input VAT payments made from 1993 to 1996 R: Yes, but only to the extent of P10M+, given that claim has prescribed. Prescription. MP's claim for refund / tax credit for the creditable input VAT was filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC provides that any VAT-registered person, whose sales are zero-rated may apply for the issuance of tax credit WITHIN 2 YEARS after the close of the taxable quarter when the sales were made. MPC filed a refund in Dec 1999 when it should have filed in Sept 1998 (since the close of the quarter was Sept 1996). Creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated transaction, does NOT, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation. History of VAT. The law that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has been drawn from the tax credit method (practiced in Europe). If at the end of a taxable quarter the output taxes charged by a seller are EQUAL to the input taxes passed on by the suppliers, no payment is required. HOWEVER, when output taxes EXCEED input taxes, the excess has to be paid. On the other hand, if the input taxes EXCEED the output taxes, the excess shall be CARRIED OVER TO THE succeeding quarter/s. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any EXCESS over the output taxes shall be refunded to the taxpayer / credited against other internal revenue taxes. Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. OTHERS:

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BIR and other tax agencies have a duty to treat claims for refunds and tax credits with proper attention and urgency. Had RDO No. 60 and, later, the BIR proper acted, instead of sitting, on MPC's underlying application for effective zero rating, the matter of addressing MPC's right, or lack of it, to tax credit or refund could have plausibly been addressed at their level and perchance freed the taxpayer and the government from the rigors of a tedious litigation. The official receipt proves payment by MPC of its creditable input VAT relative to its purchases from Mitsubishi. BIR is precluded from requiring additional evidence to prove that input tax had indeed paid or, in fine, that the taxpayer is indeed entitled to a tax refund or credit for input VAT, we agree with the CA's above disposition. As the Court distinctly notes, the law considers a duly-executed VAT invoice or OR referred to in the above provision as sufficient evidence to support a claim for input tax credit.

CIR v. Phil Health Care Providers, Inc. The Philippine Health Care Providers (PHCPI), a health care organization for sick and disabled persons enrolled in a health care plan, wrote BIR inquiring whether the services it provides are exempt from the payment of the VAT. BIR issued a ruling, confirmed by the BIR Regional Director, stating that PHCPI was exempt from the VAT coverage. BIR then sent PHCPI 2 notices for deficiency in its payment of the VAT and documentary stamp taxes (DST) f P224M+ for taxable years 1996 and 1997. PHCPI protested, but BIR did not take any action, so PHCPI filed with the CTA a petition for review. CTA ordered PHCPI to pay a reduced deficiency VAT and declared the BIR ruling void, saying that PHCPI is a service contractor subject to VAT since it does not actually render medical service but merely acts as a conduit between the members and petitioner's accredited and recognized hospitals and clinics. However, after a careful review of the facts of the case, the CTA resolved to grant petitioner's "Motion for Partial Reconsideration relying on Sec.246 of the 1977 Tax code which provides that in the absence of showing of bad faith, the retroactive revocation of the BIR Ruling will be prejudicial to PHCPI. Accordingly, the VAT assessment issued against PHCPI for the taxable years 1996 and 1997 was WITHDRAWN and SET ASIDE. I: 1. W/n PHCPI's services are subject to VAT R: YES. HOWEVER, because of the VAT ruling exempting PHCPI from VAT, it cannot be retroactively revoked and therefore, PHCPI is still

exempt. 1) Section 102 of the NIRC as amended provides that there shall be levied a VAT equivalent to 12% of gross receipts derived from the sale or exchange of services The phrase "sale or exchange of service" means the performance of all kinds of services in the Philippines for consideration. Section 103 of the same Code specifies the exempt transactions from the provision, which includes medical, dental, hospital and veterinary services except those rendered by professionals. It can be seen from PHCPIs letter to BIR that its services that it is not actually rendering medical service but merely acting as a conduit between the members and their accredited and recognized hospitals and clinics. Thus, it does NOT fall under VAT-exempt transactions. 2) Section 246 of the 1997 Tax Code, as amended, provides that rulings, circulars, rules and regulations promulgated by the CIR have no retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are: o (1) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR o (2) where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or o (3) where the taxpayer acted in bad faith. PHCPI did not fall under any of these exceptions. PHCPI's failure to refer to itself as a health maintenance organization is not an indication of bad faith or a deliberate attempt to make false representations. The term "health maintenance organization" was first recorded in the Philippine statute books only upon the passage of "The National Health Insurance Act of 1995" which defines a "health maintenance org" as one of the classes of a "health care provider." Thus, the VAT Ruling was issued in PHCPI's favor, and the term "health maintenance organization" was yet unknown or had no significance for taxation purposes. PHCPI therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997 on the basis of the VAT Ruling. CIR is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer.

CIR v Acesite (Philippines) Hotel Corporation

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Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases a portion of the hotels premises to the PAGCOR for casino operations. It also caters food and beverages to PAGCORs casino patrons through the hotels restaurant outlets. From 1996 to 1997, Acesite incurred VAT amounting to P30M+ from its rental income and sale of food and beverages to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status. Thus, PAGCOR paid the amount due to Acesite minus the P30M+ VAT while Acesite paid the VAT to the CIR. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. In 1998, Acesite filed an administrative claim for refund with the CIR but CIR failed to resolve the same, so the case was elevated to the CTA. I: W/n the 0% VAT rate (under then Sec 108 (B)(3) of the NIRC) applies to Acesite R: Yes. PD 1869 w/c created PAGCOR granted it an exemption from paying taxes. A close scrutiny of the provisions of the said law gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. The law even grants tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30M+ VAT and neither is Acesite as Acesite is effectively subject to zero percent rate under the NIRC. By extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes. The NIRC provides that transactions subject to 0% VAT include services rendered to persons whose exemption under special laws or international agreements subjects the supply of such services to 0% rate. OTHERS: It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value.

Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.

CIR v. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. A foreign consortium composed of BWSC-Denmark, Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with NAPOCOR for the operation and maintenance of 2 power barges. BWSC-Denmark, the coordination manager, established BWSCMindanao (domestic corp doing business in Davao) which subcontracted the actual operation and maintenance of NAPOCORs two power barges. NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). The freely convertible non-Peso component is deposited directly to the Consortiums bank accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate and special designated bank account in the Philippines. On the other hand, the Consortium paid BWSC-Mindanao in foreign currency inwardly remitted to the Philippines through the banking system. In order to ascertain the tax implications of the above transactions, BWSC-Mindanao sought a ruling from the BIR, w/c responded with a Ruling declaring that if BWSC-Min chose to register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, the aforesaid services shall be subject to VAT at zero-rate. BSWC-Mindanao chose to register as a VAT taxpayer. In conformity with RR 5-96 allowing zero-rated VAT for services other than processing, manufacturing and repacking of goods, it subjected its sale of services to the Consortium to the 10% VAT and paid the amount of P6M+ as its output tax liability for the year 1996. It then filed a claim for the issuance of a tax credit certificate with the BIR, believing that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program (VAP) of the BIR. CTA ordered BIR to issue a tax credit certificate for the P6M+ in favor of BSCW-Mindanao. This was affirmed by the CA.

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I: W/n BWSC-Mindanao is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for the year 1996 R: Yes, they are entitled to refund. Their services ARE actually still subject to 10% VAT BUT they are not liable for such given their reliance on BIR Rulings. An essential condition for qualification to zero-rating under Section 102(b)(2) of RR 5-96 is that services other than processing, manufacturing, or repacking of goods must be performed for persons doing business OUTSIDE the Philippines. In this case, the payer-recipient of BWSC-Mindanaos services is the Consortium which is a joint-venture doing business in the Philippines. While the Consortiums principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines. This is shown clearly in BIR Ruling No. 023-95 which states that the contract between the Consortium and NAPOCOR is for a 15-year term. Considering this length of time, the Consortiums operation and maintenance of NAPOCORs power barges cannot be classified as a single or isolated transaction. The Consortium does not fall under Section 102(b)(2) which requires that the recipient of the services must be a person doing business outside the Philippines. Therefore, BWSC-Mins services to the Consortium, not being supplied to a person doing business outside the Philippines, cannot legally qualify for 0% VAT. The Court recognizes the rule that the VAT system generally follows the "destination principle" (exports are zero-rated whereas imports are taxed). However, as the Court stated in American Express, there is an exception to this rule, which is the 0% VAT on services enumerated in Section 102 and performed in the Philippines. To be exempt from the destination principle under Section 102(b)(1) and (2), the services must be (a) performed in the Philippines; (b) for a person doing business outside the Philippines ; and (c) paid in acceptable foreign currency accounted for in accordance with BSP rules. In contrast, this case involves a recipient of services the Consortium which is doing business in the Philippines. Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Rulings insofar as they held that the services being rendered by BWSCMI is subject to VAT at zero percent (0%). BWSCs reliance on these BIR rulings binds BIR. BIRs revocation CANNOT be given retroactive effect since it will prejudice the taxpayer, w/c is prohibited by Sec 246 of the NIRC. Changing respondents status will deprive respondent of a refund of a substantial amount representing excess output tax.

CIR v. Magsaysay Lines NDC decided to sell its National Marine Corporation (NMC) shares and 5 of its ships, w/c were offered for public bidding. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a VAT of 10% on the value of the vessels. Magsaysay Lines offered to buy the shares and the vessels for P168M. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong (collectively, private respondents) The bid was approved by the Committee on Privatization, and a Notice of Award was issued to Magsaysay Lines. Private respondents through counsel then received a VAT Ruling from the BIR, holding that the sale of the vessels was subject to the 10% VAT. They filed a motion for reconsideration but their motion was denied so they elevated the case to the CTA. The NDC drew on the Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 1989. CTA ruled that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDCs business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in the course of trade or business. I: W/N the sale is subject to VAT R: No, sale is NOT subject to VAT. Any sale, barter or exchange of goods or services not in the course of trade or business is not subject to VAT. mperial v. CIR: The term "carrying on business" does not mean the performance of a single disconnected act, but means conducting, prosecuting and continuing business by performing progressively all the acts normally incident thereof. Thus, it connotes REGULARITY of activity. In the instant case, the sale was an isolated transaction. The sale which was involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property. This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property.

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Thus, the sale of the vessels was not in the ordinary course of trade or business of NDC so it should not be subject to VAT.

CIR v. SEKISUI SEKISUI JUSHI is a domestic corporation with principal office located in the Special Export Processing Zone in Laguna. It is principally engaged in the business of manufacturing, importing, exporting, buying, selling wholesale such goods as strapping bands and other packaging materials. Having registered with the BIR as a VAT taxpayer, Sekisui filed its quarterly returns with the BIR, in the amount of P4M paid by it in connection with its domestic purchase of capital goods and services. Said input taxes remained unutilized since Sekisui has not engaged in any business activity or transaction for which it may be liable for output tax and for which said input taxes may be credited. Sekisui then filed with the One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (CENTER-DOF) two separate applications for tax credit/refund of VAT input taxes paid. CIR denied this, but CTA ruled that Sekisui was entitled to refund. I: W/n SEKISUI is entitled to the refund/tax credit certificate as alleged unutilized input taxes paid on domestic purchase of capital goods and services R: Yes, it is entitled to refund Business enterprises registered with the Philippine Export Zone Authority (PEZA) may choose between two fiscal incentive schemes: o (1) to pay a 5% preferential tax rate on its gross income and thus be exempt from all other taxes; or o (b) to enjoy an income tax holiday, in which case it is not exempt from applicable national revenue taxes including the value-added tax (VAT). If the entity avails itself of the 5% preferential tax rate under the first scheme, it is exempt from all taxes, including the VAT; Under the second, it is exempt from income taxes for a number of years, but not from other national internal revenue taxes like the VAT. A perusal of the pleadings and supporting documents indicates that Sekisui availed itself of the income tax holiday (second). By doing so, it became subject to VAT. It correctly registered as a VAT taxpayer, because its transactions were not VAT-exempt. Notwithstanding the fact that its purchases should have been zerorated, Sekisui was able to prove that it had paid input taxes in the amount of P4M, as substantially supported by invoices and ORs.

While an ecozone is within the Philippines, it is deemed a separate customs territory. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. Since 100% of Sekisui's products are exported, all its transactions are deemed export sales and are thus VAT zero-rated. Sekisui has no output tax with which it could offset its paid input tax. Since the subject input tax it paid for its domestic purchases of capital goods and services remained unutilized, it can claim a refund for the input VAT previously charged by its suppliers.

ABAKADA vs Ermita (Sept 1, 2005) Several actions were filed by different petitioners assailing the validity of R.A. No. 9337 (increasing VAT to 12%) for being unconstitutional, as it violates Art 6, Section 28, w/c provides that The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. In particular, SHELL, etc. assailed Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited against the output tax , making it REGRESSIVE and unconstitutional. Specific provision: If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed 70% of the output VAT : PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes. . . I: W/n RA 9337 is unconstitutional for violating uniformity, equitability and progressiveness of taxation No, it is VALID. TAX IS UNIFORM. Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class. In this case, the tax law is uniform because: o 1) it provides a standard rate of 0% or 10% (or 12%) on all goods and services;

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) it does not make any distinction as to the type of industry or trade that will bear the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government. TAX IS EQUITABLE. (Taxes should equally burden all individuals or entities in similar economic circumstances.) The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding P1.5M. Also, basic marine and agricultural food products in their original state are still NOT subject to the tax, thus ensuring that prices at the grassroots level will remain accessible. Although the law outs a premium on businesses with low profit margins, and unduly favors those with high profit margins, Congress equalized the burden the law by likewise imposing a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as an equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equalfooting. Moreover, Congress provided under mitigating measures to ease, as well as spread out, the burden of taxation, which would otherwise rest largely on the consumers: o Excise taxes on petroleum products and natural gas were reduced. Percentage tax on domestic carriers was removed. Power producers are now exempt from paying franchise tax. o Income tax rates of corporations, in order to distribute the burden of taxation, were increased o Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate, from a previous 32%. o Intercorporate dividends of non-resident foreign corporations are still subject to 15% final withholding tax but the tax credit allowed on the corporations domicile was increased to 20%. o PAGCOR is not exempt from income taxes anymore. o Even the sale by an artist of his works or services performed for the production of such works was not spared. On the INPUT TAX LIMIT* (ITO ata yung impt) Petitioner (Shell) assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70% of the output tax, then 100% of such input tax is still creditable. o

More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that if the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused input tax may be used in payment of his other internal revenue taxes. The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly contend. On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and revenue should be for public purposes and expenditures. As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three possible scenarios may arise: o If output tax = input tax = no payment o If output tax > input tax = person liable for excess, to be paid to BIR o If input tax > output tax = excess shall be carried over to the succeeding quarter or quarters. o IF input tax results from zero-rated or effectively zerorated transactions, any excess over the output taxes shall be REFUNDED to the taxpayer / credited against other internal revenue taxes, at the taxpayers option. Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax only up to the extent of 70% of the output tax. There is no retention of any tax collection because the taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of the tax is the seller. What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output taxes. TAX IS REGRESSIVE, BUT IT IS NOT INVALID. Taxation is PROGRESSIVE when its rate goes up depending on the resources of the person affected. The Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it

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simply provides is that Congress shall "evolve a progressive system of taxation." *NOTE the distinction made by the court: VAT - A tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services. Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, with the seller acting merely as a tax collector. The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers. Direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to someone else. Examples are individual and corporate income taxes, transfer taxes, and residence taxes. ABAKADA v. Ermita (Oct 18, 2005) This case is about the Resolution of the Motion for Reconsideration filed by herein petitioners based on the decision rendered by the court on Sept. 1, 2005, upholding the constitutionality of RA 9337 or the VAT Reform Act. Relevant issues are as follows: 1. MR of Escudero, et al.: W/N there was grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Bicameral Committee when the No Pass-On Provisions for the sale of petroleum products and power generation services were deleted. 2. MR of Bataan Governor Garcia, Jr.: W/N the VAT law is unconstitutional for being arbitrary, oppressive and inequitable because it burdens the consumers because of the price increase. 3. MR of Association of Pilipinas Shell Dealers: W/N the Court erred in upholding the constitutionality of Section 110(A)(2) and Section 110(B) of the NIRC as amended by the EVAT Law imposing limitations on the amount of input VAT that may be claimed as a credit against the output VAT; Section 114(C) of the NIRC as amended by the EVAT Law, requiring the government or any of its instrumentalities to withhold a 5% final withholding tax on their gross payments on purchases of goods and services ; for finding that the EVAT Law is not arbitrary, oppressive and confiscatory as to amount a deprivation of property without due process of law; that it did not violate the equal protection clause. R: MRs are DENIED. TRO is lifted.

Escudero, et al. argues that the bicameral committee should not have touched on the No Pass-On Provisions since both the Senate and the House of Representatives were in agreement that such provision should be passed where no VAT Burden shall be passed to the endconsumer and instead will be shouldered by the sellers. HOWEVER, the deletion of the No Pass-On Provision made the present VAT law more in consonance with the very nature of VAT which is a tax on spending or consumption, thus, the burden thereof is ultimately borne by the end-consumer. As to the contention that the right to credit input tax has already evolved into a vested right, the Court finds that the right to credit the same is a mere creation of law. Prior to the enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable from the taxes payable. With the advent of EO 273 imposing a 10% multi-stage tax on all sales, it was only then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax was established. This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can limit. It should be stressed that a person has no vested right in statutory privileges. The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages and operates its business. Market forces, strategy and acumen will dictate their moves. With or without these VAT provisions, an entrepreneur who does not have the ken to adapt to economic variables will surely perish in the competition. The arguments posed are within the realm of business, and the solution lies also in business.

CIR v. Toshiba Information Equipment (Phils.), Inc. Toshiba is a domestic corporation with the primary purpose of engaging in the business of manufacturing and exporting of electrical and mechanical machinery and goods relating to information technology, computer hardware and software. In 1995, Toshiba registered w/ Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise. Toshiba also registered with the BIR as a VAT taxpayer. Toshiba filed its VAT returns for the year 1996 reporting its input VAT and alleging that its input VAT was from its purchases of capital goods and services which remained unutilized since it had not yet engaged in any business activity for which it may be liable for output VAT.

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Consequently, Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback center of the Department of Finance applications for tax credit/refund of its unutilized input VAT. Toshiba also filed a petition for review with the CTA to toll the running of the two-year prescriptive period for judicially claiming a tax credit/refund. CTA ordered the CIR to refund or to issue a tax credit certificate to Toshiba. CIR opposed on the ground that since Toshiba is registered with PEZA as an Ecozone Export Enterprise, its business is not subject to VAT pursuant to Section 109 of the Tax Code. Since Toshibas business is not subject to VAT, the capital goods and services it purchased are considered not used in VAT taxable business and therefore, it is not entitled to refund of input taxes on such capital goods. I: W/n Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services R: Yes, Toshiba is entitled to tax credit/refund of its input VAT on its purchases of capital goods and services. An Ecozone enterprise is a VAT-exempt entity. Sales of goods, properties, and services by persons from the Customs Territory to Ecozone enterprise shall be subject to VAT at zero percent (0%). PEZA-registered enterprises, which would necessarily be located within Ecozones, are VAT-exempt entities because of Section 8 of RA 7916 which establishes the fiction that Ecozones are foreign territory. The national territory of the Philippines outside of the proclaimed borders of the Ecozone are referred to as Customs Territory. The provision provides that PEZA shall manage and operate the Ecozones as a separate customs territory, thus creating the fiction that the Ecozone is a foreign territory. The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial board of the taxing authority. Sales of goods, properties, and services by a VAT-registered supplier from the Customs Territory to an Ecozone enterprise shall be treated as export sales. If such sales are made by a VAT-registered supplier, they shall be subject to VAT at 0%. In zero-rated transactions, the VAT-registered supplier shall not pass on any output VAT to the Ecozone enterprise, and at the same time, shall be entitled to claim tax credit/refund of its input VAT attributable to such sales. Zero-rating of export sales primarily intends to benefit the export (i.e., the supplier from Customs territory), who is directly and legally liable for VAT. Meanwhile, sales to an Ecozone enterprise made a by a non-

VAT or unregistered supplier would only be exempt from VAT and the supplier shall not be able to claim credit/refund of its input VAT. Even conceding, however, that Toshiba as a PEZA-registered enterprise, is a VAT-exempt entity that could not have engaged in a VAT-taxable business, given the particular circumstances, Toshiba is entitled to a credit/refund of its input vat. The sales made to Toshiba, for which it is claiming a refund or credit of its unutilized input vat, were made in 1996 under the old rule that the tax-status of Ecozone enterprises would depend upon the tax incentives it chooses to avail of, either the 5% preferential tax or the income tax holiday under the Omnibus Investments Code where the entity will only be exempt from income tax but not from VAT. Since Toshiba chose to avail of the income tax holiday, it was therefore subject to the 10% VAT. Therefore Toshibas transactions in 1996 being subject to VAT, is entitled to a credit/refund of the unutilized input VAT it incurred which it wasnt able to apply against its output taxes. The transaction from a supplier in a customs territory to Toshiba, being a PEZA-registered enterprise, was considered an effectively VAT zero-rated transaction. However, the sales made by Toshiba to a foreign country were considered export sales. Thus, they were considered to be automatically VAT zero-rated transactions. Given that in the case of Toshiba, Toshiba was Buyer 1 and not the Seller, then it should not have claimed for an input tax credit since theoretically, there was no input VAT on Toshibas part. However, the Toshiba case happened prior to RMC 74-99 where PEZA-registered enterprises availed of income tax holidays and so Toshiba was subject to VAT. Thus, there was an assumption that the seller passed on VAT to Toshiba and so, Toshiba should be allowed to claim for an input tax credit. As regards the fact that Toshiba was asking for an input tax credit on capital goods, the ruling in that case is no longer applicable as input tax credit for capital goods under RA 9337 are governed by new rules. In this case, the Court also made a pronouncement that a VATregistered supplier from the customs territory to an Ecozone enterprise shall be treated as export sales, while sales to an ECOZONE enterprise made by a NON-VAT or unregistered supplier would only be exempt from VAT and the supplier shall not be able to claim credit/refund for his input VAT.

CIR v Seagate

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Seagate is a resident foreign corporation duly registered with the SEC to do business in the Philippines, with principal office address at the Special Economic Zone in Cebu. It is also registered with the Philippine Export Zone Authority (PEZA) to engage in the manufacture of recording components primarily used in computers for export. Furthermore, it is a VAT-registered entity w/c filed VAT returns for the period of April 1998 to 30 June 1999. Subsequently, an administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed. CIR did not act upon this so Seagate elevated the case to CTA. CTA granted the claim for refund but the CA modified it in the reduced amount of P12M, w/c represented the unutilized but substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999. This was because Seagate had availed itself only of the fiscal incentives under EO 226 and NOT of those under both PD 66 and Section 24 of RA 7916. Respondent was, therefore, considered exempt only from the payment of income tax when it opted for the income tax holiday in lieu of the 5% preferential tax on gross income earned. As a VAT-registered entity, though, it was still subject to the payment of other national internal revenue taxes, like the VAT. I: W/n Seagate is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999 R: YES, Seagate is entitled to refund. THERE IS Preferential Tax Treatment Under the following Special Laws: o PD 66- law creating PEZA o EO 226- Omnibus Investments Code" of 1987 o RA 7227- Bases Conversion and Development Act of 1992 o RA 7916- VAT Law o RA 7844- Export Development Act of 1994; o PD 1853- law requiring deposits of duties upon the opening of letters of credit to cover imports Seagate is one of the business entities registered in and operating from the SEZ in Cebu. These entities are exempt from all internal revenue taxes and the implementing rules relevant thereto, including the VAT. Although export sales are not deemed exempt transactions, they are nonetheless zero-rated, because the ecozone within which it is

registered is managed and operated by the PEZA as a separate customs territory . This means that in such zone is created the legal fiction of foreign territory. Under the cross-border principle of the VAT system being enforced by the BIR, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. If exports of goods and services from the Philippines to a foreign country are free of the VAT, then the same rule holds for such exports from the national territory -- except specifically declared areas -- to an ecozone. THUS, sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are considered exports to a foreign country Conversely, sales by a PEZA-registered entity to a VAT-registered person in the customs territory are deemed imports from a foreign country. An ecozone, even though a geographical territory of the Philippines, is however regarded in law as foreign soil. This legal fiction is necessary to give meaningful effect to the policies of the special law creating the zone. There is a difference between ZERO-RATED TRANSACTIONS and EXEMPT / EFFECTIVE ZERO-RATED TRANSACTIONS Zero-rated It is automatic zero-rating. Refers to the export sale of goods and supply of services. Exempt It is effective zero rating. Refers to the sale of goods or supply of services to persons or entities whose exemption under special laws or Intl agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate. Intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.

Intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales.

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There is total relief for the purchaser from the burden of the tax since he does not have input VAT and in effect, because VAT is at 0%, it does not have output VAT.

There is partial relief because the purchaser is not allowed any tax refund of or credit for input taxes paid.

Differentiate zero-rated from effectively zero-rated transactions according to Seagate Sir pointed out that: the difference between automatic zero-rated transactions from effectively zero-rated transactions is that with automatic zero-rated transactions , you only have to look at the Tax Code provisions to know which transactions are automatic zero-rated. However, with EXEMPTIONS / effective zero-rated transactions , you have to look at other laws; thus, for effective zero-rated transactions, there is a need to get a prior confirmation or prior approval from the BIR that the transaction is effectively zero-rated. NOTE however that Revenue Regulations of 4-2007 does not provide anymore that there should be an approval before a transaction that is effectively VAT zero-rated to become effectively VAT zero-rated, which could be a legal basis why there is no need for prior confirmation. But Sir does not agree since there is yet no amendment in the Tax Code. Exempt Transaction - involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status of the party (VAT-exempt or not) to the transaction. - such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid. Exempt Party - a person or entity granted VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from the VAT. - Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer. While the liability is imposed on one person, the burden may be passed on to another. Therefore, if a special law merely exempts a party as a seller from its direct liability for payment of the VAT, but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not exempt. Applying this principle to the case at bar, the purchase transactions entered into by respondent are not VAT-exempt.

OTHERS: Special laws may certainly exempt transactions from the VAT. However, the Tax Code provides that those falling under PD 66 are not. The purchase transactions it entered into are, therefore, not VAT-exempt. These are subject to the VAT; respondent is required to register. Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent, depending again on the application of the destination principle (Under this principle, goods and services are taxed only in the country where these are consumed. Thus, exports are zero-rated, but imports are taxed). When VAT Rate is at 0% or at 10% 0%- if Seagate enters into such sales transactions with a purchaser (usually in a abroad) for use or consumption OUTSIDE the Philippines 10%- if Seagate entered into with a purchaser for use or consumption IN the Philippines, UNLESS the purchaser is exempt from the indirect burden of the VAT, in which case it shall also be zero-rated. Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. The Tax Exemptions are Broad and Express Applying the special laws enumerated above, respondent as an entity is exempt from internal revenue laws and regulations. This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish. Tax Refund or Credit is in Order Having determined that respondents purchase transactions are subject to a zero VAT rate, the tax refund or credit is in order. As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax regime. Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of income tax for a certain number of years, depending on its registration as a pioneer or a non-pioneer enterprise.

