1. Conwi vs.

CTA- Duron
FACTS: Petitioners (Conwi, et al.) were Filipino citizens who were employees of P & G Philippines. From
1970 to 1971, they were temporarily assigned to other subsidiaries of P & G outside RP specifically in the US,
and were thus paid in US dollars as compensation for services in their foreign assignments. So when they filed
their income tax returns (ITR) for 1970, they computed the tax due by applying the dollar-to-peso conversion
on the basis of the floating rate ordained under BIR Ruling No. 70-27 (rates under Revenue Memorandum
Circulars Nos. 7-71 and 41-71) dated May 14, 1970. The same conversion rate was used for their 1971 ITR.
However, on February 8, 1973, the petitioners filed with CIR an amended ITR for 1970 & 1971 which used par
value of the peso as prescribed in RA 265, Sec.48 in relation to CA 699, Sec.6 for converting their dollar
income into pesos for purposes of computing and paying the corresponding income tax due from them.
Petitioners claimed that since the dollar earnings did not fall within the classification of foreign exchange
transactions, there occurred no actual inward remittances, and, therefore, they are not included in the coverage
of Central Bank Circular No. 289 which provides for the specific instances when the par value of the peso shall
not be the conversion rate used. They concluded that their earnings should be converted for income tax purposes
using the par value of the Philippine peso.
The amended ITR resulted into alleged overpayments/refund and/or tax credit. Therefore, the petitioners
claimed for refund from CIR. CTA ruled that the proper conversion rate for the purpose of reporting and paying
the Philippine income tax on the dollar earnings of petitioners are the rates prescribed under RMC Nos. 7-71
and 41-71. Consequently, the claim for refund was denied.
ISSUE: WON the petitioners are entitled to a refund. (What exchange rate should be used to determine the
peso equivalent of the foreign earnings of petitioners for income tax purposes.)
RULING: No. Income may be defined as an amount of money coming to a person or corporation within a
specified time, whether as payment for services, interest, or profit from investment. Income can also be
thought of as a flow of the fruits of ones labor. The dollar earnings of Conwi et al. are fruits of their labor in
the foreign subsidiaries of Procter & Gamble. They were given a definite amount of money which came to them
within a specified period of time as payment for their services.
Sec. 21, NIRC, states: A tax is hereby imposed upon the taxable net income received from all sources by every
individual, whether a citizen of the Philippines residing therein or abroad. As such, their income is taxable
even if there were no inward remittances during the time they were earning in dollars abroad.
Moreover, a careful reading of said CB Circular No. 289 shows that the subject matters involved therein are
export products, invisibles, receipts of foreign exchange, foreign exchange payments, new foreign borrowing
and investments nothing by way of income tax payments. Thus, petitioners are in error by concluding that
since C.B. Circular No. 289 does not apply to them, the par value of the peso should be the guiding rate used for
income tax purposes.
The ruling and the circulars are a valid exercise of power on the part of the Secretary of Finance by virtue of
Sec. 338, NIRC, which empowers him to promulgate all needful rules and regulations to effectively enforce
its provisions. Besides, they have already paid their taxes using the prescribed rate of conversion. There is no
need for the CIR to give them a tax refund and/or credit.

2. CIR vs Marubeni Mamugay

Facts: Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan. It is
engaged in general import and export trading, financing and the construction business. It is duly registered to
engage in such business in the Philippines and maintains a branch office in Manila. There were two contracts in
the Philippines that were completed in 1984. One was with the National Development Company (NDC) in
connection with the construction and installation of a wharf/port complex, another contract was with the
Philippine Phosphate Fertilizer Corporation (Philphos) for the construction of an ammonia storage complex.
The NDC contract involved (2) sets of ship unloader and loader; several boats and mobile equipment. In
connection with the Philphos contract, the major pieces of equipment supplied by respondent Marubeni were
the ammonia storage tanks and refrigeration units.
Sometime in 1985, the CIR found that respondent Marubeni have undeclared income from the two contracts
mentioned above. On August 27, 1986, respondent corporation received a letter dated August 15, 1986 from
petitioner assessing respondent several deficiency taxes. However, earlier, on August 2, 1986, Executive Order
(E.O.) No. 41, declaring a one-time amnesty covering unpaid income taxes for the years 1981 to 1985 was
issued. The tax amnesty was later on extended and coverage was expanded by EO 54, 64, and 95. On December
15, 1986, respondent filed a supplemental tax amnesty return under the benefit of E.O. No. 64. On September
26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals and the CTA rendered its
decision 10 years after and found that respondent had properly availed of the tax amnesty under E.O. Nos. 41
and 64 and declared the deficiency taxes subject of said case as deemed cancelled and withdrawn. The Court of
Appeals subsequently affirmed CTAs decision, hence, this appeal.
The CIR claims that respondent is disqualified from availing of the said amnesties because the latter falls under
the exception in Section 4 (b) of E.O. No. 41:
Sec. 4. Exceptions.The following taxpayers may not avail themselves of the amnesty herein granted:
xxx
b) Those with income tax cases already filed in Court as of the effectivity hereof;
xxx
CIR contends further that when the respondent filed for tax amnesty (Oct 30, 1986), there was already a
pending case in the CTA filed by the CIR, thus, respondent company is covered by the exceptions and cannot
avail tax amnesty.
Issue 1:
Is respondent Marubeni covered by the exception?
Ruling:
No, respondent Marubeni is not covered by the exception. The point of reference is the date of effectivity of
E.O. No. 41 and not the time of filing of tax amnesty by defendant. E.O. No. 41 took effect on August 22, 1986;
while the case in CTA filed by CIR was on September 26, 1986.
Issue 2:

WoN respondent is liable to pay the 1)income, 2)branch profit remittance, and 3)contractors taxes assessed by
petitioner.
Ruling:
Yes to all.
1st, E.O. 41 already covers income tax amnesty. 2 nd, the court also ruled that it also applies to the deficiency
branch profit remittance tax assessment. A branch profit remittance tax is defined and imposed in Section 24
(b) (2) (ii), Title II, Chapter III of the National Internal Revenue Code. In the tax code, this tax falls under Title
II on Income Tax. It is a tax on income. Respondent therefore did not fall under the exception in Section 4 (b)
when it filed for amnesty of its deficiency branch profit remittance tax assessment.
3rd, on the matter of contractors tax, regarding both contracts (projects):
While the construction and installation work were completed within the Philippines, the evidence is clear that
some pieces of equipment and supplies were completely designed and engineered in Japan. The two sets of ship
unloader and loader, the boats and mobile equipment for the NDC project and the ammonia storage tanks and
refrigeration units were made and completed in Japan. They were already finished products when shipped to the
Philippines. The other construction supplies such as the steel sheets, pipes and structures, electrical and
instrumental apparatus, these were not finished products when shipped to the Philippines. They, however, were
likewise fabricated and manufactured by the sub-contractors in Japan. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made and
completed in Japan. These services were rendered outside the taxing jurisdiction of the Philippines and are
therefore not subject to contractors tax.
3. CIR VS. BRITISH OVERSEAS AIRWAYS
G.R.No. L-65773-74 April 30, 1987
Facts: British Overseas Airways Corp (BOAC) is a 100% British Government-owned corporation engaged in
international airline business and is a member of the Interline Air Transport Association, and thus, it
operates air transportation services and sells transportation tickets over the routes of the other airline members.

From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus, did not carry
passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines,
which was responsible for selling BOAC tickets covering passengers and cargoes.
Issue: Whether or not the revenue from sales of tickets by BOAC in the Philippines constitutes income from
Philippine sources and, accordingly, taxable under our income tax laws?
Ruling: Yes. The absence of flight operations to and from the Philippines is not determinative of the source of
income or the site of income taxation.
"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for personal
service of whatever kind and in whatever form paid, or from profession, vocations, trades,business,
commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or
interest in such property; also from interests, rents, dividends, securities, or the transactions of any business

carried on for gain or profile, or gains, profits, and income derived from any source whatever. The definition is
broad and comprehensive to include proceeds from sales of transport documents.
The source of an income is the property, activity or service that produced the income. For the source of income
to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within
the Philippines. In this case, the sale of tickets in the Philippines is the activity that produces the income. The
tickets exchanged hands here and payments for fares were also made here in Philippine currency. The site of the
source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine
territory, enjoying the protection accorded by the Philippine government. In consideration of such protection,
the flow of wealth should share the burden of supporting the government.

PD 68, in relation to PD1355, ensures that international airlines are taxed on their income from Philippine
sources. The 2.5% tax on gross billings is an income tax. If it had been intended as an excise tax, it would have
been placed under Title V of the Tax Code covering taxes on business
4. South African Airways v. CIR
GR 180356, Feb 16, 2010
FACTS:
South African Airways is a foreign corp. internal air carrier with no landing rights in the Phil. It has a general
sales agentAerotel which sells passage documents. It is not registered with SEC, neither is licensed to do
business in the Philippines. South African Airway filed a claim for refund with BIR but such was unheeded.
CTA ruled that South African Airway was not liable to pay tax on its Gross Phil Billings (GBP) but is liable to
pay 32% tax on its income from the sales of passage docs. CTA then denied the claim for refund.
Petitioner argued, that because British Overseas Airways case was decided under the 1939 NIRC, it does not
apply to the instant case, which must be decided under the 1997 NIRC. Its interpretation of Sec. 28(A)(3)(a) of
the 1997 NIRC is that, since it is an international carrier that does not maintain flights to or from the
Philippines, thus having no GPB as defined, it is exempt from paying any income tax at all.
ISSUES:
1. Is the income from sale of passage documents in the Philippines by an off-line international carrier thru a
sales agent a Philippine-source income?
2. Is South African Airways liable to pay income tax then?
HELD:
1. Yes. In Commissioner of Internal Revenue v. British Overseas Airways Corporation
(British Overseas Airways), which was decided under similar factual circumstances, SC ruled that off-line air
carriers having general sales agents in the Philippines are engaged in or doing business in the Philippines and
that their income from sales of passage documents here is income from within the Philippines.
Sec. 28(A)(1) and (A)(3)(a) of the 1997 NIRC provides:
SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. (1) In General. - Except as otherwise provided in this Code, a corporation organized, authorized, or existing
under the laws of any foreign country, engaged in trade or business within the Philippines, shall be subject to an
income tax equivalent to
xxxx
and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
xxxx
(3) International Carrier. - An international carrier doing business in the Philippines shall pay a tax of two and
one-half percent (2 1/2%) on its Gross Philippine Billings as defined hereunder:
(a) International Air Carrier. Gross Philippine Billings refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage
document...
XXXX
Sec. 28(A)(3)(a) of the 1997 NIRC does not, in any categorical term, exempt all international air carriers from
the coverage of Sec. 28(A)(1) of the 1997 NIRC. Had legislatures' intentions been to completely exclude all
international air carriers from the application of the general rule under Sec. 28(A)(1), it would have used the
appropriate language to do so. Thus, the logical interpretation of such provisions is that, if Sec. 28(A)(3)(a) is
applicable to a taxpayer, then the general rule under Sec. 28(A)(1) would not apply. If, however, Sec. 28(A)(3)
(a) does not apply, a resident foreign corporation, whether an international air carrier or not, would be liable for
the tax under Sec. 28(A)(1).