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Summary To summarize, special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by law is considered as a separate customs territory . As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit. American Express v. CIR Petitioner Amex-Phil is a Philippine branch of American Express International, Inc., a corporation duly organized under Delaware, US laws. It is a servicing unit of American Express International, Inc. HK branch, engaged primarily to facilitate the collection of Amex HK's receivables from Amex cardholders residing or situated in the Philippines, as well as the payment of Amex HK to American Express accredited service establishments and merchants in the Philippines. Amex-Phil made a request in writing to BIR for qualification as a zero rated VAT enterprise. BIR issued a VAT Ruling declaring that as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, Amex-Phils service income is automatically zero rated effective January 1, 1988. For this, there is no need to file an application for zero-rate. For the taxable year 1998, petitioner allegedly generated and recorded revenues in the total amount of P81k which were paid for in HK in foreign currency inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the BSP. Amex-Phil asserts that said revenues qualify as zero-rated pursuant Tax Code as confirmed in the VAT Ruling. For the same period, Amex-Phil allegedly paid input VAT amounting to P3.9M+ on its domestic purchases of taxable goods/services. Petitioner nonetheless claims that its output VAT liability for the period amounted only to P4k thereby leaving an unutilized input VAT of P3M averred to be directly attributable to its zero-rated sales.

Petitioner contends that the input VAT payments in 1998 were paid in the course of its trade or business. Further, the unapplied input VAT payments subject of this case had not been carried over to the succeeding first quarter of 1999. I: W/N Amex-Phil is entitled to a refund of P3,967,561.06 allegedly representing unutilized input VAT payments on domestic purchases of taxable goods/services which are directly attributable to zero-rated sales for the period January 1 to December 31, 1998 R: YES. Petitioner's claim for refund is hereby PARTIALLY GRANTED. Respondent CIR is ORDERED to REFUND to petitioner the sum of P3,967,336.97 representing unutilized input VAT payments for the period January 1 to December 31, 1998. The onus (burden) of taxation under our VAT system is in the country where the goods, property or services are destined and consumed. This is the reason why under our VAT Law, goods, property or services destined to be consumed in the Philippines are subject to the 10% VAT whereas exports are zero-rated. Amexs transactions were considered zero-rated because they were services that were paid for in an acceptable foreign currency & accounted for in accordance w/ the rules & regulations of the BSP since its transactions were paid in HK foreign currency which was inwardly remitted to the Philippines & accounted for in accordance w/ the rules of BSP. The governing law in the case at bar is Section 112(A)[then Section 106(a)] in relation to Section 108(B)(2) of the Tax Code. 3 In conformity with this law, to be entitled to a refund or tax credit of input VAT payments directly attributable to zero-rated or effectively zerorated sales, the following requisites must be complied with: 1) there must be zero-rated or effectively zero-rated sales; 2) that input taxes were incurred or paid; 3) that such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated sales; 4) that the input VAT payments were not applied against any output VAT liability; and 5) that the claim for refund was filed within the two-year prescriptive period.

SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero rated or Effectively Zero-rated Sales. Any VAT registered person, whose sales are zerorated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

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PETITIONER in this case fulfilled all the requirements, except the 3 rd (not all of the input VAT payments were attributable to the zero-rated sales), hence the partial grant. 1st requirement: Petitioner's sales of services qualify as zero-rated sales. It is a VAT registered entity and its sales of services to AMEX HK falls under Section 108(B)(2) of the Tax Code. Further, petitioner's service fee earnings amounting to P81k were paid for in acceptable foreign currency (US dollars) and accounted for in accordance with the rules and regulations of the BSP as evidenced by the various telex advices and demand deposit statementsand certification from BPI Forex Corporation. 2ndrequisite: Petitioner submitted various suppliers' invoices and ORs which are valid documents in accordance with Sections 113 and 237 of the Tax Code. From said documents, petitioner established that it paid an input VAT in the sum of P3,972,025.15 on its domestic purchases of taxable goods/services for the year 1998. 3rd requisite: Not all of the substantiated input VAT payments of P3,972,025.15 were directly attributable to petitioner's zero-rated sales. For the year 1998, petitioner had taxable sales in the amount of P46,881.80 with the corresponding output VAT of P4,688.18 Indubitably, only the input VAT of P3,967,336.97, arrived at by deducting the output VAT of P4,688.18 from the substantiated input VAT of P3,972,025.15, can be directly attributed to petitioner's zero-rated sales for the subject period. 4threquirement: Petitioner offered in evidence its quarterly VAT return for the first quarter of 1999 to prove that the subject claim was not applied or carried over to the said quarter. Last requirement: Counting the two-year prescriptive period from the date of filing of petitioner's 1998 first quarterly VAT returns on April 20, 1998, both the administrative (filed on April 18, 2000) and judicial (filed on April 19, 2000) claims for refund were filed within the two-year period as mandated by law.

CIR v. CA and Commonwealth Management and Services Corporation

Commonwealth Management and Services Corporation (COMASERCO), is a Phil corp w/c is an affiliate of PHILAMLIFE organized by the latter to perform collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other affiliates. BIR issued an assessment to private respondent COMASERCO for deficiency VAT amounting to P351k+ for taxable year 1988. COMASERCO filed with the BIR, a letter-protest objecting to the latter's

finding of deficiency VAT, but the CIR sent a collection letter to COMASERCO demanding payment of the deficiency VAT. Thus COMASERCO file with the CTA a petition for review wherein they averred that it was NOT engaged in the business of providing services to Philamlife and its affiliates. COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and NOT in the sale of services. COMASERCO stressed that it was not profit-motivated, thus not engaged in business. Thus, it is not liable to pay VAT. I: W/n COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon R: YES, COMASERCO is liable to pay VAT (reversing CAs decision and reinstating the decision of the Tax Appeal in favor of the Commissioner) CIR avers that to "engage in business" and to "engage in the sale of services" are two different things. SC agreed w/ CIR in saying that the services rendered by COMASERCO to Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on the value added by the performance of the service. It is immaterial whether profit is derived from rendering the service. Sec 99 of the NIRC provides that any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any person who imports goods shall be subject to the VAT imposed in Sections 100 to 102 of this Code." COMASERCO contends that the term "in the course of trade or business" requires that the "business" is carried on with a view to profit or livelihood. It avers that the activities of the entity must be profitoriented. COMASERCO submits that it is not motivated by profit, as defined by its primary purpose in the articles of incorporation, stating that it is operating "only on reimbursement-of-cost basis, without any profit." HOWEVER, the EVAT Law clarifies that even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. The definition of the term "in the course of trade or business" incorporated in the present law applies to all transactions even to

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those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services. Section 108 of the NIRC defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project." It is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT.

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CIR v SM Primeholdings Inc. SM Prime and First Asia are both engaged in the business of operating cinema houses, among others. BIR sent them both preliminary assessment notices for VAT deficiency on cinema ticket sales. Both protested, but BIR denied their protests, arguing that the list of enumerated services under Sec. 108 of the NIRC is not exhaustive because it covers all sales of services . Also, the deficiency assessments were based on Revenue Memorandum Circular No. 28-2001. CTA ruled that the activity of showing cinematographic films was NOT subject to VAT, and should instead be subject to an amusement tax. CTA en banc affirmed this, saying that section 108 of the NIRC actually sets forth an exhaustive enumeration of what services are intended to be subject to VAT, w/c does NOT include the showing films and motion pictures. I: W/n the gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to VAT R: NO, it is not subject to VAT. The enumeration of services subject to VAT under Sec. 108 of the NIRC is not exhaustive. It is up to the court to determine if showing of films and motion pictures fall under the phrase similar services of Sec. 108 by ascertaining the intent of the legislature. Based on various amendments to the VAT coverage, none pertain to cinema/theater operators or proprietors. In fact, the activity of showing films and motion pictures has always been considered as a form of entertainment subject to amusement tax. At present, only lessors or distributors of cinematographic films are subject to VAT, while persons subject to amusement tax are exempt from the coverage of VAT. It is therefore clear that the legislature never intended to subject this kind of activity to VAT. To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors, who would be paying an additional 10% VAT on top of the 30% amusement tax imposed by Sec. 140 of the Local Govt. Code, or a total of 40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of 1997 would be in a better position than those taxed under the LGC of 1991. The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts of cinema/theater operators or proprietors derived from admission tickets. The removal

of the prohibition under the Local Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater operators or proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a burden on the taxpayer, it cannot be presumed nor can it be extended by implication. As it is, the power to impose amusement tax on cinema/theater operators or proprietors remains with the local government. Considering that there is no provision of law imposing VAT on the gross receipts of cinema/theater operators or proprietors derived from admission tickets, RMC No. 28-2001 which imposes VAT on the gross receipts from admission to cinema houses is therefore invalid. The rule on tax exemptions should be construed strictly against the taxpayer does not apply in this case. SM Primeholdings and First Asia need not prove that they are exempted from the coverage of VAT. Such rule presupposes that the taxpayer is clearly subject to the tax being levied against him. The reason is obvious: it is both illogical and impractical to determine who are exempted without first determining who are covered by the provision. Thus, unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be presumed. In fact, in case of doubt, tax laws must be construed strictly against the government and in favor of the taxpayer.

Tambunting Pawnshop Inc v CIR CIR assessed Tambunting pawnshop for deficiency Value-Added Tax for the taxable year 1999. Tambunting was ordered by the BIR to pay P3M+ representing deficiency VAT. Tambunting alleged that it is NOT liable for tax because a pawnshop is not enumerated as one of those engaged in "sale or exchange of services" in Section 108 of the NIRC. The nature of the business of pawnshops does not fall under "service" as defined under the Legal Thesaurus of William C. Burton (accommodate, administer to, advance, afford, aid, assist, attend, be of use, care for, come to the aid of, commodere, comply, confer a benefit, contribute to, cooperate, deservire, discharge one's duty, do a service, do one's bidding, fill an office, forward, furnish aid, furnish assistance, give help, lend, aid, minister to, promote, render help, servire, submit, succor, supply aid, take care of, tend, wait on, work for) I: W/n Pawnshops are subject to VAT pursuant to Section 108 (A) of NIRC. Pawnshops are not under 108 of the NIRC but are specifically classified as other Non-bank Financial Intermediaries by RA 9238.

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Prior to the passage of the EVAT Law in 1994, pawnshops were treated as lending investors subject to lending investor's tax. Subsequently, pawnshops were then treated as VAT-able enterprises under the general classification of "sale or exchange of services" under Section 108 (A) of the Tax Code of 1997, as amended. Finally, R.A. No. 9238 [which was passed in 2004] classified pawnshops as Other Non-bank Financial Intermediaries. At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the general provision on "sale or exchange of services" as defined under Section 108 (A) of the Tax Code of 1997, which states: "'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration . . . ." Instead, due to the specific nature of its business, pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries. The Court finds that pawnshops should have been treated as nonbank financial intermediaries from the very beginning , subject to the appropriate taxes provided by law, thus o Under the NIRC of 1977, pawnshops should have been levied the 5% percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under (now) Section 121 of the Tax Code of 1997 o With the imposition of the VAT under the EVAT Law, pawnshops should have been subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions under (now) Section 108 of the Tax Code of 1997 o However, through the years, various laws effectively deferred the levy, collection, and assessment of 10% VAT on services rendered by banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions from 1994 to December 31, 2002; o With no further deferments given by law, the levy, collection and assessment of the 10% VAT on banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were finally made effective beginning January 1, 2003; o 2004: Finally, 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, and the 0% to 5% percentage tax on gross receipts on other nonbank financial intermediaries was reimposed under Section 122 of the Tax Code of 1997.

Coming now to the issue at hand - Since petitioner is a non-bank financial intermediary: o For the tax years 1996-2002 it is actually subject to 10% VAT. HOWEVER, with the levy, assessment and collection of VAT from non-bank financial intermediaries being specifically deferred by law then petitioner is NOT liable for VAT during these tax years. o Starting January 1, 2003 petitioner is LIABLE for 10% VAT for said tax year with the full implementation of the VAT system on non-bank financial intermediaries starting this date. o Beginning 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. Fort Bonifacio Dev Corp v CIR Bground: The first VAT law, EO 273 (OLD NIRC), accommodated potential burdens for newly liable VAT-registered persons through providing Transitional Input Tax Credit (TITC). Then, RA 7716 took effect, which amended the OLD NIRC and included sales of real property in the coverage of VAT. RA 8424 (NIRC) was enacted and amended the Transitory Provisions. It also included the concept of Presumptive Input Tax Credit Fort Bonifacio Development Corporation (FBDC) acquired from the National Government a vast tract of land now known as Fort Bonifacio Global City. Because the law then was prior to RA 7716, no VAT was paid. However, at the effectivity of RA 7716, FBDC became a VATRegistered person, liable for VAT and entitled for transactional input tax credit. FBDC executed 2 contracts to sell over lands in Global City in favor of Metro Pacific Corporation. It paid VAT but utilized its transitional input tax credit, which offset each other. Upon FBDC asking the BIR whether the offsetting was valid, BIR recommended that their claim TITC was correct. However, BIR subsequently issued an Assessment where it disallowed the use of TITC on the basis of a Revenue Regulation 7-95 (limit use of 8% transitional input tax to book value of improvements only). BIR now claims tax deficiency. CTA ruled in favor of the CIR. CA affirmed the decision but removed the penalties and surcharges. FBDC filed 2 petitions to

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the SC, both claiming TITC. Both were consolidated in this decision. I: W/N Section 105 of the Old NIRC restricts the application by Real Estate Dealers of the Transitional Input Tax only to improvements on the real property belonging to their beginning inventory R: No. The restriction is invalid. The FBDC is allowed to credit its transitional input tax on the sale. In the OLD NIRC, only goods where covered by the VAT. Real properties were only included by an amendment of RA 7716. But when it was amended, there was no differential treatment in transitional input tax for goods or real properties. In addition, the definition of Real Property is being primarily used for sale to customers or held for lease in the ordinary course of business. Thus, the real property is treated the same way as goods. The issuance of RR 7-95 was erroneous . There is no logic to limit the provision only to improvements. The very idea runs counter to what the tax credit seeks to accomplish. As GOODS in the business sense, refers to the product that the VAT-registered person offers for sale the public, real estate dealers treat real properties as their goods. The purpose behind the transitional input tax credit is not confined to the transition from sales to VAT. As proof, Congress has reenacted the transitional input tax both in the OLD NIRC and the NEW NIRC. The transitional aspect of the transitional input tax pertains to the event that the taxpayer starts to become VATregistered. As being covered by the VAT does not merely take place by operation of law, it requires the act of a person to be covered by VAT. For example, A person can be liable for VAT if he decides to start a business. Thus, transitional tax input credit is available, whether under the OLD NIRC or NEW NIRC, to a newly-VAT registered person. The transitional input tax is available, regardless whether the purchase of the goods, materials and supplies in the beginning inventory was subjected to VAT or not. To limit its availability to goods subjected to VAT, would be absurd. Because some goods acquired are not subject to VAT, but still liable for tax like capital gains tax, donors tax and estate tax. It would render the purpose of the law useless. It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the

VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayers income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments. Although the CIR has the power to redefine the concept of goods, it pertains to more technical matters. It cannot go as far as to amend the provision, as it include goods and real property in the course of business. Thus, in case of conflict between a statue and an administrative order, the statue shall prevail Justice Antonio Carpio dissent: The transitional input tax credit applies only when taxes where paid on the properties in the beginning inventory, but this would constitute a new requisite to the application of transitional input tax credit and would require the taxpayer additional proof of payment of taxes. He also argues that the word presumptive assumes the payment of tax, thus requiring prior payment of taxes. The law necessarily comes into existence only after the introduction of VAT. However, presumptive input tax credit is included in the OLD NIRC but was never integrated until the NEW NIRC took effect, which is more than a decade. Thus, the old meaning is not anymore attached to the word. Only those goods on which input VAT was paid could form the basis of input tax credit. However, this brings about the again absurd situation where goods not subject to VAT are acquired but liable for other tax (estate / donor / capital gains). As a last point, the prohibition of using value of real properties in the beginning inventory in RR 7-95 has already been repealed by RR 6-97.

Fort Bonifacio Dev Corp v CIR (MR) RA 7716 took effect on January 1, 1996. It amended Section 100 of the Old NIRC by imposing for the first time VAT on sale of real properties. The provisions of Section 105 of the NIRC remain intact despite the enactment of RA 7716. Section 105 however was amended with the passage of the New NIRC In the April 2, 2009 Decision sought to be reconsidered, the Court struck down Section 4.105-1 of RR 7-95 for being in conflict with the law. It held that the CIR had no power to limit the meaning and coverage of the term "goods" in Section 105 of the Old NIRC to only apply to IMPROVEMENTS on real property belonging to the beginning inventory. I: W/n RR 7-95 is valid, given that 1) Sec 100 of the Old NIRC as amended by RA7716, could not have supplied the distinction between the treatment of real properties or

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real estate dealers, and the treatment of transactions involving other commercial goods, as said distinction is found in section 105 and, subsequently, revenue regulations no. 7-95 which defines the input tax creditable to a real estate dealer who becomes subject to vat for the first time. 2) Section 4.105.1 and paragraph (a) (iii) of the transitory provisions of revenue regulations no. 7-95 validly limits the 8% transitional input tax to the improvements on real properties. A law must not be read in truncated parts; its provisions must be read in relation to the whole law. The term "goods or properties" by the unambiguous terms of Section 100 includes "real properties held primarily for sale to costumers or held for lease in the ordinary course of business." Having been defined in Section 100 of the NIRC, the term "goods" as used in Section 105 of the same code could not have a different meaning. Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax credit. Goods, as commonly understood in the business sense, refers to the product which the VAT-registered person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which constitute their "goods." Such real properties are the operating assets of the real estate dealer. Section 4.105-1 of RR 7-95 restricted the definition of "goods", when it stated that in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of EO 273 (January 1, 1988). As mandated by Article 7 of the Civil Code an administrative rule or regulation cannot contravene the law on which it is based. RR 7-95 is inconsistent with Section 105 insofar as the definition of the term "goods" is concerned. This is a legislative act beyond the authority of the CIR and the Secretary of Finance. RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input tax credit under Section 105 is a nullity. CIR v PAL

PAL filed w/ the BIR a claim for refund of the OCT it alleged to have erroneously paid in 2001. This was based on its franchise, Sec 13 of PD 1590, w/c granted it: o 1) the option to pay either the basic corporate income tax on its annual net taxable income or the 2% percent franchise tax on its gross revenues, whichever was lower; and o 2) the exemption from all other taxes, duties, royalties, registration, license and other fees and charges imposed by any municipal, city, provincial or national authority or government agency, now or in the future, except only real property tax. Also invoking a BIR Ruling in 1994, PAL maintained that, other than being liable for basic corporate income tax or the franchise tax, whichever was lower, PAL was exempted from ALL OTHER TAXES, including the OCT by virtue of the in lieu of all taxes clause in Section 13 of PD1590. BIR failed to act on the request for refund of PAL, so PAL filed a petition for review before the CTA. CTA ordered BIR to refund PAL the 10% OCT erroneusly collected. (However CTA held that out of the total amount of P127k respondent sought to refund, only P126k was supported / documents) I: W/n CTA was correct in holding that BIR should refund PAL for 10% OCT R: Yes, CTA was correct. The language used in Section 13 of PD 1590, granting PAL tax exemption, is clearly all-inclusive. The basic corporate income tax or franchise tax paid by respondent shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description imposed, levied, established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future x x x, except only real property tax.

From Jan to Dec 2001, PLDT collected from PAL the said 10% Overseas Communication Tax4 on the amount paid by PAL for overseas telephone calls it made through PLDT.

OCT - imposed by Section 120 of the NIRC, w/c shall be collected upon every overseas dispatch or message transmitted from the Phils by telephone or other communication equipment.

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The discussion in the previous PAL case5 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 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. BIR also argues that PAL cannot avail itself of the benefit of the in lieu of all other taxes proviso in PD1590 when it made no actual payment of either the basic corporate income tax or the franchise tax. BIR made the same averment in the PAL case, which the Court rejected. It is clear that PD 1590 intended to give PAL the option to avail itself of Subsection (a) or (b) as consideration for its franchise. 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. Under Subsection (a), the basis for the tax rate is PALs annual net taxable income, which (as earlier discussed) is computed by subtracting allowable deductions and exemptions from gross income.

By basing the tax rate on the annual net taxable income, PD 1590 necessarily recognized the situation in which taxable income may result in a negative amount and thus translate into a zero tax liability. The fallacy of the CIRs argument is evident from the fact that the payment of a measly sum of one peso would suffice to exempt PAL from other taxes, whereas a zero liability arising from its losses would not. There is no substantial distinction between a zero tax and a onepeso tax liability. Thus, 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 PAL was already exempted from all other taxes, including the OCT.

FITNESS BY DESIGN v CIR Facts: In 2004, CIR assessed Fitness by Design, Inc. (FDI) for deficiency taxes (Income Tax, VAT, Documentary Stamp Tax) of P10M for 1995. FDI protested on the ground that it was issued beyond the 3-year prescriptive period under Section 203 of the NIRC. FDI also claimed that since it was incorporated only in 1995, there was no basis to assume that it had already earned income for that year. CIR alleged that its right to assess had not prescribed. FDIs 1995 ITR filed in 1996 was fraudulent for its deliberate failure to declare its true sales. FDI declared that it was on its pre-operation stage and had not declared its income. Investigation disclosed that it was operating/doing business and had sales operations for 1995 of P7M which it failed to report in its 1995 ITR. Likewise, FDI failed to file a VAT Return. Hence, the corresponding taxes may be assessed at any time within 10 years after the discovery of such omission or fraud pursuant to Section 222(a) of the NIRC. BIR filed a criminal complaint before the DOJ against the officers and accountant of FDI for violation of the NIRC. During the preliminary hearing, FDIs former bookkeeper attested that a former colleague, Leonardo Sablan, illegally took custody of FDIs accounting records, invoices, and receipts and turned them over to the BIR. CTA denied FDIs Motion for Issuance of Subpoenas and disallowed the submission by FDI of written interrogatories to Sablan since he was not a party to the case and that the testimony, documents, and admissions sought were not relevant. FDIs MR was denied. Hence, a petition for certiorari was filed against CTA. Issue: W/N the BIR can obtain documents without the taxpayers consent. YES Held: WHEREFORE, in light of the foregoing disquisition, the petition is DISMISSED.

BIR likewise opposed the claim for refund of PAL based on the argument that the latter was not exempted from final withholding tax on interest income, because said tax should be deemed part of the basic corporate income tax, which respondent had opted to pay. This Court was unconvinced by BIRs argument, ratiocinating that basic corporate income tax, under Section 13(a) of Presidential Decree No. 1590, relates to the general rate of 35% (reduced to 32% by the year 2000) imposed on taxable income by Section 27(A) of the NIRC. Although the definition of gross income is broad enough to include all passive incomes, the passive incomes already subjected to different rates of final tax to be withheld at source shall no longer be included in the computation of gross income, which shall be used in the determination of taxable income. The interest income of respondent is already subject to final withholding tax of 20%, and no longer to the basic corporate income tax of 35%. Having established that final tax on interest income is not part of the basic corporate income tax, then the former is considered as among all other taxes from which respondent is exempted under Section 13 of Presidential Decree No. 1590.

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Rationale: FDI impugns the manner in which the documents in question reached the BIR, Sablan having allegedly submitted them to the BIR without FDIs consent. FDIs lack of consent does not, however, imply that the BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on FDI based on the documents. Thus Section 5 of the NIRC provides: In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized: (A) To examine any book, paper, record or other data which may be relevant or material to such query; (B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigationany information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and registered partnerships and their members; (C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representatives at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony; (D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; XXX Thus, the law allows BIR to access all relevant or material records and data in the person of the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes.

The issuance of subpoena duces tecum for the production of the documents requested by the FDI which documents FDI claims to be crucial to its defense is unnecessary in view of the CTA order for CIR to certify and forward to it all the records of the case. If the order has not been complied with, the CTA can enforce it by citing CIR for indirect contempt.

*Other issue pointed out by the Court: Sablan was not a party to the case and the testimonies, documents, and admissions sought by FDI were not relevant to the issue before the CTA. The only issues which surfaced during the preliminary hearing before were whether CIRs issuance of assessment against FDI had prescribed and whether FDIs tax return was fraudulent. Besides, the subpoenas and answers to the written interrogatories would violate RA 2338 as implemented by Finance Department Order 46-66. Bonifacio Sy Po v CTA Bonifacia is the widow of the late Mr. Po Bien Sing who died in 1980. In taxable year 1964-1972, he was the sole proprietor of Silver Cup Wine factory in Cebu. He was engaged in the business of manufacture and sale of compound liquors, using alcohol and other ingredients as raw materials. Silver Cup was alleged to have committed tax evasion amounting to millions of pesos so Secretary of Finance ordered Finance-BIR-NBI Team to conduct an investigation. A letter and a subpoena duces tecum were issued against Silver Cup requesting production of books and accounting documents. Po Bien Sing, however, did not comply with this. This prompted the team to enter the factory bodega. They seized different brands of alcohol products, a total of 1,555 cases. On basis of the teams investigation, CIR assessed Po Bien Sing deficiency income tax amounting to P12.7M. Fact obtained from the decision : The former employees of the factory testified on the fraudulent practices of Po Bien Sing. The factory personnel manager testified that false entries were entered in the official register book. The assistant factory superintendent also testified that when the storekeeper is not around, illegal operations happen. Untaxed alcohol is brought from Cebu Alcohol plant into the compound of Silver Cup. When the storekeeper returns, he sees nothing because the untaxed alcohol is brought directly to a secret tunnel within the bodega itself. Bonifacia protested the was done but yielded the same failure to present the books of were issued by CIR but Bonifacia Issue: deficiency assessments. A reinvestigation results in view of the taxpayers insistent accounts. Warrants of distraint and levy deemed it only as a denial of her protest.

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Whether or not the assessments have valid and legal bases? Yes. Held: (Hence, CTA and CIR have not committed errors, CTA decision is affirmed.) Ratio: 1. Best Evidence Obtainable is applicable in this case. Settled is the rule that factual findings of CTA are binding upon SC and can be disturbed on appeal only if such finding is not supported by substantial evidence. The NIRC also gives the CIR the power to assess the proper tax based on best evidence obtainable when (1) a person fails to file a required return or other documents at the proper time or (2) he files a false or fraudulent return. Rule on Best Evidence Obtainable applies when tax report required by law for assessment is not available or when tax report is incomplete or fraudulent. The tax figures arrived at by CIR is not arbitrary. On the basis of the quantity of wines seized during the raid and sworn statements of former employees, it was ascertained that Silver Cup utilized and consumed in the manufacture of compounded liquors and other products 20k drums of alcohol as raw materials 81,288,787 proof liters of alcohol. Also, surcharges for failure to submit returns or for rendering false returns and Interest on deficiency were also imposed. Burden of proof is on tax payer. It is incumbent upon the tax payer appealing to the tax court to prove what is the correct and just liability through a full disclosure of all pertinent data in his possession. This is the only way he could prove that the tax assessment is wrong. Also, the fraudulent acts detailed in the decision had not been satisfactorily rebutted by petitioner. This, Bonifacia must counteract through substantial evidence.

2.

The Teodoros (petitioners) were legitimate children and heirs of the deceased spouses Marta and Toribio Teodoro who died intestate. The heirs separately filed estate and inheritance tax returns for the estates of the spouses with the BIR. The BIR then issued deficiency estate and inheritance tax assessments for both estates. (roughly P1M each) The heirs asked for reconsideration as the assessment was allegedly contrary to law and not supported by sufficient evidence. In 1974, the Commissioner filed a motion for allowance of claim against the estates, and for an order of payment of taxes before the TC, praying that petitioner be ordered to pay the BIR the sum of P6M+ plus surcharges and interest. TC ruled in favor of the Commissioner and directed payment of estate and inheritance taxes. Petitioners now contend that the TC acted w/ GAD in directing the order of payment, given due to the pendency of their motion for reconsideration of the deficiency assessments issued by the Commissioner, and that the tax assessments were not yet final and executory. They contended that the absence of a decision on the disputed assessments was a bar against collection of taxes. They also insist that their act of filing an estate and inheritance tax return of a previously untaxed wealth of the estates entitles said estates to tax amnesty under P.D. No. 23, as amended by P.D. 67. I: W/n the assessment is final, executory, and demandable. R: Yes In petitioners MR of the assessments, they requested the commissioner for a period of 30 days from October 7, 1972 within which to submit a position paper that would embody their grounds for reconsideration. However, no position paper was ever filed. Such failure to file a position paper may be construed as abandonment of their request for reconsideration. It took the Commissioner a period of more than 1 yr and 5 months, from October 7, 1972 to March 14, 1974, before finally instituting the action for collection. Under the circumstances of the case, the act of the Commissioner in filing an action for allowance of the claim for estate and inheritance taxes, may be considered as an outright denial of petitioners' request for reconsideration. From the date of receipt of the copy of the Commissioner's letter for collection of estate and inheritance taxes against the estates of the late Teodoro spouses, petitioners must contest or dispute the same and, upon a denial thereof, the petitioners have a period of 30 days

3.

CIR v Benipayo (see block digests for the rest)

COLLECTION OF CASES WHERE THE ASSESSMENT IS FINAL AND UNAPPEALABLE Dayrit v Cruz

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within which to appeal the case to the CTA, which they failed to avail of . Tax assessment made by tax examiners are presumed correct and made in good faith. A taxpayer has to prove otherwise. Failure of the taxpayers to appeal to the Court of Tax Appeals in due time made the assessments final, executory and demandable. OTHERS: PD 23, as amended by PD 67 is not applicable to the situation of petitioners. A reading of PD 23 reveals that in order to avail of tax amnesty, it is required, among others, that there should be a voluntary disclosure of a previously untaxed income. In this case, the petitioners were already issued an assessment by the CIR. In addition thereto, said income must have been earned or realized prior to 1972 and the tax return must be filed on or before March 31, 1973. Considering that P.D. No. 23 was issued on October 16, 1972, the court rules that the said decree embraces only those income declared in pursuance thereof within the taxable year 1972. The time frame cannot be stretched to include declarations made prior to the issuance of the said decree or those made outside of the time frame as envisioned in the said decree. Thus, the estates of the Teodoro spouses which have been declared separately sometime in the 1960's are clearly outside the coverage of the tax amnesty provision. Marcos II v CA Following the death of former President Marcos in 1989, a Special Tax Audit Team was created to conduct investigations and examination of tax liabilities of the late president, his family, associates and cronies. The investigation disclosed that the Marcoses failed to file a: o (1) written notice of death of the decedent o (2) estate tax return and 2 income tax returns for the years 1982 to 1986, all in violation of the Tax Code. Criminal Charges were filed against Mrs. Marcos for violation of Secs. 82, 83 and 84, NIRC. The CIR thereby caused the preparation of estate tax return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986, and the income tax returns of petitioner Marcos II for 1982 to 1985. BIR issued deficiency estate tax assessment and the corresponding deficiency income tax assessments. Copies of said assessments were served personally and constructively upon Mrs. Marcos at her last known address through her caretaker. Likewise, copies of the deficiency assessments against Marcos II were personally and constructively served at his last known address. Formal assessment notices were served upon Mrs. Marcos c/o petitioner at his office in the House of Representatives, as well as a notice to taxpayer to attend a conference furnished through her counsel.

The deficiency tax assessments were NOT administratively protested by the Marcoses w/in 30 days from service thereof. Subsequently, the Commissioner issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned by the Marcoses. Copies of the aforesaid notices were served upon the Marcoses and their counsel of record. Notices of sale at public auction were duly posted at the Tacloban City Hall and the public auction for the sale of 11 parcels of land took place thereafter. There being no bidder, the lots were declared forfeited in favor of the Government. Petitioner filed a petition to annul the notices of levy and enjoin BIR from proceeding w/ the auction. I: W/n the proper assessment and collection was made by BIR R: Yes, BIRs actions were proper. The enforcement and collection of estate tax is executive in character and the task is specifically ascribed to the BIR. The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is NOT a mandatory requirement in the collection of estate taxes. It cannot, therefore, be argued that the Tax Bureau erred in the proceeding w/ the levying and sale of the properties allegedly owned by the late President on the ground that it was required to seek first the probate courts sanction. There is nothing in the Tax Code and in the pertinent remedial laws that implies the necessity of the probate or estate settlement courts approval of the States claim for estate taxes, before the same can be enforced and collected. On the contrary, under Sec. 87 (now, Sec. 94 of NIRC), it is the probate court w/c is PROHIBITED from authorizing the delivery of any of the distributive share to interested parties UNLESS there is a certification by the CIR that estate taxes have been paid. If there is any issue as to the validity of the BIRs decision to assess the estate taxes, this should have been pursued through the proper administrative and judicial processes provided under Sec. 229 (now, Sec. 228 of NIRC) Apart from failing to file the required estate tax return w/in the time required for filing the same, petitioner and other Marcos heirs never questioned the assessments served upon them, allowing the same to lapse into finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late Pres. Marcos The Notices of Levy upon real property were issued w/in the prescriptive period and in accordance w/ Sec. 223 (now, Sec. 222 of NIRC) of the Tax Code. The deficiency tax assessment, having become final, executory and demandable, the same can now be collected through the summary remedy of distraint and levy.

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Regarding the services of notices of assessments, the Court found that there was sufficient constructive and/or personal service thereof. The subject tax assessments having become final, executory and enforceable, the same can no longer be contested by means of disguised protest.

Mambulao Lumber v RP Agent Nestor Banzuela of the BIR examined the books of petitioner Mambulao Lumber. In his report, he stated that in January 1949, petitioner was assessed by the Bureau of Forestry (BOF) for forest charges but hasnt paid such. On August 1958, CIR sent a letter to Mambulao informing them of the unpaid forest charges and demanding that such be settled within 10 days from receipt of the letter. Mambulao requested for a reinvestigation and was given 20 days (1959 letter) to submit results of verification of payments. It was warned that non-compliance would be deemed abandonment of the request for re-investigation. Mambulao failed to comply with the demand. On August 1961, CIR filed a collection in the CFI of Manila. CFI adjudged Mambulao liable for the unpaid forest charges. CA affirmed. Mambulao assails decision of the CA, contending that the period to file a collection suit has already lapsed thus CIR is barred by prescription. It contends that period should be reckoned from the January 1949 when it was assessed by the BOF. I: W/n action has prescribed R: No. Action to file collection case has NOT PRESCRIBED. NIRC Sec 332 provides that tax may be collected by distraint / levy OR by a proceeding in court ONLY if begun (1) within 5 years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the CIR and taxpayer BEFORE expiration of such 5-year period . THUS, 5-year period should be computed from the August 1958 letter of the BIR. Forest charges are internal revenue taxes and the sole power and duty to collect the same is lodged with the BIR and not w/ the Bureau of Forestry. The computation and/or assessment of forest charges made by the Bureau of Forestry may or may NOT be adopted by the CIR and such computation made by the Bureau of Forestry is NOT appealable to the Court of CTA.

Therefore, for the purpose of computing the 5-year period within which to file a complaint for collection, the demand or even the assessment made by the Bureau of Forestry is immaterial. The BIR Letter in August 1958 and case filed in August 1961 was well within the 5-year period to institute case. Also, given that Mambulao did NOT appeal assessment to the CTA within 30 days from receipt of the letter (1959 as prescribed by RA 1125), the assessment became final and executory. In a suit for collection of internal revenue taxes, where the assessment has already become final and executory, the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. Petitioner is thus already precluded from raising the defense of prescription. Where the taxpayer did not contest the deficiency income tax assessed against him, the same became final and properly collectible by means of an ordinary court action. The taxpayer cannot dispute an assessment which is being enforced by judicial action, He should have disputed it before it was brought to court.

RP v Lim Tian Teng Sons & Co, Inc. Lim Tian Teng Sons & Co., Inc., a domestic corporation with principal office in Cebu City, engaged in 1951 and 1952, among others, in the exportation of copra. Lim Tian then filed its income tax return for 1952 based on accrued income and expenses. Its return showed a loss of P56,109.98. CIR assessed Lim Tian of deficiency income tax and 50% surcharge thereon amounting to P5,037.00 and demanded payment thereof not later than February 15, 1957. Lim Tian requested reinvestigation of its income tax liability. CIR did NOT reply but instead referred the case to the SolGen for collection by judicial action. SolGen demanded from Lim Tian payment w/in 5 days, stating that otherwise judicial action would be instituted without further notice. Lim Tian thus wrote CIR and SolGen, reiterating its request for reinvestigation. It requested that it be allowed to present its explanation together w/ supporting papers relative to its income tax liability. Deputy Collector of CIR informed the taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a WAIVER of the statute of limitations as required in General Circular V258 dated August 20, 1957. The Deputy Collector extended the period

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within which to execute and file with him the waiver of the statute of limitations to December 31, 1957, but advised that if no waiver is forthcoming on or before said date, judicial action for collection would be instituted without further notice. HOWEVER, Lim Tian failed to file a waiver. CIR thus instituted 8 months after an action in the CFI of Cebu for the collection of deficiency income tax. CFI declared the CIR's assessment as valid, final and executory, condemning Lim Tian to pay CIR w/ interest at 1% monthly until fully paid. I/R: W/n lower court has jurisdiction to entertain the case given that CIR has NOT yet issued its final decision on request for reinvestigation - Yes. Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary, Section 305 of the same Code withholds from all courts, except the CTA under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to allow the CIR much latitude in the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the government chiefly relies to obtain the means the carry on its operations, Section 11 of Republic Act 1125 states in part: No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue ... shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law EXCEPT if it may jeopardize interest of the gov and/or taxpayer. 2) W/n court erred in considering as final and executory the assessment contained in the letter of the CIR dated January 16, 1957. No, court was correct in considering assessment final and executory. In this case, Lim Tian received said assessment on January 30, 1957 and on the following day requested reinvestigation of its tax liability. The CIR however did NOT reply to the request for reinvestigation. Instead, he referred the case to the Solicitor General for collection of the tax. The lower court interpreted this action of the Collector of Internal Revenue as a denial of defendant's request for reinvestigation. Instead of appealing to the Tax Court, however, Lim Tian reiterated its request for reinvestigation. Even if we do not count the period from October 8, 1957 (the date when taxpayer received notice of the denial of its request for reinvestigation) to December 31, 1957 (the deadline for the submission of the written waiver of the statute of limitations) in

reckoning the 30-day period within which the taxpayer may appeal to the CTA, said period had long lapsed when the CIR filed the complaint in this case on September 2, 1958. Taxpayers failure to appeal to the CTA in due time made the assessment in question final, executory and demandable. And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on merits. Otherwise, the period of 30 days for appeal to the Court of Tax Appeals would make little sense. OTHERS: Indications that taxpayer's income tax is fraudulent: Firstly, taxpayer's beginning inventory for 1952 did not state the truth in considering the copra outturn as copra on hand, for on December 31, 1951 such copra was not any more in taxpayer's bodega. It was in transit to a foreign port. And the taxpayer no longer owned the copra. As a matter of fact, it already received payment for the same. Secondly, by observing regularly its own system of accounting, taxpayer had no choice but to account the copra outturn as accrued income. This it did not do. For such deviation, we see no other purpose than to lessen, if not obliterate as in fact it did, its income tax liability per its return. The lower court therefore did not err in imposing the 50% surcharge.

Basa v Republic In a demand letter dated August 31, 1967, the CIR assessed against Augusto Basa deficiency income taxes for 1957-1960 totaling P16k. The deficiencies were based on taxpayers failure to report in full his capital gains on sales of land. This omission or underdeclaration of income justified the imposition of 50% surcharge. Taxpayer did not contest the assessment in Tax Court. The Commissioners letter decision on the case was dated December 6, 1974. ON the assumption that the assessment has become final and incontestable, the Commissioner on Sept. 3, 1975 sued the taxpayer in CFI Manila for collection of said amount. TC affirmed the assessment and ordered Basa to pay P16k. plus 5% surcharge and 1% monthly interest from Aug. 31 1967-Aug. 31, 1970. Instead of appealing to SC directly under RA 5440, in relation to Rules 41 and 45 of the Rules of Court, since no factual issues are involved, Basa tried to appeal to CA. He did not perfect his appeal within the reglementary period. TC dismissed it. Basa filed a special civil action of certiorari assailing trial courts decision.

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I: W/n the decision CFI Manila (not the Tax Court) in an income tax case is reviewable by Appellate Court or by SC. R: No. The TC within its jurisdiction in rendering its decision and dismissing Basas appeal. If Basa wanted to contest the assessments, he should have appealed to the Tax Court. Not having done so, he could not contest the same in the CFI. The issue of prescription raised by him is baseless. The assessments were predicated on the fact that his income tax returns, if not fraudulent, were false because he underdeclared his income. In such a case, the deficiency assessments may be made within 10 years after the discovery of the falsity or omission. The court action should be instituted within 5 years after the assessment but this period is suspended during the time that the Commission is prohibited from instituting a court action. SGs memorandum: Basas request for reinvestigation tolled the prescriptive period of 5 years within which the court action may be brought (CIR vs. Capitol Subdivision). Moreover, the issue of prescription should have been raised in the tax court. Yabes v Flojo Doroteo Yabes, was for sometime an exclusive dealer of products of the International Harvester Macleod, Inc., received on May 1, 1962, a letter from the CIR dated March 27, 1962, demanding payment of P15k+ as commercial broker's fixed and percentage taxes plus surcharges and the sum of P2,530 as compromise penalty alledgely due from Yabes for the years 1956-1960. On May 11, 1962, Yabes, through his counsel, filed with the CIR a letter protesting the assessment of the said taxes and penalties on the ground that his agreements w/ International Harvester were of purchase and sale, and NOT of agency, hence he claimed he was not able to pay such kind of taxes. Yabes requested for reinvestigation and review of the case by the appellate division of the BIR and that appeal be held in abeyance pending resolution of a similar case (Constantino). CIR DENIED the request for reinvestigation for failure to submit evidence to offset findings of the Office. CIR however said that the administrative appeal will be held in abeyance pending the resolution of the issues in the Constantino case. Yabes then filed a tax waiver on October 20, 1962, extending the period of prescription to December 31, 1967. Yabes died and no estate proceedings were instituted for the settlement of his estate. After Yabes' death, SC rendered a ruling in the Constantino case in favor of the CIR.

After 5 yrs, the heirs of the Yabes received a letter from CIR requesting that they "waive anew the Statute of Limitations" and further confirming the previous understanding that the final resolution of the protest of the deceased Doroteo Yabes was "being held in abeyance until the Supreme Court renders its decision on a similar case involving the same factual and legal issues brought to it on appeal" (referring to the Constantino "test" case). Yabes filed a revised waiver further extending the period of prescription to December 31 1970. After, no word was received by Yabes heirs during the interim of more than 3 yrs, but on January 20, 1971, they received the summons and a copy of the complaint filed by the Commissioner in the CFI seeking to collect taxes. I: W/N CFI can lawfully acquire jurisdiction over a contested assessment made by the CIR against Yabes w/c has not yet become final, executory and incontestable, and which assessment is being contested in the CTA and still pending consideration R: No, CFI had no jurisdiction and should have dismissed the case. Decision is NOT yet final, executory and incontestable. CIR contends that Yabes received the Commissioner's letter dated August 3, 1962, denying the latter's protest against the said assessment on September 18, 1962 and FAILED to appeal therefrom within the 30-day period contemplated under Section 11, of Republic Act 1125. HOWEVER, the period for appeal to this Court should NOT be counted from September 18, 1962. In a letter of July 27, 1967, CIR informed Yabes that a resolution of their protest was being held in abeyance until the Supreme Court renders a decision on a similar case "involving the same factual and legal issues". As a matter of fact, in an earlier letter dated September 26, 1962, CIR also informed Yabes' counsel that "administrative appeal for and in behalf of their clients will be held in abeyance pending resolution of the issues on a similar case which was appealed by you to the Court of Tax Appeals". It is thus clear in these letters that CIR reconsidered the finality of his decision of August 3, 1962, assuming arguendo that the letter had a tenor of finality. The records show that a warrant of distraint and levy was issued on October 2, 1970. Had this been served on Doroteo Yabes, it would have been equivalent to a final decision. There is, however, nothing to show that it was ever served on Yabes. Neither is there anything in the record to show that a formal decision of denial was made after CIR's letter of July 27, 1967. Under the circumstances of this case, what may be considered as final decision or assessment of the Commissioner is the filing of the

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complaint for collection in the respondent Court of First Instance of Cagayan, the summons of which was served on petitioners on January 20, 1971. THUS, the appeal with the CTA was filed on time (w/in the 30 day prescriptive period). CFI only acquired jurisdiction after assessment by CIR becomes final and executory.

In 1958, the Deputy CIR sent a letter of demand w/ enclosed income tax assessment. Patanao refused, failed and neglected to pay the said taxes. In 1962, a complaint for collection was filed. Patanao filed a MTD alleging: o Res judicata, since Patanao was acquitted in criminal cases, w/c were prosecutions for failure to file ITR for nonpayment of taxes o Prescription RTC held that the action for collection was barred by prior judgment, since the accused was acquitted in the criminal case. I: W/n the acquittal in the criminal cases involving the failure to file return and pay tax bars the institution of the civil case for collection. R: NO, acquittal in the criminal case is not a bar to the institution of the civil case. Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. The criminal liability gives birth to the civil obligation such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and NOT because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for NOT imposing civil indemnity on the criminal infractor of the income tax law. Also, while section 73 NIRC has provided the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it failed to provide the collection of said tax in criminal proceedings. The only civil remedies provided, for the collection of income tax, are distraint or judicial action, which remedies are generally exclusive in the absence of a contrary intent from the legislator. Considering that the Government cannot seek satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated, since the said civil liability is NOT deemed included in the criminal action, acquittal of the taxpayer in the criminal proceeding

CRIMINAL ACTION Republic v Patanao Patanao was engaged in the production and sale of logs and lumber. He was assessed deficiency income tax and additional residence taxes from 1951 to 1955.

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does NOT necessarily entail exoneration from his liability to pay the taxes. The acquittal in the said criminal cases cannot operate to discharge defendant from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of nonexistence of the criminal acts charged.

Ungab v Cusi In July, 1974, BIR examined the income tax returns filed by Ungab, for the calendar year ending December 31, 1973. BIR discovered that Ungab failed to report his income derived from sales of banana saplings. BIR District Revenue Officer sent a "Notice of Taxpayer" to Ungab informing him that there is due from him the amount of P104k, representing income, business tax and forest charges for the year 1973 and inviting him to an informal conference where he may present his objections. Ungab wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer/ agent on commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was accurately stated. BIR Examiner, however, was fully convinced that Ungab had filed a fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the BIR. After examining the records of the case, the Special Investigation Division of the BIR found sufficient proof that Ungab is guilty of tax evasion for the taxable year 1973 and recommended his prosecution. CIR approved the prosecution. Thereafter, the State Prosecutor conducted a preliminary investigation of the case, and finding probable cause, filed 6 informations against the petitioner with CFI: o 1) filing a fraudulent income tax return o 2) engaging in business as producer of saplings w/o first paying the annual fixed/privilege tax o 3) failure to render a true and complete return on the gross quarterly sales, receipts and earnings in his business as producer of banana saplings and to pay the percentage tax due thereon,

Ungab filed a motion to quash the informations alleging that the trial court has no jurisdiction to take cognizance of the cases in view of his pending protest against the assessment made by the BIR Examiner. TC denied the motion. Ungab now claims that the filing of the informations was precipitate and premature since the CIR has not yet resolved his protests against the assessment of the Revenue District Officer; and that he was denied recourse to the Court of Tax Appeals. I: W/n an assessment of the deficiency tax due is necessary before the taxpayer can be prosecuted criminally for the charges R: NO, an assessment of a deficiency is NOT necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. What is involved here is not the collection of taxes where the assessment of the CIR may be reviewed by the CTA, but a criminal prosecution for violations of the NIRC which is within the cognizance of CFI. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. THUS, an assessment of a deficiency is NOT necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but NOT the prescriptive period of a criminal action for violation of law. Obviously, the protest of the Ungab against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the NIRC.

CIR v PASCOR Realty and Dev Corp

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BIR Commissioner Jose Ong authorized Revenue Officers Que, Estorco and Savillano to examine the books of accounts and other accounting records of Pascor Realty, w/c resulted to the recommendation of an issuance of assessments. In 1995, CIR filed a complaint against the president and treasurer of Pascor alleging evasion of taxes before the DOJ. Pascor filed an Urgent Request for Reconsideration/Reinvestigation disputing the said tax assessment. PRDC then received a subpoena from the DOJ with regard to the complaint on March 23, 1995. CIR denied the MR of the said assessment. Pascor elevated the denial to CTA on petition for review. CIR filed a motion to dismiss on the ground that CTA had no jurisdiction over the subject matter since there was no formal assessment issued against PRDC. CTA denied the motion to dismiss and ordered the CIR to file an answer within 30 days from receipt of the notice but the CIR did not comply, nor did they file an MR. Instead, CIR filed a petition in the CA alleging that the CTA acted with GADALEJ. CIR argues that the criminal action is not yet an assessment, based on Sec 205 and 223 of the NIRC w/c provides that remedies for the collection of tax may either be civil or criminal and that in case of failure to file a return, a tax may be assessed OR a proceeding in court may be begun without an assessment. Pascor argues that the joint-affidavit filed by the CIR for criminal action already constitutes an assessment. It argues that an assessment is NOT an action or proceeding for the collection of taxes but a mere notice of and demand for payment of taxes due. I: 1) W/N the criminal complaint for tax evasion can be construed as an assessment NO 2) W/n assessment is necessary before criminal charges for tax evasion may be instituted. - NO R: 1) The criminal complaint for tax evasion is NOT an assessment. An assessment is a notice to the taxpayer containing the amount of taxes due and a demand to pay such taxes within a specific period. It is deemed made only when the CIR releases the mail and sends such notice to the petitioner. The joint-affidavit for the criminal action CANNOT be considered an assessment since: o It contained NO DEMAND for payment o There was NO specified period of payment

It is addressed to the Secretary of Justice and NOT the taxpayer (Pascor) o Its purpose is merely to support / substantiate the criminal complaint and NOT notify the payer of the tax due Since there was NO assessment issued yet, no reconsideration / reinvestigation may be asked from the CIR. 2) Sec222 of the NIRC provides that when a false/fraudulent return is filed, an action in court may be commenced WITHOUT an assessment. Sec 205 further provides that civil and criminal actions may be pursued simultaneously by the CIR. THUS, CIR is given discretion to either issue an assessment OR file a criminal complaint or do both. A criminal charge may be supported by only prima facie showing of failure to file return. This fact NEED NOT be proven by an assessment. The issuance of an assessment is DIFFERENT from the filing of a complaint. Before an assessment is issued, there is, by practice, a preassessment notice sent to the taxpayer, who is given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code. o

Adamson v CA Lucas Adamson as President of Adamson Management Corporation (AMC) sold common shares of stock to APAC Holding Limited (APAC) and paid the capital gains tax for the transaction. Subsequently, AMC sold to APAC Philippines, Inc. common shares of stock and paid the capital gains tax therefor. CIR Vinzons-Chato issued a Notice of Taxpayer to AMC, Adamson, Therese Adamson (AMC treasurer), and Sara de Los Reyes (AMC secretary), informing them of deficiencies on their payment of capital gains tax and VAT.

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CIR filed w/ the DOJ an Affidavit of Complaint against AMC and Adamson et al. for violation of the NIRC. After preliminary investigation, the state prosecutor found probable cause. AMC and Adamson et al. then filed a letter request for reinvestigation with the Commissioner. Before the CIR could act on their letter-request, AMC, and Adamson et al. filed a petition for review with the CTA, assailing the CIRs finding of tax evasion against them. CIR moved to dismiss the petition, on the ground that it was premature, as she had not yet issued a formal assessment of the tax liability of Adamson et al. In 1994, Adamson, et al. were charged in a criminal case before the RTC Makati. TC ruled that it did NOT have jurisdiction over the criminal case because the complaints for tax evasion filed by the Commissioner should be regarded as a decision of the Commissioner regarding the tax liabilities of Adamson et al. thus appealable to the CTA. It further held that the said cases cannot proceed independently of the assessment case pending before the CTA, which has jurisdiction to determine the civil and criminal tax liability of Adamson et al. CTA denied the motion to dismiss filed by the Commissioner and considered the criminal complaint filed by the Commissioner with the DOJ as an implied formal assessment, and the filing of the criminal informations with the RTC as a denial of Adamson et al.s protest regarding the tax deficiency. CIR filed a petition for review with the CA assailing the trial courts dismissal of the criminal cases. The CA reversed the trial courts decision and reinstated the criminal complaints. The CA ruled that in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a fraudulent return with intent to evade the tax. I/ R: 1) W/n CIRs recommendation letter to DOJ can be considered as a formal assessment of Adamson et al.s tax liability No, the letter is NOT an assessment. An assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. It is a written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the BIR examiners findings is not an assessment since it is yet indefinite.

In this case, the recommendation letter is NOT an assessment. It served merely as the prima facie basis for filing criminal informations that the taxpayers had violated the Tax Code. 2) W/n the criminal complaints against Adamson et al. by the DOJ are premature for lack of a formal assessment No. When fraudulent tax returns are involved, a proceeding in court after the collection of such tax may be begun without assessment. Here, Adamson et al. had already filed the capital gains tax return and the VAT returns, and paid the taxes they have declared due therefrom. Upon investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes, and that VAT had not been paid. The gross disparity in the taxes due and the amounts actually declared by Adamson, AMC, etc. constitutes badges of fraud. 3) W/n the CTA has jurisdiction to take cognizance of both the civil and criminal aspects of the tax liability of Adamson et al. No. CTA can only entertain an appeal from a final decision or assessment of the Commissioner, or in cases where the Commissioner has not acted within the period prescribed by the NIRC. In the cases at bar, the Commissioner has not issued an assessment of the tax liability of private respondents.

PRESCRIPTION OF GOVS RIGHT TO ASSESS AND COLLECT CIR v Goodrich Phils Goodrich Phils., Inc. is an American-owned and controlled corporation engaged in the manufacturing of tires and rubber products. Pursuant to a Central Bank requirement, BF Goodrich developed a rubber plantation. It purchased from the Phil gov certain parcels of land in Basilan (as allowed by the Public Land Act and Parity Amendment to the 1935 Constitution). HOWEVER, upon the expiration of the Parity Amendment more than a decade later, the ownership rights of Americans over public

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agricultural lands, including the right to dispose or sell their real estate, would be lost. THUS, BF Goodrich sold its Basilan Landholdings to Siltown Realty. Siltown then leased the parcels of land to BF Goodrich for 25 years. BIR then assessed BF Goodrich for deficiency income tax, which the latter paid. Later on, BIR assessed BF Goodrich for deficiency donors tax, in relation to the previously mentioned sale of its Basilan landholdings to Siltown. BIR claimed that the consideration for the sale was insufficient, so it considered the difference between the fair market value and the actual purchase price as a taxable donation. Goodrich contested this assessment. Instead, it received another assessment w/c increased the amount demanded for the alleged deficiency donors tax, surcharge, interest and compromise penalty. Goodrich appealed the correctness and the legality of these last two assessments to the CTA, questioning the legality of the assessments. I: 1) W/n the CIRs right to assess deficiency donors tax had prescribed YES, CIRs right to assess the deficiency had already prescribed. Sec 331 of the NIR provides that (except as provided in the succeeding section) internal-revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after expiration of such perioda return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. Involved in this petition is the income of the petitioner for the year 1974, the returns for w/c were reqd to be filed on or before April 15, 1975. The returns for the year 1974 were duly filed and paid on June 21, 1974, and acknowledged by a Letter of Confirmation. Thus, the subsequent assessment of Oct 10, 1980 modified, by that of March 16, 1981, was made BEYOND THE PERIOD expressly set by Art 331. The law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should be strictly construed.

However, the CIR contended that there is Falsity in the return, thus, the ordinary period of limitation upon assessment and collection does not apply. Section 15 of the NIRC, provides that when there is reason to believe that any such report is false, incomplete, or erroneous, the CIR shall assess the proper tax on the best evidence obtainable. Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by allowing the initial assessment to be made on the basis of the best evidence available. 2) W/n there was a false return, w/c extends the prescriptive period NO, there was no false return. Section 332 of the NIRC, enumerates the exceptions to the period of prescription, one of w/c includes the case of a false or fraudulent return with intent to evade a tax or of a failure to file a return. In this case, collection of tax may be begun w/o assessment anytime w/in 10 yrs from discovery of fraud. CIR insists that Goodrich committed falsity when it sold the property for a price less than the FMV. HOWEVER, this fact alone did not constitute a false return. A false return contains wrong information due to mistake, carelessness or ignorance. It is possible that real property may be sold for less than adequate consideration for a bona fide business purpose. In the present case, Goodrich was compelled to sell the property even at a price less than its market value, because it would have lost all ownership rights over it upon the expiration of the parity amendment. It was only attempting to MINIMIZE ITS LOSSES. At the same time, it was able to lease the property for 25 years, renewable for another 25. This can be regarded as another consideration on the price. The fact that the sale transaction may have partly resulted in a donation does NOT change the fact that private respondent already reported its income for 1974 by filing an income tax return. BIR was negligent in not issuing an assessment w/in the 5-year period.

Basilan Estates v CIR CIR assessed Basilan Estates deficiencyincome tax and 25% surcharge on unreasonable accumulated profit (Sec 25, Tax Code). On non-payment of the assessed amount, a warrant of distraint and levy was issued but the same was not executed because Basilan Estates, Inc. succeeded in getting an Order to hold execution and maintain constructive embargo instead.

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Basilan Estates, Inc. filed with CTA a petition for review of the Commissioner's assessment, alleging prescription of the period for assessment and collection. CTA held that there was no prescription. Basilan claims that it never received notice of assessment or if it did, it received the notice beyond the prescriptive period. I: W/n the Commissioner's right to collect deficiency income tax prescribed? NO, it did not. There is no dispute that the assessment for deficiency tax was made on February 26, 1959. Circumstances in this case point to official performance of duty / REGULARITY which must necessarily prevail over Basilan's contrary interpretation: o On the right side of the notice is also stamped "Feb. 26, 1959" denoting the date of release, according to BIR practice. o The Commissioner himself in his letter answering petitioner's request to lift, the warrant of distraint and levy, asserts that notice had been sent to petitioner. o In the letter of the Regional Director forwarding the case to the Chief of the Investigation Division which the latter received on March 10, 1959, notice of assessment was said to have been sent to petitioner. o Subsequently, the Chief of the Investigation Division indorsed on March 18, 1959 the case to the Chief of the Law Division. There it was alleged that notice was already sent to petitioner on February 26, 1959. Even granting that notice had been received by Basilan late, as alleged, under Section 331 of the Tax Code requiring 5 years within which to assess deficiency taxes, the assessment is deemed made when notice to this effect is released, mailed or sent by the Collector to the taxpayer and it is not required that the notice be received by the taxpayer within the aforementioned 5-year period.

Tupaz v Ulep State Prosecutor Molon filed w/ the MTC an information against Petronilla Tupaz and her late husband Jose Tupaz as corporate officers of El Oro Engravers Corp, for non-payment of deficiency corporate income taxes for year 1979. MTC dismissed the case for lack of jurisdiction. 7 months later, Monlon filed w/ the RTC 2 informations against the accused and her late husband for the same alleged nonpayment of

deficiency corp income. Case 1 was raffled to Judge Ulep (Branch 105) while Case 2 was raffled to Judge Solano (Branch 86). Accused filed w/ RTC Branch 86 (Case 2) a motion to dismiss /quash the information since it was exactly the same as the information against the accused pending before RTC Branch 105. This was denied. In the meantime, Jose Tupaz died to Petronilla Tupaz filed w/ the RTC Branch 105 a PETITION FOR REINVESTIGATION, w/c Judge Ulep granted. RTC subsequently arraigned Petronilla. 2 years later, Judge Ulep issued an order directing the prosecution to withdraw the information in Case 2, after discovering that said information was identical to the one filed with his branch. Thus, State Prosecutor Agcaoili filed a motion to withdraw information in Case 1. Judge Ulep granted the motion for withdrawal of the information and dismissed the case. Prosecutor Agcaoili filed with Branch 105 a motion to reinstate information, stating that the motion to withdraw information was made through palpable mistake, and was the result of excusable neglect. Reinstatement was granted. Tupaz filed a motion for reconsideration, w/c was denied. Tupaz contends that: o a) the period of assessment has prescribed, applying the 3 year prescriptive period o b) offense has prescribed since the complaint for preliminary investigation was filed w/ the DOJ only on June 1989 and the offense was committed in April 1980 when she filed the income tax return for the year 1989 I: W/n the period of assessment had prescribed and w/n the offense had prescribed R: NO. The period of assessment has NOT prescribed. The shortened period of 3 years to prescribe under B.P. Blg. 700 is not applicable to petitioner. The said law specifically states that the shortened period of three years shall apply to assessments and collections of internal revenue taxes beginning taxable year 1984. Assessments made after April 5, 1984 are governed by the 5-year period if the taxes assessed cover taxable years prior to Jan. 1, 1984. The deficiency income tax under consideration is for taxable year 1979 so the period of assessment is still 5 years, under the old law. Art 22 of the RPC does NOT apply because provisions on the period of assessment are NOT penal in nature. Also, the offense has not prescribed. Petitioner was charged with failure to pay deficiency income tax after repeated demands by the taxing authority. By its nature, the violation could only be committed AFTER service of notice and demand for

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payment of the deficiency taxes upon the taxpayer. Hence, it cannot be said that the offense has been committed as early as 1980, upon filing of the income tax return. This is so because prior to the finality of the assessment, the taxpayer has NOT committed any violation for nonpayment of the tax. The offense was committed only after the finality of the assessment coupled with taxpayers willful refusal to pay the taxes within the allotted period. In this case, when the notice of assessment was issued on July 16, 1984, the taxpayer still had 30 days from receipt thereof to protest or question the assessment. Otherwise, the assessment would become final and unappealable. As he did not protest, the assessment became final and unappealable on Aug 16, 1984. Consequently, when the complaint for preliminary investigation was filed with the DOJ on June 8, 1989, the criminal action was instituted within the 5 year prescriptive period. NOTE: THE 5-YR PERIOD TO COLLECT BEGINS TO TOLL FROM THE FINALITY OF ASSESSMENT, NOT FROM THE FILING OF THE ITR. On double jeopardy The reinstatement of the information would expose her to double jeopardy. An accused is placed in double jeopardy if he is again tried for an offense for which he has been convicted, acquitted or in another manner in which the indictment against him was dismissed without his consent. In the instant case, there was a valid complaint filed against petitioner to which she pleaded not guilty. The court dismissed the case at the instance of the prosecution, without asking for accused-petitioners consent. This consent cannot be implied or presumed. Such consent must be expressed as to have no doubt as to the accuseds conformity. As petitioners consent was not expressly given, the dismissal of the case must be regarded as final and with prejudice to the re-filing of the case. Consequently, the trial court committed grave abuse of discretion in reinstating the information against petitioner in violation of her constitutionally protected right against double jeopardy.

Nava v CIR On 15 May 1951, Gonzalo P. Nava filed his income tax return for the year 1950, and, on the same date, he was assessed by the CIR in the sum of P4k+ based solely on said return. Nava paid one-half of the tax due, leaving a balance of P2k+. Subsequently, Nava offered his backpay certificate to pay said balance, but the CIR refused the offer. He requested the CIR to hold in abeyance the collection of said balance until the question of whether or not he was entitled to

pay the same out of his backpay shall have been decided, but this was also rejected by the CIR in a reply letter. This rejection was followed by two more letters or notices demanding payment of the balance thereof, the last of which was dated 22 February 1955. After investigation of Nava's 1950 income tax return, the CIR issued a deficiency income tax assessment notice requiring Nava to pay not later than 30 April 1955 the sum of P9k+, included the balance of P2,491.00, still unpaid under the original assessment, plus a 50% surcharge. Several notices of this revised assessment are alleged to have been issued to the taxpayer, but Nava claims to have learned of it for the first time on 19 December 1956, more than five years since the original tax return was filed, and testified to that effect in the CTA. CTA ruled that the right of the CIR to collect had not yet prescribed and only reduced the amount due from Nava. Nava appealed to the SC. I: W/n the enforcement of the tax assessment has prescribed. R: YES, the tax assessment had prescribed. The CTA, in making its decision, relied solely on the duplicate copy of the deficiency income tax notice found in the BIR office file of Nava. On the corresponding blank space for the date of issue, the duplicate copy was typed 3/30/55. Nava denied having received the original copy of the said notice. CIR failed to rebut this with competent evidence and witnesses. Thus, contrary to CTAs finding, the CIR utterly failed to prove by substantial evidence that the assessment notice dated 30 March 1955 and other supposed written demand letters / notices subsequent thereto were in fact issued / sent to the taxpayer. The presumption that a letter duly directed and mailed was received in the regular course of mail cannot be applied to the case at bar. For the presumption to apply 1) the letter must be properly addressed with postage prepaid, and (b) it must be mailed. NONE of these requirements were shown, so there is NO valid and effective issuance or release of said deficiency income tax assessment notice dated 30 March 1955 and of the other demand letters or notices subsequent to it (latest of which was purportedly sent on 25 August 1956). THUS, these dates cannot be reckoned with in computing the period of prescription within which a court action to collect the same may be brought.

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It being undisputed that an original assessment of Nava's 1950 income tax return was made on 15 May 1951, and no valid and effective notice of the re-assessment having been made against the petitioner after that date (15 May 1951), it is evident that the period under Section 331 of the Tax Code within which to make a reassessment expired on 15 May 1956. Mere notations made without the taxpayer's intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.

was duly received by Nielson in accordance w/ its own admission. Under Section 7 of RA 1125, the assessment is appealable to the CTA w/in 30 DAYS from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the assessment in question final, executory and demandable. Thus, Nielson is now barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits.

RP v CA BIR sent a demand letter to Nielson & Co on July 16, 1955 (1 st LETTER) for deficiency taxes (ad valorem, annual occupation fees, residence tax and surcharges). The letter was sent through ordinary mail. The original letter was NOT returned to the BIR. BIR reiterated its demand through THREE letters, one of w/c was dated Sept 19, 1956 (2nd letter). Nielson did NOT heed the demand so BIR filed a complaint for collection w/ the CFI. Case was dismissed for failure to serve summons. The case was subsequently refiled. Nielson claims that the assessment did NOT become final since it did not receive the same. BIR claims that since the assessment was sent through ordinary mail and it was never returned to BIR, it must be considered to have been received by Nielson upon the expiration of 5 days after mailing. I: W/n the assessment was properly served upon Nielson and became final R: YES, the assessment was properly served and became final. While it is correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, stilt this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Since the BIR had not adduced proof that Nielson had in fact received the 1st demand letter, it cannot be assumed that Neilson received the said letter. HOWEVER, records show that BIR sent a follow-up letter dated Sept 19, 1956 reiterating its demand for the payment of taxes as originally demanded in the 1st letter. The 2nd letter is considered a NOTICE OF ASSESSMENT in itself, w/c

CIR v Western Pacific Corp On March 2, 1959, the respondent Western Pacific Corporation, was assessed for P3,731.00, as deficiency income tax for the year 1953. This assessment was brought about by the disallowance of certain amounts in Western's return for 1953 of expense items, and bad debts. The assessment was received by respondent on the same date (March 2, 1959). THREE days later, CIR wrote Western a letter of demand for the payment of the amount, including therein a breakdown of said assessment. Almost FOUR months after, Western, through an auditing firm, requested for non-assessment. It calims that the period for making the assessment had prescribed. CIR denied the request on July 30, 1959 and reiterated its demand for payment of the amount w/in 30 DAYS from receipt. After a number of communications between the parties, CIR made a final demand for payment on Oct 28, 1959. Western, on Dec 18, 1959, filed w/ the CTA a petition for review of the assessment. It argued that the period for making the assessment had already prescribed. CTA rendered judgment absolving Western from the assessment. HOWEVER, it ruled out prescription, stating that March 2, 1959, was the last day of the 5 year period within which to make the assessment. Although the last day was IN FACT Feb 28, 1959, this was a Saturday. Thus, the official act, in this case, the making and issuance of an assessment, could be done the NEXT SUCCEEDING BUSINESS DAY, w/c was March 2, a Monday. This was pursuant to the Revised Admin Code and RA 1880. On appeal, CIR contended that the CTA erred in taking cognizance of the case, given that it lacked jurisdiction. I: W/n the period for making and issuing the assessment has prescribed R: NO, the period has not yet prescribed.

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RA 1880, as implemented by EO 25, ordains that all bureaus and offices of gov shall hold office only 4 days a week or from Mon to Fri. Sat and Sun are considered public holidays. Thus, where the last day for issuing a tax assessment falls on a Sat, it may be validly issued the following business day, a Monday. As to the PETITION FOR REVIEW FILED w/ CTA: The assessment should be maintained because when the petition for review was brought to the CTA, the court no longer had jurisdiction to entertain the same. THE ASSESSMENT HAD LONG BECOME FINAL. A petition for review should be presented, within the reglementary period, as provided for in Section 11, Republic Act No. 1125, which is 30 DAYS from RECEIPT of assessment. The 30-day period is jurisdictional. In this case, more than 30 days had already lapsed from the time Western was assessed to when it formally assailed the assessment. Western was ordered to pay the assessment.

RP v Marsman Dev Marsman Dev was a timber licensee with concessions in Camarines Norte. An investigation was conducted on the business operation and activities of the corporation leading to the discovery that certain taxes were due (from) it on logs produced from its concession. 3 assessments were made by the BIR: o 1st: Oct 1953: P13k+ for forest charges and surcharge for the years 1945-49

2nd: Sept 1954: P45k+ was demanded from the defendant corporation representing sales tax and surcharges o 3rd: Nov 1954: P400+ representing surcharges Marsman acknowledged the assessments through a letter, where it requested that it be furnished w/ an itemized statement of the taxes, and gave notice of its intention to question the validity and the legality of the assessments. BIR told Marsman that it must, within 10 DAYS, comply w/ the requirements for requests for reinvestigation and reexamination of tax assessments.6 Marsman asked for an exemption from this requirements, which was denied by the BIR. BIR then reiterated that Marsman had 5 days to comply otherwise assessment shall become final. Marsman failed to act on this. Final tax notices were sent to Marsman on April 1956. A warrant of distraint and levy was issued 3 months later. BIR filed a case with the CFI of Manila which ordered Marsman to pay the total assessed amount of P53,133. Hence this appeal. I: W/n the BIRs right to assess and collect taxes from 1945-1959 had prescribed R: NO, BIRs right to assess and collect taxes from 1945-1959 had not yet prescribed. Marsman contends that CIR had only 5 years within which to assess the percentage and forest charges herein involved. For the filing of a return to be reckoned as the starting point of the period to make an assessment, such return must have been substantially complete. There was no showing that Marsman indeed filed a return, and even if it did, the alleged return was incomplete. Thus, in case of a false or fraudulent return, the period to make an assessment is 10 YEARS. Assessment was made w/in the 10 YEAR period. As to the prescription of the right to collect on the 2 nd assessment Amendedcomplaints are deemed filed only on the date of its admission; when it comes to substantive matters such as prescription, the admission retroacts to the day it was actually filed, which in this case was Aug 1959, STILL w/in the 5 year period to collect. As to the prescription of the suit against Marmsans liquidator o

Writing under oath specifying grounds relied on and other necessary docs

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Section 77 of the Corporation Law provides for a three-year period for the continuation of the corporate existence of the corporation for purposes of liquidation. HOWEVER, there is nothing in the said provision which bars an action for the recovery of the debts of the corporation against the liquidator, after the lapse of the said three-year period. The Government became a creditor of Marsman even before the dissolution by the liquidation of its assets. By virtue of his being liquidator, Burgess became TRUSTEE of the assets of Marsman for its creditors, w/c already included the government.

Counting from the date of amendment of the return (1955) to the date of assessment (1958), it can be seen that CIRs power to assess the tax liability is WITHIN 5 YEARS. To hold otherwise would pave the way for taxpayer to evade the payment of taxes simply reporting in their original return heavy losses and amending the same more than 5 years later when the Commissioner has lost his authority to assess the proper tax there under. The object of the tax code is to impose taxes for the needs of the government, not to enhance tax avoidance to its prejudice.

CIR v Phoenix Assurance Phoenix Assurance Co is a British insurance corporation licensed to do business in the Philippines. It is engaged in worldwide reinsurance with various foreign insurance companies. It agreed to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices throughout the world, in consideration for assumption by the foreign insurance companies of an equivalent portion of the liability from such original insurances. Phoenix filed its income tax returns from 1952 to 54, making amendments (1955) to the originals (1953, 54, 55). On May 6,1958, CIR assessed Phoenix withholding tax and on Aug 1, 1958, deficiency income tax for the years 1952 and 1954. The deficiency income tax resulted from the disallowance by the CIR to fix head office expenses allocable to its business in the Phils at 5% of gross Phil income. CIR insisted that the deduction is 5% net of Phil income. Phoenix protested and CIR denied it. CTA said that the right of the CIR to assess deficiency taxes had already prescribed. I: W/n prescription had set in against the CIR R: NO. Period given by the Tax Code for the CIR to assess income tax is 5 YEARS from the filing of the income tax return. CTA ruled that the original return was a complete one containing info on various items of income and deduction from w/c the CIR determines the tax liability of Phoenix. THIS IS WRONG. The CIR could not have made a correct assessment of Phoenixs tax liability based on the original return. The deficiency assessment was based on the amended return which is SUBSTANTIALLY DIFFERENT from the original return. THUS, the right to issue the assessment must be counted from the filing of the AMENDED income tax return.

Butuan Sawmill v CTA Butuan sold logs to Japanese firms at prices FOB Vessel Magallanes. FOB prices included costs of loading, wharfage stevedoring and other costs in the Philippines; that the quality, quantity and measurement specifications of the logs were certified by the Bureau of Forestry. Freight was paid by the Japanese buyers via a Letter of Credit. Upon investigation by the BIR, it was ascertained that no sales tax return was filed by Butuan, and neither did it pay the corresponding tax on the sales. Butuan was assessed for P40k+ for sales tax, penalty and compromise penalty on its sales of logs, later on reduced to P38k+ after reinvestigation. LC upheld the legality and correctness of the assessment since the sales were domestic and thus subject to our tax made w/in the 10 year period prescribed by law, since the company FAILED to file its sales returns from 1951-1953, the omission of w/c was only discovered on Sept 27, 1957. I: W/n the sale was subject to sales tax YES W/n assessments were made w/in the prescriptive period- YES R: YES, sale was subject to sales tax. Butuan contends that the disputed sales were consummated in Japan, and, therefore, not subject to the taxing jurisdiction of our Government. The contentions of petitioner are devoid of merit. It is clear that said export sales had been consummated in the Philippines and were, accordingly, subject to sales tax therein." YES, assessments were made w/in prescriptive period. An income tax return cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section 331 (5-year period to make an assessment) of the Tax Code.

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The taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of Section 331. If he does not file a return, an assessment may be made within 10 years from and after the omission to file a return under Sec 332a. In this case, the omission to file sales return for the years 1951 to 1953 were discovered in Sept 17, 1957, still w/in the 10-year period. Thus, the assessment and collection of tax has NOT YET prescribed.

corresponding returns because of the phrase in its answer: petitioner had failed to declare its correct taxable receipts during the years in question. HOWEVER, the phrase next following is: Hence, the assessment and collection of said taxes are authorized under the provisions of section 332 of the National Internal Revenue Code." In short, the Government relied upon the "failure to file a return", referred to in said section 332, not to mere inaccuracies in the return filed, which fall under section 331.

Taligaman Lumber v CIR Taligaman Lumber, a domestic corporation is engaged in the business of cutting logs in its concessions and converting said logs into lumber, as well as buying logs from other concessionaires. Upon examination of the books of account of the Grace Park branch, an agent of the BIR recommended, on December 23, 1953, an assessment of P134k+ as deficiency sales tax on the sales made in said branch for the years 1948 to 1952. Upon reexamination of said books of account, the agent recommended a reduction of the assessment to P93k+, plus 25% surcharge. After a reinvestigation, the amount was further reduced to P66k+. Meanwhile, another internal revenue agent examined the records of the Butuan City branch and as a consequence, the sum of P98k+ was assessed as deficiency sales tax, surcharge and penalties due on the sales made in said branch for the period from 1948 to 1953. Upon reinvestigation, the assessment was reduced to P39k+. Upon refusal of the CIR to reconsider or modify either assessment, Taligaman brought the matter for review to the CTA, w/c reduced the amt to about P86k+. I: W/n the right of the BIR to collect deficiency taxes for 1948 and 1949 is already barred by prescription R: Since prescription is one of the affirmative defenses set up by Taligaman herein, it was incumbent upon Taligaman, if it wanted to avail itself of the benefits of section 331 (5-year period to prescribe), to prove that it had submitted said returns. HOWEVER, it failed to do so, and it must be concluded that no such returns had been filed and that the Government had 10 years within which to make the corresponding assessments, based on Sec332 a (false / fraudulent return w/ intent to evade tax or failure to file a return). Taligaman contends that the gov had admitted impliedly that Taligaman had declared its receipts, though not correctly, thus relieving Taligaman of the burden of proving that it had filed the

Tan Guan v Nable This case involves 2 assessments that Tan Guan is challenging: Tan Guan and one Gonzalo Padua were the cashier and the president of one Imperial, involved in the manufacturing of cigarettes. On the first assessment: Imperial acquired bobbins of cigarette paper from one Mabuhay Cigarette Factory (860 bobbins) and Seng Kee & Co. (300). On July 30, 1951, Imperial then told the BIR that they delivered 300 bobbins subsequently to one Marikina Cigarette Factory. CIR however found that the subsequent sale to Marikina was fictitious hence, they demanded specific taxes on the quantity of cigarettes that MIGHT be produced from the 300 bobbins of paper acquired by Imperial on January 21, 1953. On Feb 1953, Padua then gave his intention to appeal the assessment. However when it reached the conference, nobody appeared on behalf of Imperial leading for the CIR to issue a warrant of distraint which was left unserved for Padua had no property to be distrained. On October 1957, a criminal action for violation of the Tax Code was filed but was subsequently dismissed for prescription. Thereafter, on March 1958, Commissioner then demanded from Tan Guan (this time it was against Tan Guan, after Padua) for the payment of the assessed specific taxes of 72, 450 and a second assessment for specific taxes of 128,800. On the second assessment: On December 5, 1950, Manufacturing Co. asked permission from the CIR to sell bobbins of cigarette paper to Imperial. On July 23, 1952, a representative of Imperial claims that they never received the bobbins that was supposed to be sold by Manufacturing Co. However, Manufacturing Co. sought reconsideration for the assessment of specific taxes and even presented testimony and documentary evidence to prove delivery of the goods to Imperial. On

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March 20, 1958, CIR then assessed Imperial 128,800 as specific taxes on the cigarettes that Imperial COULD HAVE manufactured out of those 800 bobbins of cigarette paper. CIR then filed a civil action on May 7, 1958 against Tan Guan. Tan Guan then, who could not be located initially, filed an appeal on the distraint of his properties claiming prescription of action. I: W/n the action had prescribed R: No, the action did not prescribe. Tan Guan is claiming that first, the initial 72,400 assessment was made on January 21, 1953 while the second action was filed on May 7, 1958 or beyond the prescriptive period of 5 years. However, in spite of what Tan Guan was claiming, the prescriptive action was INTERRUPTED, firstly on February 1953 when Padua (on the first assessment) appealed the disputed assessment of 72,400. On the second assessment, there was no 5 years yet as the first assessment was done on May 1953, while the second one was May 7 1958, clearly no 5 years yet. Moreover, the prescriptive period of five (5) years applies only when a return is filed. However, in the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission. Since in this case, there was no return, the 10 year prescriptive period hasnt lapsed yet! ADDITIONAL NOTES: The prescriptive period may be interrupted by a REQUEST FOR REINVESTIGATION w/c is granted; and if on the basis of such reinvestigation, another assessment is made, the prescriptive period shall be counted from the new assessment. HOWEVER, a mere request for reinvestigation will NOT suspend the prescriptive period if not reconsidered/acted upon.

CTA and SC both held that the assessment was made beyond the 5-year period and thus had no binding force and effect. I: W/n the assessment was done beyond the prescriptive period R: YES. In this case, the applicable provision is NOT Sec 332a but Sec 331. Sec 332 should apply when there is fraud / falsity on the return with intent to evade payment of tax. There is no evidence presented by the CIR in this case as to any fraud/falsity on the return w/ intent to avoid payment. Fraud is a question of fact, circumstances must be proven and alleged. In this case, the assessment issued on Feb 21, 1961, received by Ayala on March 22, 1961, was made BEYOND the 5 year period prescribed under Sec331 (Ayala could file its income tax on or before Jan 1956 thus, assessment must be made NOT later than Jan 1961). Thus, it was no longer binding on Ayala Securities.

CIR v Ayala Securities Corp Ayala Securities Corp filed its ITR w/ the CIR for the fiscal year w/c ended on Sept 30, 1955. Attached to its ITR was the audited financial statements showing a surplus of P2M+. Income tax due on the return was duly paid w/in the period prescribed by law. CIR then advised Ayala for the assessment of P758k unpaid tax on its accumulated surplus. Ayala protested ate assessment and sought reconsideration given that the accumulation was 1) for a bona fide business purpose and not to avoid imposition of tax, and 2) assessment was issued beyond 5 yrs.

Phil Journalists v CIR PJI filed its Annual Income Tax Return for the calendar year which ended on December 31, 1994 August 10, 1995- Revenue District No. 33 of BIR issued Letter of Authority to 2 of its officers to examine PJIs book of accounts and accounting records for internal revenue taxes for period January 1, 1994 to December 31, 2004 PJI was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty August 29, 1997- Revenue District Officer Jaime Concepcion invited PJI to send a representative to an informal conference on September 15, 1997 for an opportunity to object and present documentary evidence relative to the proposed assessment Sept 22, 1997- PJIs comptroller executed a Waiver of Statute of Limitation under NIRC (The document "waived the running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed] to the assessment and collection of taxes which may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation") Oct 5, 1998- Assessment Division of the BIR issued PreAssessment Notices which informed PJI of the results of the investigation finding that petitioner had deficiency taxes (P136,952,408.97)

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Dec 9, 1998-BIR issued Assessment/Demand No. 33-1000757-94 Mar 16, 1999- a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S. Panganiban to the PJI to pay the assessment within ten (10) days from receipt of the letter November 10, 1999- Final Notice Before Seizure was issued by the same deputy commissioner giving the PJI ten (10) days from receipt to pay (received by PJI on Nov 24, 1999) Nov 26, 1999- PJI asked BIR for a clarification how it became liable for tax deficiency and sent a follow up letter asserting that its record did not show receipt of Assessment/Demand No. 331-000757-94 Mar 28, 2000- PJI received Warrant of Distraint and Levy May 12, 2000- PJI filed a Petition for Review with the CTA. One of its grounds was that the assessment, having been made beyond the 3-year prescriptive period was null and void CTA ruled that the assessments were issued beyond the 3 year prescriptive period and that the Waiver of Statute of Limitations null and void (unlimited for not containing expiry date, failed to state the date of acceptance by the BIR and PJI was not furnished a copy- all contrary to RMO 20-90) CA reversed the CTA and ruled in favor of PJI. I: 1) W/n there was a valid waiver of the statute of limitations R: NO. Thus, assessment was issued BEYOND the prescriptive period. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does NOT mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. RMO No. 20-90 implements the provisions of NIRC relating to the period of prescription. The waiver must be in the form

identified. The phrase "but not after _________ 19___" should be filled up. This indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription. The period agreed upon shall constitute the time within which to effect the assessment/collection of the tax in addition to the ordinary prescriptive period. Waiver must be signed by the National Office Commissioner for taxes more than P1M, or the Regional District Officer for taxes still pending and period to assess is about to prescribe, regardless of amount. THE WAIVER WAS INVALID FOR THE FOLLOWING REASONS: o It does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioners waiver became unlimited in time, violating Section 222(b) of the NIRC. o defective from the government side because it was signed only by a revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90 o PJI was not furnished a copy of the waiver.

RP v Lim de Yu Rita Lim de Yu filed her yearly income tax returns from 1948 through 1953. BIR assessed the taxes due on each return, and Rita paid them accordingly. On July 17, 1956 the Bureau issued to Rita deficiency income tax assessments for the years 1945 to 1953 in the total amount of P22,450.50. She protested the assessments and requested a reinvestigation. On August 30, 1956 she signed a "waiver" of the statute of limitations under the Tax Code as condition to the reinvestigation requested. In the waiver, Rita consented to ASSESSMENT AND C OLLECTION if not made later than Dec 1958.

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Even after reinvestigation, Rita failed in her contentions and was assessed 50% surcharge. Upon Rita's failure to pay, an action for collection was filed against her in the CFI of Cotabato on May 11, 1959. Lower court dismissed the case on the ground that right to collect had already prescribed pursuant to the waiver. I/R: 1) W/n lower court was correct in ruling that the deficiency income taxes for 1948, 1949 and 1956 were NOT collected on time YES, lower court was correct. Deficiency taxes were NOT collected on time. Although Republic alleged that the returns were false and fraudulent (prescribing 10 yrs instead of 5), it FAILED to establish such allegation. In fact, every time Rita filed her returns, and every time there was a recomputation by the Bureau, she PAID the amounts due. Even the Bureau itself appears none too sure as to the real amts of net income for those years. It is NOT enough that fraud is alleged as it must be duly established. Hence, the 10yr period for fraud cases cannot be availed of. Also, the tax years 1948 to 1950 cannot be deemed included in the "waiver of the statute of limitations. Although Sec332 waiver provides fro an exemption to the code, such AGEREMENT must be made BEFORE, and NOT AFTER the expiration of the original period. It prevents prescription from attaching and does NOT operate to authorize extension once prescription has attached. Thus, the amounts were not collected on time. 2) W/n LC was correct in dismissing the case because the right to collect had prescribed already pursuant to waiver NO, LC was incorrect on this point. Assessment and collection are 2 dif processes. Sec331 gives gov 5 years from filing of return within w/c to assess taxes due. Sec332b allows extension of this agreement by WRITTEN AGREEMENT between taxpayer and CIR. On the other hand, par.c. is concerned w/ collection of taxes after assessment, regardless of whether made during 5yrs or UPON extension. Hence, collection can be affected w/in 5 yrs OR the agreed upon extension between taxpayer and commissioner. Thus, assessment and collection if made not later than Dec 1958 should be deemed to refer merely to the right to assess and NOT to

collect, for it that were so, agreement would LIMIT instead of extend the right to collect. RP v Heirs of Cesar Jalandoni Isabel Ledesma died intestate leaving real properties and personal properties consisting of shares of stock in various domestic corporations. She left as heirs her husband and 3 children. On November 19, 1948, Cesar Jalandoni, one of the children, filed an estate and inheritance tax return. On the basis of this return, BIR made an assessment calling for payment of estate and inheritance taxes, stating that the assessment was "to be considered partial pending investigation of the return." These sums were paid by Cesar Jalandoni. A second assessment was made on January 27, 1953 by BIR showing that there was due from the estate deficiency estate and inheritance taxes, respectively, for which reason a demand was made on Bernardino Jalandoni stating therein that the same was still "to be considered partial pending further investigation of the return. These amounts were paid by Bernardino Jalandoni. BIR then conducted another investigation and this time it found (1) that the market value of the lands reported in the return filed by Cesar Jalandoni was underdeclared; (2) that seven sugar lands in TalisaySilay were omitted from the return the same having a market value of P100,200.00; and (3) the shares of stock owned by the deceased in the Victorias Milling Company, Hawaiian-Philippine Company and Central Azucarera de la Carlota, were underdeclared. As such, the heirs were required to pay deficiency estate and inheritance taxes, respectively, including accrued interests, with the warning that failure on their part to pay the same would subject them to the payment of surcharge, interest, and penalty for late payment of the tax. B. Jalandoni wrote a letter to CIR setting up the defense of prescription in the sense that the deficiency in the estate and inheritance taxes payment of which was required therein can no longer be collected since more than five years had already elapsed from the filing of the return invoking in his favor Section 331 of NIRC. CIR retorted claiming that the stand of counsel cannot be entertained for the reason that, it appearing that the estate and inheritance tax return which was filed by the administrator or by the heirs contained omissions which amount to fraud indicative of an intention to evade payment of the proper tax due the government, the

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taxes then being collected could still be demanded within 10 years from the discovery of the falsity or omission. TC ordered Jalandonis to pay the amount. I: W/n there was fraud w/c would make the assessment valid and the prescriptive period 10 years R: NO, There was no fraud and the assessment was filed BEYOND the prescriptive period. As to the sugarlands: Certainly if there is any mistake in the valuation made by Jalandoni the same can only be considered as honest mistake, or one based on excusable inadvertence, he being not an expert in appraising real estate. Of the 7 lots, 3 were actually included in the return. The 3 lots were the most valuable with total value of 86k. Total value of 7 lots was 90k. There was reason therefore to believe that the omission was due merely to inadvertence. The deficiency assessment, moreover, was made by the CIR more than five years from the filing of the return, and experience shows that such an intervening period is sufficiently long to warrant an increase in value of real estate which is precisely what was found by the CIR with regard to the lands in question. It is certainly an error to impute fraud based on an honest difference of opinion. As to the shares: The fact that the value given in the returns did not tally with the book value appearing in the corporate books is not in itself indicative of fraud especially when we take into consideration the circumstance that said book value only became known several months after the death of the deceased. Moreover, it is a known fact that stock securities frequently fluctuate in value and a mere difference of opinion in relation thereto cannot serve as proper basis for assessing an intention to defraud the government.

I: W/n the deductions should be allowed to absolve Tan from assessed deficiency liability R: No, deductions should NOT be allowed. CIRs findings that the facts constituting fraud proven by the CTA were NOT rebutted by the taxpayer. Tan did NOT present evidence to disprove findings, considering that the investigation was made PRIOR to the 5-year period to preserve and keep receipts. For failure to overcome the burden, Tan cannot claim the expenses as deduction from gross income. Also, since the tax return was fraudulent due to fictitious expenses, the CIR had 10 yrs to assess. CIR did NOT lose its right to issue the assessment on 1957, which is WITHIN 10 years from 1954, when the fraud was discovered.

Tan Guan v CIR Tan Guan and Sia Lin, Chinese nationals, organized and registered the Phil Surplus Company, a general partnership. Tan filed an income tax return declaring deductions for service of engine, freight and steam hoist. Acting upon a confidential report, that the company posted fictitious expenses in its books to avoid taxes, BIR investigated the books of the partnership and discovered expenses NOT covered by receipts, names of payees erased and payees who did not report sums in question in their income tax. Thus, BIR disallowed expense deductions in 1948. They were treated as the income of individual partners and BIR assessed them deficiency income taxes

Aznar v CTA The late Matias Aznar filed his income tax returns of 1945-1949. The CIR, having his doubts on the veracity of the reported income of one who is obviously wealthy, caused BIR Examiner Honorio Guerrero to ascertain the taxpayer's (Matias Aznar) true income for said years by using the net worth and expenditures method of tax investigation. It was discovered that from 1946 to 1951, his net worth had increased every year, much more than the income reported. The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax returns for those years. CIR notified the taxpayer of the assessed tax delinquency. Taxpayer requested a reinvestigation which was granted. After the reinvestigation, another deficiency assessment to the reduced amount superseded the previous assessment and notice thereof was received by Aznar in 1955. In Feb 1953, CIR through the City Treasurer of Cebu, placed the properties of Aznar under distraint and levy to secure payment of the deficiency income tax in question. Aznar argues that NIRC Sec. 331 applies in this case. Section 331 provides for five years limitation upon assessment and collection from the filing of the returns. He argues that since the 1946 income tax return could be presumed filed before March 1, 1947 and the notice of final and last assessment was received by the taxpayer on March 2, 1955, a period of about 8 years had elapsed, and the five year period provided by law had already expired.

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CIR asserted that the 10-year period should apply since this involved a false and fraudulent return. CIR and CTA found that the very "substantial under declarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of tax." I: 1) W/n the right of the CIR to assess deficiency income taxes for the years 1946-1948 had already prescribed at the time the assessment was made on November 28, 1952 2) W/N the lower court erred in imposing the fraud penalty (surcharge of 50%). Yes. R: 1) YES, CIR still had the right to assess deficiency income taxes. Right had NOT prescribed. In the three different cases of (a) false return, (b) fraudulent return with intent to evade tax, (c) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of (a) falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely falsity, fraud and omission. That there is a difference between false return and fraudulent return cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade he taxes due. The ordinary period of prescription of five years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent is lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax, or failure to file returns, the period of ten year provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. There being undoubtedly false tax returns in this case, Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioners tax liability had not expired at the time said assessment was made. 2) YES, LC should Not have imposed fraud penalty. Fraud cannot be presumed but must be proven. Fraudulent intent could not be deduced from mistakes however frequent they may be, especially if such mistakes emanate from erroneous entries or erroneous classification of items in accounting methods utilized for determination of tax liabilities.

Matias Aznar undoubtedly filed his income tax returns for "the years 1946 to 1951 and those tax returns were prepared for him by his accountant and employees. It also appears that petitioner in his lifetime and during the investigation of his tax liabilities cooperated readily with the BIR and there is no indication in the record of any act of bad faith committed by him. The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. Thus, a mere mistake cannot be considered as fraudulent intent, and if both petitioner and CIR committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith. * Yas: So I guess in this case, petitioner was liable of FALSE return, but there was NO fraud? CIR v Ayala Securities Corp An assessment made on 21 February 1961 by the CIR against the Ayala Securities Corporation (and received by the latter on 22 March 1961) for accumulated profit surplus for the fiscal year ending 1955. CTA reversed the assessment of the 25% surtax and interest in the amount of P758,687.04, and thereby cancelled and declared of no force and effect the assessment of the CIR. SC affirmed CTA decision and ruled that the assessment was made AFTER the expiration of the said 5-year prescriptive period and was of no binding force and effect. The Commissioner moved for reconsideration, contending that the assessment to be filed w/in 5-years only refers to taxes which have their basis the requirement of law to be reported in a return. No law requires taxpayers to file returns of their accumulated profits, as opposed to, for example, income taxes.

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I: W/n BIR is mandated to make an assessment w/in 5 years from the filing of the taxpayer of his return w/ regard to surtaxes on unreasonably accumulated profits R: No, it does not. The provisions of sections 331 and 332 of the National Internal Revenue Code for prescriptive periods of 5 and 10 years after the filing of the return do not apply to the tax on the taxpayers unreasonably accumulated surplus under section 25 of the Tax Code since no return is required to be filed by law or by regulation on such unduly accumulated surplus on earnings. The 25% surtax is not subject to any statutory prescriptive period. A tax imposed upon unreasonable accumulation of surplus is in the nature of a penalty. It would NOT be proper for the law to compel a corporation to report improper accumulation of surplus. Section 331 applies to assessment of NIRC taxes WHICH REQUIRES THE FILING OF RETURNS. To start the running of the 5-year period, the return must be one REQUIRED for the particular tax. Thus, filing of income tax return does NOT start the running of prescriptive period for assessment of SALES TAX (Butuan Sawmill, Inc. v. Court of Tax Appeals) No return could have been filed, and the law could not possibly require, for obvious reasons, the filing of a return covering unreasonable accumulation of corporate surplus profits. It is well settled limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary. In the absence of express statutory provision, the right of the government to assess unpaid taxes is imprescriptible. Since there is no express statutory provision limiting the right of the Commissioner of Internal Revenue to assess the tax on unreasonable accumulation of surplus provided in Section 25 of the Revenue Code, said tax may be assessed at any time. The underlying purpose of the additional tax in question on a corporations improperly accumulated profits or surplus is to avoid the situation where a corporation unduly retains its surplus earnings instead of declaring and paying dividends to its shareholders or members who would then have to pay the income tax due on such dividends received by them. Ayala Securities Corporation is a mere holding company of its shareholders through its mother company, a registered copartnership then set up by the individual shareholders belonging to the same family. Said prima facie evidence and presumption set up by the Tax Code is applied without having been adequately rebutted by the corporation. The Corporation falls under Revenue Regulation 2, implementing the provisions of the income tax law which provides on

holding and investment companies that A corporation having practically no activities except holding property, and collecting the income therefrom or investing therein shall be considered a holding company within the meaning of section 25. (Section 20) Guagua Electric Light Plant v CIR Guagua Electric Light Plant Co is a grantee of municipal franchise by the municipal council of Guagua. Guagua realized and reported a gross income in the sum of P1M+ and paid thereon a franchise tax computed at 5% in accordance w/ the NIRC. Believing that it should pay franchise tax at the lower rates provided for in its franchises instead of 5% fixed by Section 259 of the Tax Code, it filed a claim for refund for allegedly overpaid franchise tax. CIR denied refund of franchise tax corresponding to the period prior to the fourth quarter of 1951 on the ground that the right to its refund had prescribed. He however granted refund of P16k+. Not satisfied, Guagua appealed to CTA. CTA dismissed appeal upon motion of CIR on the ground that the same was instituted beyond the 30-days, period provided for in Section 11 of Republic Act 1125. CIR assessed against Guagua Electric deficiency franchise tax and later issued a revised assessment eliminating deficiency tax for the period prior to January 1, 1956, as recommended. I: W/n the government is precluded from recovering the amount refunded to it on grounds of prescription and failure to set up as counterclaim in the CTA case R: YES, gov can no longer recover the amount refunded to it. CIR seeks recover of the amount of P16k+ alledly erroneously refunded to Guagua Electric. It represents the diff between the tax computed at 5% pursuant to Tax Code and 1% or 2% under its franchises from Sept 1951 to Nov 1956. If Guagua were required to pay the P16k+ IN ADDITION to the P19k+, it would be paying TWICE the same deficiency tax for the period from Jan to Nov 1956. Moreoever, CIR revised his first deficiency tax assessment by eliminating the deficiency tax for the period from Jan 1956 because the right to assess the same had prescribed. By insisting on the payment of the P16k+, he is in fact trying to collect the same deficiency tax, the right to assess the same he found to have been lost by prescription.

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Also, it is wrong for CIR to say that right to assess and collect is governed by Civil Code (6 years). What governs is the Tax Code (special law should prevail over general law). The constitutionality of collecting franchise tax at the rate of 5% of the gross receipts as provided for in the Tax Code instead of at the lower rates fixed by the franchise granted under Act 667, has already been settled in several cases. Guagua Electric, whose franchises were similarly granted under Act 667, being similarly situated as the taxpayers-franchise holders in those cases already decided by Us, shall likewise be subject to the 5% rate imposed in Section 259 of the Tax Code.

Even assuming that claims for taxes have to be filed within the time prescribed in Section 2, Rule 86 of the Rules of Court, the claim in question may be filed even AFTER the expiration of the time originally fixed. In this case, gov filed its claim AFTER the expiration of the time allowed but BEFORE the distribution of the estate. The claim SHOULD be allowed, considering the claim is made for the people at large.

Vera v Fernandez Intestate estate of Tongoy was assessed deficiency income taxes from 1963 to 1964 inclusive of 5% surcharge, 1% monthly interest and compromise penalties. The administrator opposed on the ground that the claim was barred for being filed beyond the period prescribed in the ROC, Rule 86 (in settlement of estate, taxes should be filed in administration proceedings as claims against the estate as a regular money debt). I: W/n Rule 86 of ROC (state of non-claims) bars the claim of gov for unpaid taxes, even if period is still w/in the time in the NIRC R: NO. Claim is NOT barred and gov can still collect w/in the prescriptive period. Taxes are of an entirely different character from the claims (money claims against the decedent) enumerated in the statute. Under the familiar rule of statutory construction of expressio unius est exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned. The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from the application of the statute of non-claims is that taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. In fact, claims for taxes may be collected even AFTER the distribution of the decedents estate among heirs who shall be liable in proportion to their share of inheritance. Payment of income tax shall be a lien in favor of the gov from the time the assessment was made by the Cir until paid w/ interests, penalties, etc. Thus, BEFORE inheritance has passed to heirs, unpaid taxes may be collected without having been presented under the Rule 86 of the ROC.

RP v Limcaco Limcaco is engaged in the importation of cigarettes and, being such, owed the government revenue taxes. To guarantee their payment, the private respondents (Limcaco as the principal, Visayan as the surety) executed two Importers bonds worth P3,000. Upon arrival of their new shipment of cigarettes on July 15, 1946, the principal was assessed a tax of P6,000, which they paid P1,000 in cash and P5,000 in check. The cigarettes were released into their custody. The check was subsequently dishonored for lack of funds. On June 17, 1948, the CIR wrote Limcaco and demanded from him deficiency tax due on the cigarettes, but it remained unpaid despite repeated demands. They instead resorted to Visayan Surety for fulfillment. Visayan Surety requested for the complaint which would be initiated against both Visayan and Limcaco be temporarily suspended. CIR filed a complaint praying for forfeiture of the importers bonds and payment of the deficiency tax plus interest. Defendants, however, interposed the defense of prescription and questioned the validity of the assessment. I: W/n there was prescription in the case. R: NO, there was no prescription. Being a complaint for taxes previously paid, compliance with Sec. 306 of the NIRC must first be adequately performed. A taxpayer must first file a claim for refund or tax credit with the CIR first before maintaining a suit for recovery of tax alleged to be illegally or erroneously assessed or collected. It is a condition precedent, failure to do so will subject the claim to dismissal for lack of cause of action. No evidence was shown to prove that Visayan complied with such a condition. The counterclaim should have been dismissed. Governments action has not prescribed. The collection of taxes should be done within 5 years after assessment. The assessment

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was actually on June 17, 1948, the day when the demand letter was sent to Limcaco and Visayan, not on the day they were originally supposed to pay for the taxes. To assess means to impose a tax, to charge with a tax, to declare a tax to be payable, to apportion a tax to be paid and contributed, to fix a rate, to fix or settle a sum to be paid by way of tax, to set or charge a certain sum to each taxpayer, and to settle or determine or fix the amount of tax to be paid. The right to collect the deficient tax of P5,000 only accrued after the dishonor. Judicial action having been instituted on February 18, 1953, the five year period had not yet lapsed. Even assuming that the earlier date is the date of assessment, there would still be no prescription because the prescription was interrupted when there is written acknowledgement of the debt by the debtor. Moreover, it is not a collection of taxes but of the bonds, which is an action separate and distinct from an action to collect taxes (this is an action upon a written contract, w/c must be brought w/in 10 yrs from the time the right of action accrues).

RP v Ret On February 23, 1949, Damian Ret filed with the BIR his Income Tax Return for the year 1948, where he made it appear that his net income was only P2k+ with no income tax liability at all. The BIR found out later that the return was fraudulent since Ret's income, derived from his sales of office supplies to different provincial government offices, totaled P94k+. The BIR assessed him deficiency income tax for 1948, inclusive of the 50% surcharge for rendering a false and/or fraudulent return. Ret failed to file his Income Tax return for 1949, notwithstanding the fact that he earned a net income of P150k+, also from sale of office supplies. His income, as assessed for tax purposes, showed a deficiency tax for 1949. CIR demanded from Ret the payment of the above sums, but he failed and/or refused to pay said amounts. On January 20, 1951, the Collector issued income tax assessment notices to Ret, urging him to pay the sums mentioned, but with the same result. Upon recommendation of the Collector, Ret was prosecuted for a violation of Sections 45[a], 51[d] and 72, of the N.I.R.C. penalized under Sec. 73, thereof (Crim. Cases Nos. 19037, and 19038. He pleaded guilty to the two (2) cases and was sentenced to pay a fine of P300.00 in each.

After his conviction, the Republic filed the present complaint for the recovery of Ret's deficiency taxes in the total sum of P103k+ plus 5% surcharge and 1% monthly interest. Instead of answering, he presented a Motion to Dismiss on February 8, 1958, claiming that the "cause of action had already prescribed". CFI held that the five-year period fixed by law for the filing of suit for the collection of income tax having already expired, the plaintiff has no cause of action against the defendant and the motion to dismiss should be and is hereby granted, and the case is dismissed without pronouncement as to costs. I: W/n right of BIR to collect income taxes had already prescribed R: YES, cause of action has already prescribed. Section 332 of the Revenue Code does NOT apply to income taxes if the collection of said taxes will be made by summary proceedings, because this is provided for by Section 51 (d); but if the collection of income taxes is to be effected by court action, then section 332 will be the controlling provision. The gov contends that granting the applicability of Sec 332, it has 10 yrs from discovery of fraud, falsity or omission within w/c to file the action. Under this section, the CIR is given 2 alternatives: o Assess tax WITHIN 10 YRS from discovery of falsity, fraud, omission o File an action in court for the collection of tax WITHOUT ASSESSMENT also WITHIN 10 YRS from discovery of falsity, fraud, omission In this case, the assessment has been made and this fact has taken it out of the realm of Sec 332 (a) and placed it under Sec 332 (c) w/c provides that payment must be made w/in 5 YEAR prescriptive period. The CIR made the assessment on January 20, 1951 and had up to January 20, 1956 to file the necessary action. It was only on September 5, 1957, that an action was filed in Court for the collection of alleged deficiency income tax far beyond the 5-year period. Gov was NOT prohibited from collecting deficiency income tax during pendency of criminal cases . The present complaint against Ret is NOT for the recovery of civil liability arising from the offense of falsification; it is for the collection of deficiency income tax. The criminal actions are entirely separate and distinct from the present civil suit. There is nothing in the law which would

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have stopped CIR from filing this civil suit simultaneously with or during the pendency of the criminal cases. It is also averred that the period of prescription for the collection of tax was suspended because of the written extrajudicial demand made by the CIR. HOWEVER, the only agreement that could have suspended the running of the prescriptive period was a written agreement between Solano and the Collector, entered before the expiration of the five (5) year prescriptive period, extending the period of limitations prescribed by law. In the instant case, there is no such written agreement.

Assadourian was a nonresident alien not engaged in trade or business in the Philippines, which means that he was within the purview of Section 53 (b) of the then National Internal Revenue Code which requires any person or corporation in control of his earnings as such nonresident alien to withhold 20% from such annual or periodical gains, profits and income as tax. With regard to the payment of Jai-Alai to Assadourian, it was held that it was not merely for the purchase price of certain inchoate or contingent interest belonging to him, but it was considered income where withholding tax is mandatory. This is due to the fact that Assadourian, in consideration of the sum of 200,000.00, acknowledged full payment of all his claim for percentages earned by the Jai-Alai Stadium for the years 1940 to 1945, and to be earned during the years 1946 to 1950. Since Jai-Alai made payment directly to Assadourian, there is no doubt that the former is liable for withholding tax. Payment made by Sen. Madrigal was really payment made on behalf of Jai Alai.

RP v Razon Haig Assadourian (an Egyptian national) was hired as general manager of Jai Alai. He eventually left the Phils for the USA after securing a tax clearance. He never returned to the Phils. Jai Alai through its VP Jose Razon entered into a contract w/ Assadourain (Ass) where Jai Alai would pay Ass P200k as full payment of all his claim for percentages earned by the Jai Alai from 1940-1945, as well as those to be earned from 1946-1950 (for his services as general manager). The same were by Jai Alai by telegraphic transfer and later by Sen. Madrigal, a stockholder. In 1949, the BIR discovered the failure to file a withholding tax return. Thus, in 1952, it wrote a letter to Jai Alai demanding payment of taxes w/c Jail Alai should have withheld on the P200k payment in accordance w/ the Tax Code enclosing assessment notices. Upon failure to pay, CIR commenced a collection suit in 1953. I: W/n action for collection had prescribed R: NO, action to collect had not yet prescribed. For its omission / failure to file a withholding tax return, the applicable provision of the then Tax Code is that a proceeding in court for collection may be filed WITHOUT ASSESSMENT any time w/in 10 yrs from discovery of omission. In this case, omission was discovered in 1949 during the investigation of the BIR examiner. The judicial suit was intitiated in 1953 impleading Jai Alai. Thus, only 4 years had elapsed from the time of discovery of the omission to file a return from filing a judicial suit. Action to collect had NOT prescribed. OTHERS:

RP v Acebedo A notice of assessment was issued on September 24, 1949 to Felix Acebedo in the amount of P5,962.83. He asked for a reinvestigation on October 11, 1949. There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then CIR issued a warrant of distraint and levy for the full amount of the assessment, but there was no follow up of this warrant. Acebedo again requested for a reinvestigation of his tax liability on October 6, 1951. Nothing came of this request either. Acebedos lawyers then wrote the CIR informing him that the books of their client were ready at their office for examination. The reply was dated more than a year later, or on October 4, 1955, when the Collector bestirred himself for the first time in connection with the reinvestigation sought, and required that the defendants specify his objections to the assessment and execute "the enclosed forms for waiver, of the statute of limitations." The last part of the letter was a warning that unless the waiver "was accomplished and submitted within 10 days the collection of the deficiency taxes would be enforced by means of the remedies provided for by law. CIR filed a complaint on December 27, 1961.

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After Acebedo filed his answer but before trial started, he moved to dismiss on the ground of prescription. TC dismissed the complaint, saying that a mere request for reinvestigation or reconsideration of an assessment does NOT have the effect of such suspension. This is an appeal by the plaintiff from the order of dismissal. I/R: 1) W/n the assessment begun prior to the expiration of the period agreed upon in writing by the CIR and before the expiration of the 5-year period NO, the waiver of statute of limitations was ineffective because it was executed BEYOND the 5-year limitation (in 1959). 2) W/n the period of prescription was suspended by Acebedos requests for reinvestigation / reconsideration of tax assessment NO. A mere request for reinvestigation / recon DOES NOT give an effect of suspension. Otherwise, there would be no point to the legal reqment that extension of the original period be agreed upon in writing. HOWEVER, there are cases when taxpayer may be prevented from setting up prescription even if he has waived it in writing as when by his repeated requests / positive acts, the gov has been persuaded to postpone collections to make him feel that the demand was NOT unreasonable / that no harassment / injustice is meant. When a taxpayer asks for a reinvestigation of the tax assessment issued to him and such reinvestigation is made, on the basis of which the Government makes another assessment, the five-year period with which an action for collection may be commenced should be counted from this last assessment. In this case, the delay in collection could not be attributed to Acebedo at all. His requests in fact had been unheeded until then, and there was nothing to impede enforcement of the tax liability by any of the means provided by law. By October 4, 1955, more than five years had elapsed since assessment in question was made, and hence prescription had already set in, making subsequent events in connection with the said assessment entirely immaterial. Even the written waiver of the statute signed by the defendant on December 17, 1959, which was the only evidence presented , could no longer revive the right of action, for under the law such waiver must be executed within the original five-year period within which suit could

January 15, 1982 and November 20, 1981: Carnation filed its Corporation Annual Income Tax Return and its Manufacturers/Producers Percentage Tax Return respectively for the quarter ending September 30, 1981. In 1987, Carnation, through its Senior Vice President, signed three separate "WAIVERS of the Statute of Limitations Under the National Internal Revenue Code" wherein it waived the running of the prescriptive period provided for in provisions of the NIRC and consents to the assessment and collection of the taxes which may be found due after reinvestigation and reconsideration at anytime before or after the lapse of the period of limitations fixed the provisions of the NIRC, but not after (13 April 1987 for the earlier-executed waiver, or June 14, 1987 for the later waiver, or July 30, 1987 for the subsequent waiver, as the case may be). However, the taxpayer does not waive any prescription already accrued in its favor. The waivers were not signed by the BIR Commissioner or any of his agents. Carnation received BIR's letter of demand asking the said corporation to pay deficiency income tax, deficiency sales tax and deficiency sales tax on undeclared sales, all for the year 1981. This demand letter was accompanied by 3 assessment Notices. Carnation disputed the assessments and requested a reconsideration and reinvestigation thereof. CIR contends that the waivers signed by Carnation were valid although not signed by the BIR Commissioner because: o (a) when the BIR agents/examiners extended the period to audit and investigate Carnation's tax returns, the BIR gave its implied consent to such waivers; o (b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate binding effect of the waivers; and o (c) that a waiver is not a contract but a unilateral act of renouncing ones right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver CTA held that assessment Notices are NULL AND VOID for having been issued beyond the five-year prescriptive period provided by law. I: W/n the 3 waivers signed Carnation are valid and binding as to toll the running of the prescriptive period for assessment and not bar the Government from issuing subject deficiency tax assessments? R: NO, the waivers are NOT valid. The prescriptive period is NOT suspended. Sec. 203 of the National Internal Revenue Code, the law then applicable provides that Except as provided in the succeeding section,

CIR v CA

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internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purpose of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. Carnations income 1981 with income and sales taxes could have been validly assessed only until January 14, 1987 and November 19, 1986, respectively. In other words the assessments by the CIR should be passed from: January 15, 1982 up to January 12 1987 only November 20, 1981 up to November 19, 1986 only

However, Carnations income and sales taxes were assessed only on July
29, 1987, beyond the five-year prescriptive period. ALSO, Section 319 of the Tax code is clear and explicit that the waiver of the five-year prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer. Here, the three waivers signed by Carnation do NOT bear the written consent of the BIR Commissioner as required by law. These "waivers" to be invalid and without any binding effect on petitioner (Carnation) for the reason that there was no consent by the CIR. Neither implied consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one which is unilateral nor can it be said that concurrence to such an agreements a mere formality because it is the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement. RP v Lopez BIR made an assessment on Benito Lopez resulting in a deficiency income tax of 245k. Lopez moved for a reconsideration of the assessment. BIR eventually complied and reduced the amount. After that, Lopez manifested that he will settle the obligation by the end of the month. However, he pleaded for another reinvestigation. BIR against granted the request and lessened the deficiency amount to 25k. Notwithstanding the reduction, Lopez again requested for a 3 rd reinvestigation. BIR agreed on the request provided that Lopez waives the statue of limitations.

Lopez countered that the BIR should then finish the investigation by Dec 31, 1957 or else the case would prescribe. Ignoring the deadline set by Lopez, BIR issued the assessment on March 23, 1960. Due to non-payment of tax several times, a collection suit was filed against Lopez. Lopez moved to dismiss the case on the ground of prescription. The CFI granted the motion and dismissed the case. I: W/n the deadline set by Lopez (Dec 31, 1957) would be binding and operative. R: NO, the deadline is NOT binding and operative. The 5-year prescriptive period within which the Govt may sue to collect tax is to be counted from the last revised assessment due to taxpayers request for reinvestigation and the time employed in the reinvestigation should be deducted from the total period of limitation. In this case, the 5-year limitation has not yet elapsed. If the period from the time of first reinvestigation up to the time of filing of the collection complaint (4 years 3 months 6 days) is deducted from the total period of limitation period (6 years 2 months and 15 days), the total prescriptive would still be less than 5 years (1 year 3 months and 6 days). The deadline set by the taxpayer, which technically reduces the prescriptive period against the Govt, cannot be binding as it works to the detriment of the state, which diminishes the opportunities of collecting taxes due to the Govt. But even if the date was binding, the period would still be less than 5 years due to deductions caused by reinvestigation. The proper remedy of the taxpayer was to appeal the ruling to the CTA, not request for another reinvestigation. The failure to appeal to the CTA constitutes a waiver of the defenses and estops the taxpayer from raising objections thereafter. The Court took note of the extraordinary reduction of the deficiency tax from 245k to 20k, which evidences carelessness of the BIR in making grossly excessive assessments. It also observed the BIRs toleration repeated request for reinvestigation. Irregularities of this kind provoke suspicion over the competency and honesty of Revenue Officials. It is expected that immediate and drastic steps to stop such practices shall be exercised promptly.

RP v Ker & Company BIR examined and audited Kers returns and books of accounts and issued assessment for deficiency income tax form 1947 to 1950 due and payable on dates indicated in the accompanying notice e of assessment.

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The assessments from 1948 to 1950 carried a surcharge of 50% under Sec 72 of the Tax Code for filing of fraudulent returns. BIR demanded payment together w/ Ker refused to pay and set up defense of prescription of CIRs right to collect. CFI dismissed the claim for collection of deficiency taxes for 1947 but ordered Ker to pay deficiency taxes from 1948 to 1950. Republic filed a motion for recon contending that CIRs right did NOT prescribe because taxpayers income tax return was fraudulent, in w/c case prescription sets in 10 YRS from DATE of discovery of fraud. Motion was denied. I/R: 1) W/n CIRs right to assess deficiency income tax for 1947 already prescribed YES, assessment for 1947 was issued 5 YEARS, 3 MONTHS AND 13 DAYS from date return was filed. Republic did NOT allege fraud nor present evidence to prove it. Since 1947 assessment had become final and executory, Ker can no longer raise defenses w/c go into merits of assessment like prescription of CIRs right to assess tax. 2) W/n filing of petition for review by Ker in CTA suspended the running of the prescriptive period to collect deficiency income from 1948 to 1950 YES, filing of petition for review suspended running of prescriptive period. Under Section 333 of the Tax Code, the running of the prescriptive period to collect the tax shall be suspended for the period during which the Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or instituting a proceeding in court, and for sixty days thereafter. From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the CTA, the CIR was prevented, from filing an ordinary action in the Court of First Instance to collect the tax. Besides, to do so would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. ALSO, note: surcharge and interest shall accrue from the time the tax became due = thus, DATE OF ASSESSMENT as shown in assessment notice (not date of complaint)

RP v Arache In 1958, Republic filed an action against Joseph Arache (principal) and Globe Assurance Co (surety) for the forfeiture of the surety bond

executed to them to secure payment for the sum of P22k+ representing Araches income tax for 1946 and surcharge plus interest. Arache interposed the defense of prescription and alleged that he was compelled against his will to execute the surety bond sought to be forfeited, because BIR refused to issue him a tax clearance w/c he needed to make a business trip abroad. Globe likewise adopted the same defenses as that of its codefendant, Arache. Court ruled in favor of Republic, ordering Arache and Globe to pay CIR solidarily w/ interest. I: W/n Arache may validly invoke prescription R: NO, the defense of prescription cannot be invoked. A taxpayer may be prevented from setting up the defense of prescription even if he has no previously waived it in writing as when by his repeated requests or positive acts, the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government. In this case, the delay in the collection of his 1946 tax liability was due to Araches own repeated requests for reinvestigation and similarly repeated requests for extension of time to pay. Arcache admitted in writing his tax obligation and promised to pay the same, not once but several times even after the date when according to him the government's right to collect had already prescribed. In fact, he not only made such repeated promise to settle his account but he actually made two partial payments, the first of P2,000 and the last P1,000. Moreover, it is to be noted that the present action was filed for the forfeiture of the bond in satisfaction of the tax obligation. Thus, the action is for the enforcement of a written contractual obligation, for which the prescriptive period is ten years which in this case had not yet elapsed when the action was filed. It is already settled in this connection that the giving of a bond as a condition of an extension of time for the payment of income tax, even after the collection of the tax as such was barred by the statute of limitations, does not preclude recovery on the bond. LEARNING: The taxpayer may be ESTOPPED from claiming prescription when he asks for a reinvestigation of the tax assessment issued to him and such reinvestigation is made.

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Phil National Oil Co v CA Tirso Savellano submitted a sworn statement to the BIR informing them that PNB failed to withold 15% final tax on interest earnings and/or yields from the money placements of PNOC with the said bank, in violation of PD1931, w/c withdrew all tax exemptions of government-owned and controlled corporations. BIR requested PNOC to settle its liability for taxes on the interests earned by its money placements with PNB and which PNB did not withhold. PNOC proposed to BIR compromise its tax liability, by setting-off its tax liability against a claim for tax refund/credit of the NAPOCOR. then pending with the BIR (P335k+). The amount of the claim for tax refund/credit was supposedly a receivable account of PNOC from NAPOCOR. On Oct 8, 1986, BIR sent a demand letter to PNB, as withholding agent, for the payment of the final tax on the interest earnings and/or yields from PNOC's money placements with the bank. On the same date, the BIR also mailed a letter to PNOC informing it of the demand letter sent to PNB. After several negotiations between BIR and PNOC, they agreed to a compromise regarding the tax liability of PNOC. Savellano was paid by the BIR a tax equal to15% of the amount in the compromise agreement. I: W/n the right of BIR to assess and collect the income tax had already prescribed R: No, BIR's right had NOT yet prescribed. Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction with one another: o Section 268 requires that assessment be made within three years from the last day prescribed by law for the filing of the return. o Section 269(c), on the other hand, provides that when an assessment is issued within the prescribed period provided in Section 268, the BIR has three years, counted from the date of the assessment, to collect the tax assessed either by distraint, levy or court action. Therefore, when an assessment is timely issued in accordance with Section 268, the BIR is given another three-year period,

under Section 269(c), within which to collect the tax assessed, reckoned from the date of the assessment. In the case of PNB, an assessment was issued against it by the BIR on October 8, 1986, so that the BIR had until October 7, 1989 to enforce it and to collect the tax assessed. The filing, however, by Savellano of his Amended Petition for Review before the CTA on July 2, 1988 already constituted a judicial action for collection of the tax assessed which stops the running of the three-year prescriptive period for collection thereof. A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for. The present case is unique, however, because the Petition for Review was filed by Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially found themselves on the same side. Savellano, in his Amended Petition for Review w/ the CTA prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax making the said CTA Case7 a collection case. It is immaterial that the Amended Petition for Review was filed by the informer Savellano and NOT the taxpayer; and that the prayer for the enforcement of the tax assessment and payment of the tax was also made by the informer, not the BIR. This should not affect the nature of the case as a judicial action for collection. What is controlling here is the fact that the BIR Commissioner cannot file a judicial action in any other court for the collection of the tax because such a case would necessarily involve the same parties and involve the same issues already being litigated before the CTA in the said case. The threeyear prescriptive period for collection of the tax shall commence to run only after the promulgation of the decision of this Court in which the issues of the present case are resolved with finality. In case the CTA grants the Petition and the prayer therein, as what has happened in the present case, the ultimate result would be the collection of the tax assessed. Consequently, upon the filing of the Amended Petition for Review by private respondent Savellano, judicial action for collection of the tax had been initiated and the running of the prescriptive period for collection of the said tax was terminated. Supposing that the said CTA Case is not a collection case which stops the running of the prescriptive period for the collection of the tax, the said CTA case, at the very least, suspends the running of the said

CTA Case No. 4249

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prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter. The pendency of the present case before the CTA, the Court of Appeals and the SC legally prevents the BIR Commissioner from instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. Whether the filing of the Amended Petition for Review by Savellano entirely stops or merely suspends the running of the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against PNB and for the Central Bank of the Philippines to debit the account of PNB pursuant to the said writ, because the case was by then, pending review by the Court of Appeals. However, since the SC found that the compromise agreement is without force and effect, it ordered the enforcement of the assessment against PNB. Any issue or controversy arising from the premature garnishment of PNB's account and collection of the tax by the BIR became moot and academic.

Can procedural rules be relaxed to give due course to the petition? NO, not in this case. Petition is denied against FEBTC. Rationale: First, it is well-settled that the courts cannot consider evidence which has not been formally offered. Parties are required to inform the courts of the purpose of introducing their respective exhibits to assist the latter in ruling on their admissibility in case an objection thereto is made. Without a formal offer of evidence, courts are constrained to take no notice of the evidence even if it has been marked and identified. Needless to say, the failure of petitioner to make a formal offer of evidence was detrimental to its cause. This case does not fall within the exception in Oate v. Court of Appeals where the Court relaxed the foregoing rule and allowed evidence, not formally offered, to be considered on condition that: (1) evidence must have been identified by testimony duly recorded and (2) it must have been incorporated in the records of the case. In this case, "[petitioners] duly marked and identified exhibits [were] not incorporated in the records... They are nowhere to be found." A tax refund is in the nature of a tax exemption which must be construed strictissimi juris against the taxpayer. To stress, the taxpayer must present convincing evidence to substantiate a claim for refund. Without any documentary evidence on record, petitioner failed to discharge the burden of proving its right to a tax credit/tax refund. Therefore, the CTA and CA correctly denied its claim. Second, if no appeal or motion for reconsideration is filed on time, the judgment or final order of the court becomes final and executory. Here, the records of the case confirm that petitioners motion for reconsideration in the CTA was filed out of time. Petitioner received its notice and a copy of the CTA decision on August 4, 1998.15 Under the rules, it had fifteen days (or until August 19, 1998) to move for reconsideration. By the time it filed its motion for reconsideration on August 26, 1998, the decision of the CTA had already attained finality. As a final judgment, it had by then already laid the issues to rest and the appellate courts could no longer review it. CIR v Phil Global Comm Philippine Global Communication was assessed for deficiency taxes in April 1994. On May 1994, they filed 2 letters of protest requesting for the cancellation of the tax assessment for lack of factual and legal basis. In 2002, respondents received a decision from the CIR denying the protest. Respondents appealed the CTA and ruled that the right to collect on the 1994 tax assessment has prescribed. ISSUE: W/N the action to collect has prescribed. (YES)

BPI v CIR (2005) Far East Bank & Trust Co v CIR FEBTC filed with the Bureau of Internal Revenue an application for a tax credit/tax refund of alleged excess payments of its gross receipts tax. FEBTC claimed it had overpaid its gross receipt tax for the 3rd and 4th quarters of 1994 and the entire 1995 amounting to P14,816,373. Since no action was taken by the CIR on its claim, petitioner filed a case in the CTA on October 18, 1996 to comply with the 2-year reglementary period and avoid the prescription of its action. On July 30, 1998, the CTA rendered a decision denying the claim for lack of evidence. It appears that petitioner failed to file its formal offer of evidence in the CTA, constraining the tax court to rule in favor of the CIR. On August 26, 1998, 22 days after its receipt of the decision, petitioner filed a motion for reconsideration. The CTA denied the motion for being filed out of time and for lack of merit. Aggrieved, petitioner elevated the case to the CA. CA found the petition devoid of merit. Eventually, it dismissed the petition and affirmed the CTA decision in toto. Petitioners motion for reconsideration was also denied. Thus, this petition. Issue:

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RATIO: Section 269(c) provides that any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIRs claim. Therefore, the BIR had until 13 April 1997. The earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003. Reason for Prescriptive Period: Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time. Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court. Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. Suspension of Prescriptive Period: Section 224 provides that the prescriptive period is suspended when the taxpayer requests for a reinvestigation. This exception does not apply to this case since the respondent never requested for a reinvestigation. More importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition, the respondent refused to submit any new evidence. Request for reconsideration -- refers to a plea for a reevaluation of an assessment on the basis of existing records without need of additional evidence . It may involve both a question of fact or of law or both.

Request for reinvestigation refers to a plea for reevaluation of an assessment on the basis of newlydiscovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. (RR 12-85) Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIRs allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable.29 On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. The government also urges that partial payment is "acknowledgement of the tax obligation", hence a "waiver on the defense of prescription." But partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the government is not thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant." NOTE: Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for reconsideration and a request for reinvestigation, there have been cases wherein these two terms were used interchangeably. But upon closer examination, these cases all involved a reinvestigation that was requested by the taxpayer and granted by the BIR. BPI v CIR (2008) November 26, 1986: CIR issued to the petitioner a pre-assessment notice (PAN). November 29, 1986: BPI sent in a letter requested for the details of the amounts alleged as 1982-1986 deficiency taxes mentioned in the

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PAN April 7, 1989: CIR issued to the petitioner, assessment/demand notices for deficiency withholding tax at source (Swap Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63, for the years 1982 to 1986. April 20, 1989: BPI filed a protest on the demand/assessment notices. May 8, 1989, petitioner filed a supplemental protest. March 12, 1993: BPI requested for an opportunity to present or submit additional documentation on the Swap Transactions with the then Central Bank Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank. BPI executed Waivers of the Statutes of Limitations, the last of which was effective until Dec. 31, 1994. August 9, 2002: CIR issued a final decision on petitioners protest ordering the withdrawal and cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82 and considered the same as closed and terminated. On the other hand, the deficiency DST assessment in the amount of P24,587,174.63 was reiterated and the petitioner was ordered to pay the said amount within thirty (30) days from receipt of such order. Petitioner received a copy of the said decision on January 15, 2003. Thereafter, January 24, 2003, petitioner filed a Petition for Review before in Court. August 31, 2004: the Court rendered a Decision denying the petitioners Petition for Review, and BPI was ordered to pay the corresponding tax dues. September 21, 2004, BPI filed a Motion for Reconsideration which was again denied for lack of merit. March 9, 2005: BPI filed with the Court En Banc a Motion for Extension of Time to File Petition for Review praying for an extension of fifteen (15) days from March 10, 2005 or until March 25, 2005. Petitioners motion was granted. March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review, arguing that the court overlooked the significance of the waiver made by parties valid until Dec. 31, 2004 and that the court erred in holding that the collection for tax deficiency has not yet prescribed. CTA ruled that BPIs protest and supplemental protest should be considered requests for reinvestigation which tolled the prescriptive period provided by law to collect a tax deficiency by distraint, levy, or court proceeding. It further held that BPIs cabled instructions to its foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve Bank, the same to be credited to the account of the Central Bank, are in the nature of a telegraphic transfer subject to DST under Section 195 of the Tax Code. In its Petition for Review dated 24 November 2006, BPI argues that the governments right to collect the DST had already prescribed because the Commissioner of Internal Revenue (CIR) failed to issue any reply granting BPIs request for reinvestigation manifested in the protest letters dated 20 April and 8 May 1989. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST, or after the lapse of more than thirteen (13) years, that the CIR acted on the request for reinvestigation, warranting the conclusion that prescription had already set in. The Office of the Solicitor General (OSG)

filed a Comment dated 1 June 2007, on behalf of the CIR, asserting that the prescriptive period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR. Such action was allegedly communicated to BPI as, in fact, the latter submitted additional documents pertaining to its SWAP transactions in support of its request for reinvestigation. Thus, it was only upon BPIs receipt on 13 January 2003 of the 9 August 2002 Decision that the period to collect commenced to run again. The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et al.(Suyoc case) in support of its argument that BPI is already estopped from raising the defense of prescription in view of its repeated requests for reinvestigation which allegedly induced the CIR to delay the collection of the assessed tax. In its Reply dated 30 August 2007, BPI argues against the application of the Suyoc case on two points: first, it never induced the CIR to postpone tax collection; second, its request for reinvestigation was not categorically acted upon by the CIR within the three-year collection period after assessment. BPI maintains that it did not receive any communication from the CIR in reply to its protest letters. Issue: Whether the collection of the deficiency DST is barred by prescription and whether BPI is liable for DST on its SWAP loan transactions. Held: WHEREFORE, the petition is GRANTED. The Decision of the Court of Tax Appeals dated 15 August 2006 and its Resolution dated 5 October 2006, are hereby REVERSED and SET ASIDE. No pronouncement as to costs. Rationale: Section 318 of the Tax Code of 1977 provides: Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700. Thus, the CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed

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made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer. As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency. In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPIs filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine Section 320 of the Tax Code of 1977, which states: Sec. 320. Suspension of running of statute. The running of the statute of limitations provided in Sections 318 or 319 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation, as he considered BPIs letters of protest to be. In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first time that he had granted the request for reinvestigation. His consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that the prescriptive period was tolled by BPIs request for reinvestigation, without any assertion that the same had been granted or at least acted upon. In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking the reinvestigation or reconsideration of the deficiency tax assessments issued by the BIR. The records of the case showed that as a result of these protest letters, the BIR Manufacturing Audit Division conducted a review and reinvestigation of the assessments. The records further showed that the company, thru its finance manager, communicated its inability to settle the tax deficiency assessment and admitted that it knew of the ongoing review and consideration of its

protest. As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually conducted a reinvestigation upon the request of BPI or that the latter was made aware of the action taken on its request. Hence, there is no basis for the tax courts ruling that the filing of the request for reinvestigation tolled the running of the prescriptive period for collecting the tax deficiency. Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90. At any rate, the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest. We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation and reconsideration were filed by Suyoc Consolidated Mining Company purporting to question the correctness of tax assessments against it. As a result, the Collector of Internal Revenue refrained from collecting the tax by distraint, levy or court proceeding in order to give the company every opportunity to prove its claim. The Collector also conducted several reinvestigations which eventually led to a reduced assessment. The company, however, filed a petition with the CTA claiming that the right of the government to collect the tax had already prescribed. When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription since, by its own action, the government was induced to delay the collection of taxes to make the company feel that the demand was not unreasonable or that no harassment or injustice was meant by the government. In this case, BPIs letters of protest and submission of additional documents pertaining to its SWAP transactions, which were never even acted upon, much less granted, cannot be said to have persuaded the CIR to postpone the collection of the deficiency DST. The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of the governments right to collect the deficiency. As this Court declared in Republic of the Philippines v. Ablaza: The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the

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making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. Given the prescription of the governments claim, we no longer deem it necessary to pass upon the validity of the assessment CIR v Capitol Subdivision In this case Capitol Subdivision, Inc. is a corporation engaged in the purchase sane and barter of urban estates and their improvement into residential lots for resale to the public. Capitol filed their income tax returns promptly and paid the taxes however when an investigation was made they were found liable for tax deficiency. So they were sent income tax assessment notices on April 8, 1953. On May 30, 1953 Capitol then requested for the breakdown of the amounts reflected so that they could be able to determine where the deficiencies came from. On July 1, 1955 CIR then reiterated its request for the payment of the taxes. On October 15, 1955 CIR then tried to explain the disallowed taxes explaining that they were really expenses an they requested for reinvestigation. On Sept. 2, 1959 after reinvestigation the examiner in a memo reiterated the demand for the taxes and affirmed the prior assessment and demanded again for the deficiency. On September 16, 1959 petitioner invoked the defense of prescription. CTA rendered a decision saying that the right of the court had already prescribed because under the tax code any remedy for collection such as levy or distraint prescribes after 5 years from the date of assessment and since assessment was made on April 8, 1953 it had already prescribed. Issue: Won the right to collect already prescribed Not yet. Ratio: The SC held in this case that the right to collect had not yet been lost. Although there is no question that the period began on April 8, 1953 when the assessment was made it was interrupted several times by the respondent. First when it asked for an itemized information. Although it did not specifically use the words review or reinvestigation one can see from

the request itself had the effect of questioning/assailing the correctness of the assessment. Then again the period was interrupted when it requested for reinvestigation thus the period was tolled gain and it was only Sept. 2, 1959 when the reinvestigation was denied the period began again and when the taxpayers case was filed with the CTA on December 28, 1959 and the CIR answered (tantamount to a judicial action) it was well within the prescription period. April 8, 1953 December 28,1959 = 6 years, 8 months, 21 days Less (all the interruptions): May 30, 1953 (clarification) June 21, 1955 ( denied the petition) = 2 years 21 days = There was left a period of 4 years and 8 months well within the prescription period. Lim, Sr v CA Petitioner spouses Emilio E. Lim, Sr. and Antonia Sun Lim, with business address at No. 336 Nueva Street, Manila, were engaged in the dealership of various household appliances They filed income tax returns for the years 1958 and 1959. a raid was conducted at their business address by the NBI. A similar raid was made on petitioners' premises at 111 12th Street, Quezon City. Seized by the BIR from the Lim couple were business and accounting records which served as bases for an investigation. BIR informed petitioners that revenue examiners had been authorized to examine their books of account. The 1958 and 1959 tax returns were found false and fraudulent. Lim asked for reinvestigation but was denied. On October 10, 1967, the BIR rendered a final decision holding that there was no cause for reversal of the assessment against the Lim couple. Petitioners were required to pay deficiency income taxes for 1958 and 1959 amounting to P1,237,190.55 inclusive of interest, surcharges and compromise penalty for late payment. The final notice and demand for payment was served on petitioners through their daughter-in-law on July 3, 1968. Still there was no payment; thus, four (4) separate criminal informations were filed against petitioners for violation of Sections 45 and 51 in relation to Section 73 of the National Internal Revenue Code. Trial ensued. The decisions of the court were. In Criminal Cases Nos. 1789 and 1788: WHEREFORE, in view of the foregoing considerations, the Court finds the accused Emilio E. Lim, Sr. and Antonia Sun Lim guilty of a violation of Section 51 penalized under Section 73 of the National Internal Revenue Code and each is hereby sentenced in each case to pay a fine of P2,000.00 and to pay the government pursuant to Presidential No. 69 the amounts of P580,588.75 and P656,601.80 as deficiency income taxes for the years 1958 and 1959, respectively, and the costs of the proceedings. In Criminal Cases Nos. 1790 and 1791: WHEREFORE, in view of the foregoing considerations, the Court finds the

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accused Emilio E. Lim, Sr. and Antonia Sun Lim guilty of a violation of Section 45 in relation to Section 332 of the National Internal Revenue Code as amended, penalized under Section 73 of the same Code and hereby sentences each to pay a fine of P4,000.00 in each case and the costs of the proceedings. On September 26, 1977, petitioners moved for a reconsideration of the decision dated September 1, 1977. On April 4, 1978, the Court of Appeals promulgated a resolution as follows: WHEREFORE, pursuant to Article 89 of the Revised Penal Code, by the death of appellant Emilio E. Lim, Sr. his criminal liability is totally extinguished but his counsel is hereby required to inform the Court as to who are the heirs of the deceased following which the caption should be modified so as to reflect the civil aspect and substitution of the heirs, as defendants. In all other respects, the decision of this Court promulgated September 1, 1977, stands. Hence the present petition for review by certiorari. Issue: 1) W/N the period to file the criminal cases against Lim has prescribed. NO. 2) W/N the payment of deficiency taxes could be included in the criminal cases. No. 3) W/N the pecuniary liability of Emilio Lim is extinguished because of his death. Yes. Held/Ratio: 1) Petitioners maintain that the five-year period of limitation under Section 354 should be reckoned from April 7, 1965, the date of the original assessment while the Government insists that it should be counted from July 3, 1968 when the final notice and demand was served on petitioners' daughter-in-law. Inasmuch as the final notice and demand for payment of the deficiency taxes was served on petitioners on July 3, 1968, it was only then that the cause of action on the part of the BIR accrued. This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the alloted period. The two criminal informations, having been filed on June 23, 1970, are well-within the five-year prescriptive period and are not time-barred. With regard to Criminal Cases Nos. 1790 and 1791 which dealt with petitioners' filing of fraudulent consolidated income tax returns with intent to evade the assessment decreed by law, petitioners contend that the said crimes have likewise prescribed. They advance the view that the five-year period should be counted from the date of discovery of the alleged fraud which, at the latest, should have been October 15, 1964, the date stated by

the Appellate Court in its resolution of April 4, 1978 as the date the fraudulent nature of the returns was unearthed. On behalf of the Government, the Solicitor General counters that the crime of filing false returns can be considered "discovered" only after the manner of commission, and the nature and extent of the fraud have been definitely ascertained. It was only on October 10, 1967 when the BIR rendered its final decision holding that there was no ground for the reversal of the assessment and therefore required the petitioners to pay P1,237,190.55 in deficiency taxes that the tax infractions were discovered. Not only that. The Solicitor General stresses that Section 354 speaks not only of discovery of the fraud but also institution of judicial proceedings. Note the conjunctive word "and" between the phrases "the discovery thereof" and "the institution of judicial proceedings for its investigation and proceedings." In other words, in addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. It was on September 1, 1969 that the offenses subject of Criminal Cases Nos. 1790 and 1791 were indorsed to the Fiscal's Office for preliminary investigation. Inasmuch as a preliminary investigation is a proceeding for investigation and punishment of a crime, it was only on September 1, 1969 that the prescriptive period commenced. 2) The petition, however, is impressed with merit insofar as it assails the inclusion in the judgment of the payment of deficiency taxes in Criminal Cases Nos. 1788-1789. The trial court had absolutely no jurisdiction in sentencing the Lim couple to indemnify the Government for the taxes unpaid. The lower court erred in applying Presidential Decree No. 69, particularly Section 316 thereof, which provides that "judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of the criminal case", because that decree took effect only on January 1, 1973 whereas the criminal cases subject of this appeal were instituted on June 23, 1970. Save in the two specific instances, Presidential Decree No. 69 has no retroactive application. (In the case of People v. Tierra, reiterated People v. Arnault) ... While Section 73 of the National Internal Revenue Code provides for the imposition of the penalty for refusal or neglect to pay income tax or to make a return thereof, by imprisonment or fine, or both, it fails to provide for the collection of said tax in criminal proceedings. As well contended by counsel for appellant, Chapters I and II of Title IX of the National Internal Revenue Code provides only for civil remedies for the collection of the income tax, and under Section 316, the civil remedy is either by distraint of goods, chattels, etc., or by judicial action. It is a commonly accepted principle of law that the method prescribed by statute for the collection of taxes is generally exclusive, and unless a contrary intent be gathered from the statute, it should be followed strictly. Under the cited Tierra and Arnault cases, it is clear that criminal conviction for a violation of any penal provision in the Tax Code does not amount at

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the same time to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax Code to that effect. 3) Considering that under Section 316 of the Tax Code prior to its amendment the trial could not order the payment of the unpaid taxes as part of the sentence, the question of whether or not the supervening death of petitioner Emilio E. Lim, Sr. has extinguished his tax liability need not concern us. However, with regard to the pecuniary penalty of fine imposed on the deceased Lim, this is necessarily extinguished by his death in accordance with Section 89 of the Revised Penal Code.

TAXPAYERS REMEDIES Refunds Vda de Aguinaldo v CIR Leopoldo Aguinaldo and his wife Andrea received cash dividends worth P10k from Aguinaldo Brothers, Inc. They did NOT declare said dividends in their joint ITR, but declared P5k of said dividends in their ITR for 1953 and paid corresponding tax. A year after, BIR re-examined the 1952 &1953 ITRs of the spouses and discovered the non-declaration. BIR readjusted the ITRs, increasing the declared income, w/c resulted in deficiency income tax in 1952 and overpayment of tax in 1953. The examination report recommended that the overpayment for 1953 of P1k+ be credited against the deficiency tax for 1952. In Oct 1957, CIR assessed Aguinaldo for deficiency income tax for 1952, without crediting the overpayment in 1953. Aguinaldo protested the assessment, and requested that the overpayment for 1953 be credited. The request was denied. He asked for a reconsideration but the CIR said that the P1,600 cannot be credited against the tax for 1952 since the claim for tax credit was filed beyond the 2-year period provided for in 309 of the NIRC. After the husbands death, the wife Andrea appealed to the CTA. The CTA dismissed the appeal for lack of cause of action. I: W/n petitioner is entitled to tax credit for 1953 pursuant to 309 of the Tax Code. R: No, petitioner is not entitled to tax credit. Petitioner contends that Sec 309 does NOT require the filing of a claim w/in 2 years from payment of the tax before credit should be given. Section 309 of the Tax Code CLERALY requires the filing by the taxpayer of the written claim for credit / refund WITHIN 2 yrs after the payment of tax, before the CIR can exercise his authority to grant credit/ refund. Such reqment is the condition precedent and non-compliance PRECLUDES CIR from exercising the authority given.

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In this case, the Aguinaldos paid the income tax on August 14, 1954 although the adjustment took place on August 29, 1955. Tax credit was filed in JAN 1958, so clearly, more than two years have elapsed (reckoned from both dates), beyond the period stated in 309.

Gibbs v CIR (Feb 1960) Allison and Esther Gibbs protested the 1950 deficiency income tax assessment issued against them by the CIR, on the ground that said deficiency assessment was based on a disallowance of bad debts and losses claimed in their income tax return for 1950. CIR rejected Gibbs' protest and reiterated his demand. Gibbs however paid the deficiency and at the same time demanding the immediate refund of the amount paid. CIR denied the request for refund, and required Gibbs to pay the amounts of P1.5k and P2k as surcharge, interest, and compromise penalty. Notice of said denial was received by Gibbs on November 14, 1956. On September 27, 1957 - Gibbs filed with CTA a petition for review and refund, with a motion for suspension of collection of penalties. CIR filed a motion to dismiss, on the ground that the petition was filed beyond the 30-day period provided under Section 11, in relation to Section 7, of RA No. 1125, which motion, was opposed by Gibbs. CTA dismissed the petition saying they no longer had jurisdiction because Gibbs filed the appeal 10 months after the receipt, clearly beyond the 30-day period set by law. Gibbs argued that Section 306 of the Revenue Code provides that judicial proceedings may be instituted for recovery of an internal revenue tax within two years from the date of payment. CTA said this was before RA1125 was enacted. I: W/n the appeal of Gibbs was made within the statutory period R: NO, the appeal was NOT made w/in the statutory period. RA No. 1125 provides that CTA has appellate jurisdiction to review decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto but filing must be within 30 days after receipt of such ruling. SEC. 306 of the Tax Code provides that for Recovery of tax erroneously or illegally collected, the suit shall be begun within 2 years from the date of payment of the tax or penalty. RA No. 1125 was intended to cope with a situation where the taxpayer, upon receipt of a decision or ruling of the CIR, elects to

appeal to the CTA instead of paying the tax. For this reason, the latter part of said Section 11 RA 1125, provides that no such appeal would suspend the payment of the tax demanded by the Government, unless for special reasons, the CTA would deem it fit to restrain said collection. Section 306 of the Tax Code, on the other hand, contemplates of a case wherein the taxpayer paid the tax, whether under protest or not, and later on decides to go to court for its recovery. THUS, where payment has already been made and the taxpayer is merely asking for its refund, he must first file with the CIR a claim for refund WITHIN 2 YEARS from time of payment before taking the matter to the CTA, as required by Section 306 of the NIRC. Appeals from decisions of CIR to CTA must ALWAYS be perfected within 30 days after the receipt of the decision that is being appealed, as required by Section 11 of RA No. 1125. If the CIR takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the CTA before the end of the 2-year period without awaiting the decision of the Collector. This is so because of the positive requirement of Section 306 and the doctrine that delay of the Collector in rendering decision does not extend the peremptory period fixed by the statute. THERE is no conflict and the 2 laws must be reconciled. In this case, Gibbs filed the appeal MORE THAN 10 MONTHS after receipt of the CIRs notice of denial. Thus, it was beyond the 30-day period.

Cir v Palanca On July 1950, Palanca donated several stocks in La Tondena to his son. HOWEVER, he failed to file a return on the donations on time. Thus CIR assessed him deficiency taxes (tax + surcharge + Interest), which he in turn paid on June 1955 (1st assessment). On March 1956, Palanca filed an Income Tax Return. On November 1956 he filed an amended tax return and a claim for the refund of overpaid taxes (1 st). The claimed overpayment was due to a failure to deduct from his ITR a deduction on the interest paid on the gift tax stated earlier. He claimed that the interest fell under then section 30 of NIRC which authorizes the deduction from gross income of interest paid within the taxable year on indebtedness. BIR denied refund. After several appeals, all were denied.

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Meanwhile, CIR considered the donation of stocks to his son to be a transfer in contemplation of death. He was then assessed the sum of P191k+ as estate and inheritance taxes (2nd assessment). BASED on this 2nd assessment, Palanca again AMENDED his original return, asking for another deduction of P60k+ representing estate + inheritance taxes. THUS, Palanca was asking for a refund of P20k+ (diff between 1st and 2nd assessment). WITHOUT WAITING FOR BIRs decision, Palanca filed a petition for review / CTA. CTA granted the claim for refund and ruled in favor of Palanca. CIR appealed to SC. I/R: 1) W/n the interest paid on delinquent estate and inheritance taxes is DEDUCTIBLE from gross income YES, interest paid is deductible from gross income. Citing CIR v. Prieto: Under the law, for interest to be deductible, it must be shown that there be an indebtedness, that there should be interest upon it, and that what is claimed as an interest deduction should have been paid or accrued within the year. In this case, what was sought to be deducted was interest paid as a consequence of the LATE PAYMENT of estate and inheritance taxes, and the same was paid w/in the year it was sought to be deducted. Such interest was made upon indebtedness and was thus deductable. 2) W/N action for refund (2nd) has prescribed for violating the 30 day period requirement NO, the claim for refund had NOT yet prescribed. There was only 1 transaction (transfer of shares of stock) w/c became the TAXABLE EVENT. HOWEVER, since 2 assessments were made by the BIR, the FIRST being the donees gift tax, and the SECOND as estate tax, there were 2 claims for refund as well. THUS, the 30-day period did NOT even commence to run in this incident because the 1st assessment was abandoned and a subsequent assessment was issued to Palanca. The 2nd assessment was likewise for a different liability. Considering that it is the interest paid on the 2 nd assessment (estate and inheritance tax) that Palanca is claiming refund for, then the 30-day period should be computed from the receipt of the final denial by the Bureau of Internal Revenue of the said claim Denial: 1959! Also, the claim at bar refers to the alleged overpayment by Palanca of his 1955 income tax. Inasmuch as the said account was paid by him by installment, then the computation of the 2-year prescriptive period, under Section 306 of the National Internal Revenue Code,

should be from the date of the last installment (which was on Aug 14, 1956.) Gibbs v CIR (Nov 1965) On Feb 1956, CIR issued against Finley Gibbs a deficiency income tax assessment notice. 1 month after, Allison Gibbs, signing as attorney in fact for her brother, acknowledged receipt of the above assessment notice and notified the CIR that Finley Gibbs was then living in California and that the latter was notified by him of the said deficiency assessment. In the same letter, Allison Gibbs questioned the disallowance of certain items which gave rise to the deficiency assessment and requested for a correction of it. CIR denied the request on August 1965. Having deemed the denial as the final decision of the CIR, Allison Gibbs wrote on October 1956 the CIR saying they are paying the assessed amount as a sign of good faith, but reiterated that the assessment is contrary to law. She also demanded refund of the payment. In a letter in Oct 1956, CIR denied petitioners claim for refund. Such denial was admittedly received by the office of Allison Gibbs on NOV 1956. In Sept 1958, Allison, signing as counsel for Finley, wrote another letter addressed to CIR to reiterate the demand for refund. Letter also said that the denial letter in Oct 1956 was NOT a ruling on Finleys claim for refund. On Oct 1958, petitioners filed with the CTA a Petitioner for Review and Refund of Income Tax with Motion for Suspension of Collection of Additional Taxes, alleging mainly the claims for refunds and tax credits in the letter. CTA dismissed the case on the ground of lack of jurisdiction given that the petition for review was filed BEYOND 30 days from date of receipt of CIRs decision. I/R: 1) W/n Gibbs claims have already prescribed YES, Gibbs claims HAVE already prescribed Petitioners contend that the claims had NOT yet prescribed because there was no evidence that they received a copy of the letter in Oct 1956 DENYING their claim for refund, and the letter itself is NOT a denial of their claim for refund. HOWEVER, it is has been proven that Allison is not a mere atty-infact but counsel of Gibbs, and thus, receipt she should have immediately filed an appeal upon denial. Also, the claim that the letter of Oct 26 1956 was NOT a denial of the claim for refund was unmeritorious. The letter clearly states that

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for reasons stated in our letter dated Aug 28 1956, THIS OFFICE has NO JUSTIFIABLE BASIS to grant your request. 2) W/n withholding tax credits amount to payment for the purpose of determining the 2-year period provided in Sec 306 of the NIRC YES, w/holding tax credits = payment! 2 year period shall be counted from the DATE THE WITHOLDING TAX IS DUE. A taxpayer, resident or non-resident, who contributes to the withholding tax system, does so not really to deposit an amount to the CIR but to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. THUS, it is when the tax liability falls due, that the 2-year prescriptive period under Section 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the source may have been presented and may have remained unresolved since. Taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must file a claim for refund with the CIR within 2 years from the date of his payment of the tax (Sec 306, NIRC) He must then appeal to the CTA w/in 30 DAYS from receipt of the CIRs decision denying claim for refund (Sec 11, RA 1125) If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the CTA BEFORE the end of the 2-year period WITHOUT awaiting the decision of the Collector. This is so because of the positive requirement of Section 306 and the doctrine that delay of the Collector in rendering decision does not extend the peremptory period fixed by the statute.

CIR v Sweeney International Club of Iloilo, Inc. (the Club) is a non-profit, non-stock corporation organized to promote athletic and social relations among its members. In consonance with its purpose, the club, during its lifespan from 1949 to 1951, maintained and operated a clubhouse with a bar,

wherein liquor and light refreshments were sold exclusively to its members and their guest with a light overprice to cover operational expenses. The Club never paid fixed or percentage taxes as operator of a bar during its brief lifespan. In 1950, CIR addressed and demanded from the Club payment of the sum of P1,987.01 as fixed and percentage tax and surcharge as operator of a bar for the period covering August 1949 to September 1950. In 1951, J. N. Sweeney, then president of the Club, wrote the City Treasurer of Iloilo, protesting the aforementioned assessment against the Club and asking that it be withdrawn for the reason that the Club was a private one and not organized for profit so it should not be held liable for the taxes sought to be collected. This protest remained unanswered for about 10 months. In the meantime, the Club was dissolved sometime in Sept 1951. In Jan 1952, CIR denied Sweeneys request for withdrawal. BIR demanded from Sweeney payment of P3k+ representing fixed and percentage taxes and surcharge, as operator of a bar for Aug 1959 to Aug 1951. Although no payment was made, BIR did NOT take positive steps to enforce collection. HOWEVER, on August 15, 1953 and October 15, 1953, the CIR urged the City Fiscal of Iloilo to prosecute criminally the past presidents of the Club for violation of sections 182, 183 and 191 of the tax Code. On the same date, the Club sought a refund for the amounts paid under protest. Not having received any reply from the CIR regarding said claim for refund, the Club filed a PETITON FOR REVIEW w/ the CTA. I: W/n CTA has jurisdiction YES W/n the Club is liable for the tax. NO, the club is not liable. R: The CIR contends that the CTA has no jurisdiction to order the refund of the taxes involved because, first, said amounts had been paid by respondents in the extra-judicial settlement of the case against them (The extrajudicial settlement refers to the act of the respondents in paying the assessed tax liabilities. The CIR also contends that this act of paying is in the form of a compromise wherein the CIR will withdraw the information if they pay their liabilities. ), and second, respondents had no cause of action in as much as the petitioner has not yet ruled upon the respondents requests for refund. As to CIRs first contention, the CIR had not entered into a compromise as to the payment of the taxes whose refund is now being

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sought. The Compromise entered into by respondents was only in regard to the payment of P50.00 by each of them in order to avoid criminal prosecution which might affect their standing as businessmen in their community. In fact upon payment of said P50.00 by each of them, the City Fiscal desisted from continuing the prosecution. But that was entirely apart from and independent of the payment of the taxes which, as already, was made under protests and on the same day, a petition demanding refund was filed with the same court. As to CIRs second contention, taxpayers need not wait for the action of the CIR on the request for refund before taking the matter to court. The law does not require the taxpayer to wait for the CIRs action on its request for refund because the taxpayer only has two years after the payment of the taxes from which to claim the refund. If he files beyond two years, then he can no longer claim. ALSO, the club cannot be liable for payment of fixed and percentage taxes because it was not engaged in the business of selling liquor. Its bar dispensed liquor only to members, their families and their guest. It is true that for a time it made a little profit in such sale, that is to say, the little overprice put on the liquor dispensed, presumably intended to cover expenses in the maintenance of the bar, exceeded said expenses but said profits never went to the members of the Club but were used in the operation of the Club, which as a matter of fact incurred a loss, so that it may not be said that the operation of the bar and in dispensing liquor to its members or families and their guest the International Club of Iloilo, Inc. was engaged in business and that it was organized for profit.

CIR v Tokyo Shipping Co. Tokyo Shipping Co. Ltd (Tokyo Shipping) is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Incorporated (Soriamont). It owns and operates tramper vessel M/V Gardenia. NASUTRA chartered M/V Gardenia to load tons of raw sugar in the Philippines. Mr. Lising, the operations supervisor of Soriamont paid the required income and common carrier's taxes based on the expected gross receipts of the vessel. Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981, NASUTRA and Soriamont mutually agreed to have the vessel sail for Japan without any cargo.

On March 23, 1981, Tokyo Shipping sought to refund the prepaid income and common carriers tax alleging that no sale was realized from its agreement with Nasutra. CIR failed to act on the matter. Thus Tokyo Shipping filed a petition for review with the CTA on May 14, 1981. CTA ruled in favor of Tokyo Shipping. It found that the chartered vessel sailed out of the Philippine port with absolutely no cargo laden on board as cleared and certified by the Customs authorities. It also found that the Appellate Division of the BIR and the examiner who examined this case has already recommended the approval of Tokyo Shippings claim for refund. I: W/n Tokyo Shipping is entitled to refund R: YES, Tokyo is entitled to a refund. (after 15 years refund was delayed) Pursuant to this Section 24(b) (2) 8, a resident foreign corporation engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources within the Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from the Philippines. The CTA held that sufficient evidence has been adduced by Tokyo Shipping to prove that it derived no receipt from its charter agreement with NASUTRA. This finding of fact show that M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar to load and returned to Japan without any cargo laden on board. This claim is supported by the Clearance Vessel to a Foreign Port issued by the District Collector of Customs and the Certification by the Officer-in-Charge, Export Division of the Bureau of Customs Iloilo. Documents issued by the Customs officer enjoy the presumption of regularity. CIR did not present evidence to counter this presumption. Records also show the inconsistent stand of the CIR. It did not withdraw its opposition to the petition for review even when its counsel manifested that the BIR

A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income derived in the preceding taxable year from all sources within the Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per cent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings" include gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail, provided the cargo or mail originates from the Philippines. The gross revenue realized from the said cargo or mail include the gross freight charge up to final destination. Gross revenue from chartered flights originating from the Philippines shall likewise form part of "Gross Philippine Billings" regardless of the place or payment of the passage documents . . . . .

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examiner and the appellate division of the BIR have both recommended the approval of Tokyo Shippings claim for refund. Evidence supports the CTAs decision regarding the propriety of tax refund due to Tokyo Shipping. Fair deal is expected by our taxpayers from the BIR and the duty demands that BIR should refund without any unreasonable delay what it has erroneously collected. On the issue that Tokyo did NOT present its charter agreement w/ NASUTRA, it presupposes without any basis that the charter agreement is prejudicial evidence against Tokyo. It will show that Tokyo earned a charter fee with or without transporting its supposed cargo from Iloilo to Japan. CIR did not present evidence to support this allegation. Moreover, the charter agreement could have been presented by CIR itself thru the proper use of a subpoena duces tecum.

Phil Bank of Comm v CIR The Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the 1st and 2nd quarters of 1985, reported profits, and paid the total income tax of P5M++. The taxes due were settled by applying PBComs tax credit memos and accordingly, the BIR issued Tax Debit Memo for P3M and P1.6M, respectively. Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended 1985, it declared a net loss of P25M, thereby showing no income tax liability. For the succeeding year, 1986, PBCom likewise reported a net loss of P14.1M, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes. On 7 August 1987, PBCom requested the CIR, among others, for a tax credit of P5M representing the overpayment of taxes in the 1st and 2nd quarters of 1985. Thereafter, on 25 July 1988, PBCom filed a claim for refund of creditable taxes withheld by their lessees from property rentals. Pending the investigation of the CIR, PBCom instituted a Petition for Review before the CTA. CTA dismissed this for lack of merit; and thus denied PBComs claim for refund/tax credit of overpaid income tax on the ground that it was filed BEYOND the 2-year reglementary period provided for by law.

PBComs claim for 2nd refund was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year. I/R: 1) W/n PBCom is correct in saying that the FIRST REFUND was filed on time NO, PBCom was incorrect. PBCom relied on RMC 7-85 w/c says that the prescriptive period is 10 and NOT 2 yrs. The issuance is administrative and it CANNOT contravene the NIRC w/c is a statute. Although administrative issuances are accorded great respect, such interpretation is NOT conclusive and will be ignored if found to be erroneous. Also, State cannot be put in estoppel by mistakes of its agents. There are no vested rights to speak of respecting a wrong interpretation. Also, non-retroactivity of rulings of CIR is NOT applicable in this case because the nullity of the RMC was declared by the COURTS and NOT the CIR. The 2-year prescriptive period should be computed from the time of filing the Adjustment Return (when the refund is ascertained) and final payment of the tax for the year. 2) W/n the CA was correct in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner's good faith reliance on RMC No. 7-85, changing the prescriptive period of 2 years to 10 yrs YES, CA was correct. Tax refund should be denied on ground of prescription. With respect to corporate taxpayers, in case of overpayment of quarterly income taxes, there is a need to specify whether the taxpayer intends to avail of a tax refund or a tax credit, thus Sec. 69 of the 1977 NIRC (now, Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The Corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

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PBCom opted to apply for automatic tax credit. This was the basis used (vis-a-vis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that PBCom had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative. Since PBCom opted for an automatic tax credit in accordance with Section 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, such a finding of fact must be respected by the Supreme Court. This, especially, in light that the 1987 annual corporate tax return of PBCom was not offered as evidence to controvert said fact.

CIR v CA BPI, a bank, acted as liquidator for Paramount Acceptance Corporation during dissolution on March 31, 1986. Paramount filed its Corporate Income Tax Return (CITR) for calendar year of 1985. Paramount paid a total of P1.2+M. After deducting Paramounts total quarterly income tax payments of P1.2+M from its income tax of P1.1+M, the return showed a refundable amount of P65k. The appropriate box in the return was marked with a cross (x) indicating To be refunded the amount of P65k. The following day or April 15, BPI filed and instant petition with CTA to toll the running of the prescriptive period for filing a claim for refund of overpaid income taxes. The question was whether the 2-year prescriptive period for filing a refund should be counted from April 2, when the CITR was actually filed (under Sec. 230 of NIRC, where its provided that the period must be counted from the day of payment of tax) or from April 15 (under Sec. 70b) where the final adjustment return could still be filed without incurring any penalties. CTA rendered a decision stating that period commenced from April 15, 1986, the last day for filing the corporate income tax return, and, since the claim for refund was filed on April 14, 1988 and the action was brought on April 15, 1988, it held that prescription had not set in. CTA ordered CIR to refund Paramount. CA affirmed the decision. I: W/n the prescriptive period should commence when the Corporate Income Tax Return is actually filed (Sec. 230), or from April 15 where final adjustment could be filed w/o incurring penalties. R: Prescriptive period should commence from the filing the Adjustment Return or Annual Income Tax Return and Final Payment of Income Tax. PERIOD in this case had already prescribed and no refund can be

made. In CIR v. TMX Sales, SC held that the filing of a quarterly income tax return and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Sec. 87 [now Sec. 69] which provides for the filing of adjustment returns and final payment of income tax. Consequently, the 2-year prescriptive period provided in Section 230 should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and Final Payment of Income Tax. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. Moreover under Sec 49a, payment is made at the time return is filed. In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were barred by prescription.

CIR v Philamlife Philamlife paid to the BIR its first quarterly corporate income tax for 1983 amounting to P3.2M+. On August 29, 1983, it paid P300k+ for the Second Quarter of 1983. For the Third Quarter of 1983, it declared a net taxable income of P2M+ and tax due of P708k+. After crediting the amount of P3M+ it declared a refundable amount of P3.1M+. For its Fourth and final quarter ending December 31, Philamlife suffered a loss and thereby had no income tax liability. In the return for that quarter, it declared a refund of P3.9M representing the first and second quarterly payments. In 1984, private respondent again suffered a loss and declared no income tax liability. However, it applied as tax credit for 1984, the amount of P3.9M representing its 1982 and 1983 overpaid income taxes and the amount of P250,867.00 as withholding tax on rental income for 1984. On September 26, 1984, Philamlife filed a claim for its 1982 income tax refund of P133,084.00.

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On November 22, 1984, it filed a petition for review with the CTA with respect to its 1982 claim for refund of P133,084.00. On December 16, 1985, it filed another claim for refund with the CIR appellate division. On January 2, 1986, Philamlife filed a petition for review w/ the CTA regarding its 1983 and 1984 claims for refund. CTA ordered the refund to the Philamlife for the first and second quarters of 1983. CA affirmed the decision, hence this appeal. I: Where corporate taxpayer remits/pays to the BIR tax withheld on income for the first quarter but whose business operations actually resulted in a loss for that year, should not the running of the prescriptive period commence from the remittance/payment at the end of the first quarter of the tax withheld instead of from the filing of the Final Adjustment Return? R: NO, prescriptive period should commence from the time of filing of final adjustment return. Section 292 (now Section 230) stipulates that the twoyear prescriptive period to claim refunds should be counted from date of payment of the tax sought to be refunded. Although quarterly taxes due are required to be paid within 60 days from the close of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final figure to quantity what is due the government nor what should be refunded to the corporation. This interpretation may be gleaned from the last paragraph of Section 69 of the Tax Code which provides that the refundable amount, in case a refund is due a corporation, is that amount which is shown on its final adjustment return and not on its quarterly returns. Therefore, when private respondent paid P3,246,141.00 on May 30, 1983, it would not have been able to ascertain on that date, that the said amount was refundable. The same applies with cogency to the payment of P396,874.00 on August 29, 1983. Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, the claim for refund and petition for review were made within the two-year reglementary period.

Philamlife being a corporation, Section 292 (now Section 230) cannot serve as the sole basis for determining the two-year prescriptive period for refunds. As we have earlier said in the TMX Sales case, Sections 68, 69, and 70 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it. Moreover, even if the two-year period had already lapsed, the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances.

ACCRA v CA ACCRA Investments, a domestic corp engaged in real estate and mgmt consultancy, filed its annual corp income tax return. In the return, it declared as creditable all taxes withheld at source by various witholding agents, amounting to P82k. The withholding agents had already paid and remitted the amounts to BIR, way ahead of ACCRAIns filing of its return. ACCRAIn filed a claim for refund inasmuch as it had no tax liability against which to credit the amounts withheld. CTA denied the claim on the ground that the 2-year prescriptive period had already lapsed, based on the case of Gibbs ruling w/c stated that a taxpayer whose income is withheld at source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. THUS, w/ the withholding agents paying taxes WAY AHEAD of ACCRAIn, its now too late for ACCRAIn to claim for a refund, since it is deemed to have paid a long time ago already. I: W/n ACCRAIN is barred from recovering the 82k overpaid taxes R: No, ACCRAIN is NOT barred from recovering. The prescriptive period did NOT run when the taxes were paid. Sec 230 of the old NIRC provides that no suit or proceeding shall begin after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment. The lower court was wrong in considering the end of the tax year as the proper reckoning date based on Gibbs, because ACCRAIn is NOT claming a refund for overpaid witholding taxes, per se. INSTEAD, it is asking for the recovery of 82k, refundable or creditable amount determined upon the petitioner corps filing of its FINAL ADJUSTMENT TAX RETURN on / before April 15 1982. THUS, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the

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income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982, w/c was WITHIN the period.

Philex Mining v CIR Philam entered into a Mining License Agreement w/ Ministry of Nat Resources (now DENR). From the period July 1, 1980 to December 31, 1981, Philam purchased from several oil companies, refined and manufactured mineral oils, motor fuels, and diesel fuel oils. The specific taxes passed on to the petitioner amounted to P2,492,677.22. On October 1982, pursuant to R.A. 1435, petitioner filed a claim for refund with the CIR for P623,169.30, representing the 25% of the specific taxes paid on their use of refined and manufactured mineral oils, motor fuels and diesel fuel oils. Pending CIR action, on November 1982, the petitioner filed a case for tax refund with the CTA. The petitioner sought judgment ordering the CIR to pay as refund the amount of P623,169.30, with 20% interest per annum, plus the costs of suit. On August 4, 1994, the CTA rendered its decision, quoted at the outset, granting the tax refund, but only to the extent of P16,747.36 (only 20% of the specific taxes deemed paid under R.A. 1435). Petitioner seeks a higher tax base (specific taxes actually paid) for the refund it seeks. I: W/N CA erred in basing the tax refund on the 20% specific taxes deemed paid under RA 1435 (taxes deemed paid) instead of the increased rates imposed by Sec 142 and 145 (taxes actually paid) R: NO, court's decision was proper. Right to refund under R.A. 1435 RA 1435 (An Act to Provide Means for Increasing the Highway Special Fund) states that mining and lumber companies seldom use national highways. Since the gasoline and fuel purchased by mining and lumber companies are used within their own compounds and roads, and they do not benefit directly from the Fund, the government granted to these companies a 25% partial refund of specific taxes paid on purchases of manufactured diesel and fuel oils. Tax refund under R.A. 1435 is computed on the basis of the specific tax deemed paid and NOT on the increased rates actually paid under 1977 NIRC.

Since the partial refund authorized under Section 5, R.A. 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. The subsequent codification of tax laws under the NIRC Sec 153 and 156 mandated increase rates of specific taxes on oils, fules, etc. Although PHILEX paid the taxes on their oil and fuel based on the increased rates, the latter law did NOT specifically provide for a refund based on the increased rates. Also, claims for refund w/c were not filed w/ CIR and those that prescribed must be deemed excluded for being outside the ambit of legislative enactment.

CIR v PNB Philippine National Bank (PNB) issued to BIR PNB Cashiers Check No. 109435 for P180,000,000.00, representing PNBs advance income tax payment for the banks 1991 operations. The BIR acknowledged receipt of the amount by issuing a payment order and receipt. PNB requested the issuance of a tax credit certificate (TCC) to be utilized against future tax obligations of the bank. For the first and second quarters of 1991, PNB also paid additional taxes. By the end of 1991, PNBs annual income tax liabilityresulted to a credit balance in its favor in the amount of P73,298,892.60. On July 28, 1997, PNB wrote then BIR Commissioner VinzonsChato, to inform her about the above developments and to reiterate its request for the issuance of a TCC, this time for the unutilized balance of its advance payment made in 1991 amounting to P73,298,892.60. CIR denied the request . PNB filed a petition for review w/ CTA. CTA denied the claim on the ground that it had already prescribed (beyond the 2-year prescriptive period). PNB filed a petition for review with the Court of Appeals (CA). The CA reversed the CTA considering the special circumstance that the tax credit PNB has been seeking is to be sourced not from any tax erroneously or illegally collected but from advance income tax payment voluntarily made in response to then President Aquinos call to generate more revenues for the government. I: W/n PNBs claim for refund/ credit was time-barred R: NO, it was not. IN THIS CASE, PNB sought the application of amounts advanced to the BIR to future annual income tax liabilities, in view of its inability to carry-over the remaining amount of such advance payment to the four

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(4) succeeding taxable years, not having incurred income tax liability during that period. It would be improper to treat the same as erroneous, wrongful or illegal payment of tax within the meaning of Section 230 of the Tax Code, since it would be inequitable to strictly impose the two (2)-year prescriptive period as to legally bar any request for such tax credit certificate considering the special circumstances under which the advance income tax payment was made and the unexpected event (four years of business losses) which prevented such application or carry over . The mandate of Rev. Reg. No. 10-77 is hardly of any application to PNBs advance payment which, needless to stress, are not quarterly payments reflected in the adjusted final return, but a lump sum payment to cover future tax obligations. Neither can such advance lump sum payment be considered overpaid income tax for a given taxable year, so that the carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. Limiting the right to carry-over the balance of respondents advance payment only to the immediately succeeding taxable year would be unfair and improper considering that, at the time payment was made, BIR was put on due notice of PNBs intention to apply the entire amount to its future tax obligations. The suspension of the two (2)-year prescriptive period is warranted not solely by the objective or purpose pursuant to which PNB made the advance income tax payment in 1991. Records show that the BIRs very own conduct led PNB to believe all along that its original intention to apply the advance payment to its future income tax obligations will be respected by the BIR. An availment of tax credit for reasons other than erroneous / wrongful collection of taxes may have a different prescriptive period. ABSENT any provision in the Tax Code / special laws, period = 10 years under Art 1144 of the CC.

Philam Asset Mgmt v CIR IN A NUTSHELL: Philam wanted to claim for refund on unutilized tax credits (Case 1) and unapplied creditable withholding tax (Case 2) . HOWEVER, this was denied by CTA. 1st case: Philam Asset Management, Inc. (Philam) is a domestic corporation which acts as the investment manager of both Philippine Fund, Inc. (PFI) and Philam Bond Fund, Inc. (PBFI), which are open-end investment companies.

Both PFI and PBFI agreed to pay Philam by way of compensation for its services and facilities, a monthly management fee from which PFI and PBFI withhold an amount equivalent to a 5% creditable tax. In April 1998, Philam filed its income tax return for the taxable year 1997 representing a net loss of approximately P2.6M. Philam failed to utilize the creditable tax on professional fees withheld by PFI and PBFI so it filed a claim for refund with the BIR representing unutilized excess tax credits. BIR did not act on the claim for refund hence in November 1999, Philam filed a petition for review with the CTA. In 2002, The CTA denied the claim for refund. 2nd case: In April 1999, Philam filed its income tax return for the taxable year 1998 declaring a net loss of approximately P1.5M. Philam had an unapplied creditable withholding tax which had been previously withheld in that year by PFI and PBFI. Philam likewise declared in its 1999 tax return an amount representing its prior excess credits for taxable year 1998. In the succeeding year, Philam had a tax due approximately in the amount of P80K and a creditable withholding tax approximately in the amount of P915K. In 2000, Philam filed for a claim for refund with respect to the unapplied creditable withholding tax. BIR did not act on the claim for refund hence Philam filed a petition for review before the CTA in 2000. The CTA denied the claim for refund. Ruling of CA for claim of refund for both cases: CA denied the claim for refund of Philams excess creditable taxes withheld for the years 1997 and 1998, ruling that Philam did not indicate its option to have the amounts either refunded or carried over and applied to the succeeding year. The CA also ruled that to request for either a refund or a credit of income tax paid, a corporation must signify its intention by marking the corresponding option box on its annual corporate adjustment return, and failure to do so would result in the automatic carry-over of any excess tax credit for the prior year. I: W/n Philam is entitled to a refund of its creditable taxes withheld for taxable years 1997 and 1998 R: Philam is entitled to a tax refund of its 1997 excess tax credits, while it is not entitled to a tax refund which corresponds to its 1998 excess tax credits. Ratio for allowing a tax refund of Philams 1997 excess tax credits Section 76 of the Tax Code offers two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due.

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These options are (1) filing for a tax refund or (2) availing of a tax credit. The first option is relatively simple: any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the Final Adjustment Return (FAR) of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. These two options under Section 76 are alternative in nature the choice of one precludes the other. Failure to signify ones intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. Requiring that the income tax return or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence: 1. Section 76 does not mandate it. The law merely requires the filing of the FAR for the preceding -- not the succeeding -- taxable year. 2. Moreover, there is no automatic grant of a tax refund. Exercising the option for a tax refund or a tax credit does not ipso facto confer upon a taxpayer the right to an immediate availment of the choice made. Neither does it impose a duty on the government to allow tax collection to be at the sole control of a taxpayer. 3. Moreover, the BIR ought to have on file its own copies of petitioners FAR for the succeeding year, on the basis of which it could rebut the assertion that there was a subsequent credit of the excess income tax payments for the previous year. Its failure to present this vital document to support its contention against the grant of a tax refund to petitioner is certainly fatal. 4. Furthermore, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after payment of the taxes erroneously received by the BIR. Despite the failure of Philam to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed in 1998 a claim for refund of its excess taxes withheld in 1997. Under these circumstances, Philam is entitled to a tax refund of its 1997 excess tax credits. Ratio for disallowing a tax refund of Philams 1998 excess tax credits As to the second case, Section 76 also applies. The carry-over option under Section 76 is permissive. Once chosen, the carry-over option shall be considered irrevocable for that taxable period, and no

application for a tax refund or issuance of a tax credit certificate shall then be allowed. The subsequent acts of Philam reveal that it has effectively chosen the carry-over option: 1. First, the fact that it filled out the portion Prior Years Excess Credits in its 1999 FAR means that it categorically availed itself of the carry-over option. If an application for a tax refund has been -or will be -- filed, then that portion of the BIR form should necessarily be blank, even if the FAR of the previous taxable year already shows an overpayment in taxes. 2. Second, the resulting redundancy in the claim of Philam for a refund of its 1998 excess tax credits cannot be countenanced. It cannot be allowed to avail itself of a tax refund and a tax credit at the same time for the same excess income taxes paid. 3. Third, the first-in first-out (FIFO) principle enunciated by the CTA does not apply. The amount to be applied against the approximately P80K income tax due in the 1998 FAR of Philam may be taken from its excess credits in 1997 or from those withheld in 1998 or from both. Whichever of these the amount will be taken from will not make a difference. Whether the FIFO principle is applied or not, Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Philam has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of the amount corresponding to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the governments favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years.

FEBTC v CIR FEBTC is the trustee of various retirement plans established by several companies for its employees. As trustee of the retirement plans, petitioner was authorized to hold, manage, invest and reinvest the assets of these plans. It invested the retirement funds in various money market placements, bank deposits, deposit substitute instruments and government securities. These investments necessarily earned interest income. Petitioners claim for refund centers on the tax withheld by the various withholding agents, and paid to the CIR for the four (4) quarters of 1993, amounting to P6,049,971.83. On four dates, 12 May 1993, 16 August 1993, 31 January 1994, and 29 April 1994, petitioner filed its written claim for refund with the BIR, alleging that the employees trusts are exempted by specific mandate of law from income taxation. Nonetheless, the claims were denied.

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Meanwhile, the petitioner already had a pending petition before the CTA, apparently involving the same legal issue but a previous taxable period. Hoping to comply with the 2-year period within which to file an action for refund under Section 230 of the Tax Code, petitioner filed a Motion to Admit Supplemental Petition in the said pending case. The CTA denied the motion, claiming that it would further delay the proceedings. Nonetheless, the CTA advised that petitioner could instead file a separate petition for review for the refund of the withholding taxes paid in 1993. Petitioner followed the CTAs advice, and on October 9, 1995, it filed another petition for review with the CTA. This was again denied due to prescription and for failing to submit such necessary documentary proof of transactions, such as confirmation receipts and purchase orders. Its MR and/or Motion New Trial were also denied. The CA affirmed the CTAs ruling. Issues/Held: Did the lower courts erred in dismissing FEBTCs petition on a mere technicality? NO! Petition denied. Ratio: 1. Procedural error of FEBTC Sec. 6 of Rule 43 provides that the petition for review must be accompanied by "certified true copies of such material portions of the record referred to in the petition and other supporting papers". Under Section 7, Rule 43, the failure to attach such documents which should accompany the petition is sufficient ground for the dismissal of the petition. The CA would have no way to ascertain the veracity of the submissions unless the certified true copies of such portions of the record referred to in the petition be attached. The records are an essential requisite for the determination of prima facie basis for giving due course to the petition. The confirmation receipts and purchase orders would ordinarily show the fact of purchase of treasury bills or money market placements by the various funds. They represent the best evidence on the participation of the funds. What has to be established though, as a matter of evidence, is that the amount sought to be refunded to petitioner actually corresponds to the tax withheld on the interest income earned from the exempt employees trusts. The need to be determinate on this point especially that petitioner earns interest income not only from its investments of employees trusts, but on a whole range of accounts which do not enjoy the same broad exemption as employees trusts. For these certifications to hold value, there is particular need for them to segregate such taxes withheld from the interest income of employees trusts, and those withheld from other income sources. Otherwise, these certifications are ineffectual to establish the present claim for refund. FEBTC failed to submit documentary proof of transactions.

2. It is a fact that Income from Employees trust are exempted from income tax, therefore, Section 230 of the NIRC applies. RA 4917, RA 8424 and Section 60(B) of the NIRC granted exemption from income tax to employees trusts. But FEBTC did pay the income tax when it was withheld, therefore Such taxes were erroneously assessed or collected, giving rise to the application of Section 230. SEC. 230. ....In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment... 3. When should the 2-year prescriptive period be reckoned? FEBTC submits that it should be reckoned from the date of its filing of the Supplemental Petition on 28 April 1995 , not from the filing of its new petition for review after the Supplemental Petition was denied. Even granting that this should be the case, such argument would still preclude the refund of taxes wrongfully paid from January to 27 April 1993, the two (2)-year prescriptive period for those taxes paid then having already become operative. 4. Could the 2-year prescriptive period for the refund be deemed tolled by the filing of the Supplemental Petition? NO! In this case, there is no doubt that the CTA has jurisdiction over actions seeking the refund of income taxes erroneously paid. But it should be borne in mind that petitioner initially sought to bring its claim for refund for the taxes paid in 1993 through a supplemental petition in another case pending before the CTA, and not through an original action. The admission of supplemental pleadings remains in the sound discretion of the court. It is only upon the admission by the court of the supplemental complaint that it may be deem to augment the original complaint. Until such time, the court acquires no jurisdiction over such new claims as may be raised in the supplemental complaint. In this case, the CTA refused to admit the supplemental petition, thus it cannot even be deemed as having been filed. The CTA only acquired jurisdiction over the claim for refund for taxes paid by petitioner in 1993 only upon the filing of the new Petition for Review on 9 October 1995.

Pilipinas Shell v CIR Petitioner Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of the international petroleum giant Shell, and is engaged in the importation, refining and sale of petroleum products in the country. CASE 1 validity of transfer of TCCs

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From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates (TCCs) which it acquired through the Department of Finance (DOF) One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (Center) from other BOI-registered companies. BIR accepted the TCC payments and issued a tax debit memoranda (TDM) . April 22 1998 - However, despite such payment, BIR assess PSPC for alleged deficiency excise tax liabilities of PhP1.7M for the taxable years 1992 and 1994 to 1997, inclusive of delinquency surcharges and interest. BIR said that PSPC is not a qualified transferee of the TCCs it acquired from other BOI-registered companies. PSPC protested the collection letter, but the protest was denied. PSPC filed its motion for reconsideration. CIR did not reply. PSPC filed a petition for review before the CTA CTA held that payment by the that respondents attempt to penalties from PSPC without due process. Thus, it held that appealed to the CA. use of TCCs was legal and valid , and collect alleged delinquent taxes and an assessment constitutes denial of the April 22 assessment was invalid. CIR

[On March 30, 2004, R.A.9282 was promulgated amending RA 1125, expanding the jurisdiction of the CTA and enlarging its membership. It became effective on April 23, 2004 after its due publication. Thus, CTA CASE 2 was heard and decided by a CTA Division.] CTA Division held that respondent failed to prove with convincing evidence that the TCCs transferred to PSPC were fraudulently issued as respondents finding of alleged fraud was merely speculative. CIR and the Center did not present proof that PSPC acted fraudulently. They merely based their conclusions on the audited financial statements of the transferors which did not clearly show the actual export sales of transactions from which the TCCs were issued. The Center erroneously based its findings of fraud on two possibilities: either the transferor did not declare its export sales or underdeclare them, without specifying identifying or proving the fraudulent acts. The CTA Division concluded that the TCCs transferred to PSPC were not fraudulently issued. The CTA Division said that the November assessment was not precluded by the CASE 1 as the latter concerned the validity of the transfer of the TCCs, while CASE 2 involved alleged fraudulent procurement and transfer of the TCCs. CTA En Banc ruled, among other things, that BIRs assessment did not prescribe considering that no payment took effect as the subject TCCs were canceled upon post audit. Consequently, the filing of the tax return sans payment due to the cancellation of the TCCs resulted in the falsity and/or omission in the filing of the tax return which put them in the ambit of the applicability of the 10-year prescriptive period from the discovery of falsity, fraud, or omission. The CTA En Banc also applied Aznar v. Court of Tax Appeals , where this Court held that without proof that the taxpayer participated in the fraud, the 50% fraud surcharge is not imposed, but the 25% late payment and the 20% interest per annum are applicable. Held: The CTA En Banc Decision is hereby REVERSED and SET ASIDE, and CTA Decision in CASE 1 disallowing the April 22, 2009 assessment is hereby REINSTATED. Issue/Ruling: *Important Issue 1. WON the CTA gravely erred in ordering petitioner PSPC to pay P285,766,987.00, as alleged deficiency excise taxes, for the taxable years, 1992 and 1994 to 1997: YES

CASE 2 fraudulent transfer of TCCs

Pending appeal of Case 1, the Center sent letters to PSPC requiring the latter to submit copies of pertinent sales invoices and delivery receipts covering a) sale transactions with the TCC assignors/transferors purportedly in connection with an ongoing post audit and; b) PSPC Industrial Fuel Oil (IFO) deliveries to Spintex International, Inc. PSPC replied saying that the required submission of these documents had no legal basis, for the applicable rules and regulations on the matter only require that both the assignor and assignee of TCCs be BOI-registered entities. The Center ignored this defense and informed PSPC of the cancellation of the first batch of TCCs transferred to PSPC and the TDM covering PSPCs use of these TCCs as well as the corresponding TCC assignments. PSPCs MR was ignored. November 22, 1999 PSPC received the November 15, 1999 assessment letter from respondent for excise tax deficiencies, surcharges, and interest based on the first batch of cancelled TCCs and TDM covering PSPCs use of the TCCs. PSPC protested the assessment letter, but the protest was denied by the BIR, constraining it to file another petition for review before the CTA

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2.

(See definition of tax credit and TCC below9)

CTA En Banc is incorrect. We cannot subscribe to the CTA En Bancs holding that the suspensive condition suspends the effectivity of the TCCs as payment until after the post-audit. This strains the very nature of a TCC. A TCC is an undertaking by the government through the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes, a direct benefit granted by law or other sources and instances granted by law such as on specific unused input taxes and excise taxes on certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and regulations. The effectivity and validity of the TCC do not depend on the outcome of a postaudit. The subsequent post-audit cannot void the TCCs and allow the respondent to declare that utilizing canceled TCCs results in nonpayment on the part of PSPC. Ratio: If we are to sustain the appellate tax court, it would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no postaudit. Does the payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event for its effectivity. Our system of laws and procedures abhors ambiguity. Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said postaudit. TCC is an undertaking by the government through the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit
9 Tax credits were granted under EO 226 as incentives to encourage investments in certain businesses. A tax credit generally refers to an amount that may be subtracted directly from ones total tax liability. It is an allowance against the tax itself or a deduction from what is owed by a taxpayer to the government. A TCC is a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund , or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.

from either an overpayment of income taxes, a direct benefit granted by law or other sources and instances granted by law such as on specific unused input taxes and excise taxes on certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and regulations. *Other issues: 3. WON the CTA appeals gravely erred in imposing surcharges and interests on the alleged deficiency excise tax of petitioner PSPC: YES Assuming that fraud attended the procurement of the subject TCCs, it cannot prejudice PSPCs rights as earlier explained since PSPC has not been shown or proven to have participated in the perpetration of the fraudulent acts, nor is it shown that PSPC committed fraud in the transfer and utilization of the subject TCCs. While the Center has authority to cancel the TCCs, it must bear in mind the nature of the TCCs immediate effectiveness and validity for which cancellation may only be exercised before a transferred TCC has been fully utilized or canceled by the BIR after due application of the available tax credit to the internal revenue tax liabilities of an innocent transferee for value, unless of course the claimant or transferee was involved in the perpetration of the fraud in the TCCs issuance, transfer, or utilization. The utilization of the TCC will not shield a guilty party from the consequences of the fraud committed. While we agree with respondent that the State in the performance of governmental function is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of taxation, this principle cannot be applied to work injustice against an innocent party. In the case at bar, PSPCs rights as an innocent transferee for value must be protected. Therefore, the remedy for respondent is to go after the claimant companies who allegedly perpetrated the fraud (was the subject of a criminal prosecution before the Sandiganbayan.) 4. WON the assessment dated 15 November 1999 is void considering that it failed to comply with the statutory as well as regulatory requirements in the issuance of assessments : YES

5. Respondent merely relied on the findings of the Center which did not give PSPC ample opportunity to air its side. While PSPC indeed protested the formal assessment, such does not denigrate the fact that it was deprived of statutory and procedural due process to contest the assessment before it was issued.

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What is applicable is RR 12-99 10, which superseded RR 12-85, pursuant to Sec. 244 in relation to Sec. 245 of the NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the assessment of national internal revenue taxes, fees, and charges. The procedures delineated in the said statutory provisos and RR 12-99 were not followed by respondent, depriving PSPC of due process in contesting the formal assessment levied against it. Respondent ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment notice, as required. PSPCs November 4, 1999 motion for reconsideration of the purported Center findings and cancellation of the subject TCCs and the TDM was not even acted upon. PSPC was merely informed that it is liable for the amount of excise taxes it declared in its excise tax returns for 1992 and 1994 to 1997 covered by the subject TCCs via the formal letter of demand and assessment notice. For being formally defective, the November 15, 1999 formal letter of demand and assessment notice is void.

10

Paragraph 3.1.4 of Sec. 3, RR 12-99 pertinently provides: 3.1.4 Formal Letter of Demand and Assessment Notice.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 payment of the taxpayers 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. The same shall be sent to the taxpayer only by registered mail or by personal delivery. x x x (Emphasis supplied.)

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