There is no difference between British Overseas Airways and the instant case. Thus, British Overseas Airways
applies to the instant case. That an off-line air carrier is doing business in the Philippines and that income from
the sale of passage documents here is Philippine-source income must be upheld.

2. Yes. The general rule is that resident foreign corporations shall be liable for a 32% income tax on their
income from within the Philippines, except for resident foreign corporations that are international carriers that
derive income from carriage of persons, excess baggage, cargo and mail originating from the Philippines which
shall be taxed at 2 1/2% of their Gross Philippine Billings. Petitioner, being an international carrier with no
flights originating from the Philippines, does NOT fall under the exception. As such, petitioner must fall under
the general rule-liable for 32% tax.
The correct interpretation of the above provisions is that, if an international air carrier maintains flights to and
from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international
air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities
in the country will be taxed at the rate of 32% of such income.

5. CIR v CA (Income v Capital, Stock Dividend, Redemption)

301 SCRA 152
January 20, 1999
Gallo
FACTS: Don Andres Soriano (American), founder of ANSCOR, had a total shareholdings of 185,154 shares.
Broken down, the shares comprise of 50,495 shares which were of original issue when the corporation was
founded and 134,659 shares as stock dividend declarations. So in 1964 when Soriano died, half of the shares he
held went to his wife as her conjugal share (wifes legitime) and the other half (92,577 shares, which is
further broken down to 25,247.5 original issue shares and 82,752.5 stock dividend shares) went to the estate.
For sometime after his death, his estate still continued to receive stock dividends from ANSCOR until it grew to
at least 108,000 shares.
In 1968, ANSCOR through its Board issued a resolution for the redemption of shares from Sorianos estate
purportedly for the planned Filipinization of ANSCOR. Eventually, 108,000 shares were redeemed from the
Soriano Estate. In 1973, a tax audit was conducted. Eventually, the CIR issued an assessment against ANSCOR
for deficiency withholding tax-at-source. The CIR explained that when the redemption was made, the estate
profited (because ANSCOR would have to pay the estate to redeem), and so ANSCOR would have withheld tax
payments from the Soriano Estate yet it remitted no such withheld tax to the government.
ANSCOR averred that it is not duty bound to withhold tax from the estate because it redeemed the said shares
for purposes of Filipinization of ANSCOR and also to reduce its remittance abroad.

ISSUE: Can ANSCOR's redemption of stocks from its stockholder be considered as "essentially equivalent to a
distribution of taxable dividend," making the proceeds thereof taxable?

RULING: Yes. The proceeds from a redemption is taxable and ANSCOR is duty bound to withhold the tax at
source. The Soriano Estate definitely profited from the redemption and such profit is taxable, and again,
ANSCOR had the duty to withhold the tax. There were a total of 108,000 shares redeemed from the estate.
25,247.5 of that was original issue from the capital of ANSCOR. The rest (82,752.5) of the shares are deemed to
have been from stock dividend shares. Sale of stock dividends is taxable. It cannot be argued that all the
108,000 shares were distributed from the capital of ANSCOR and that the latter is merely redeeming them as
such. The capital cannot be distributed in the form of redemption of stock dividends without violating the trust
fund doctrine wherein the capital stock, property and other assets of the corporation are regarded as equity in
trust for the payment of the corporate creditors. Once capital, it is always capital. That doctrine was intended for
the protection of corporate creditors
The general rule is, A stock dividend representing the transfer of surplus to capital account shall not be subject
to tax. However, the exception, if a corporation cancels or redeems stock issued as a dividend at such time
and in such manner as to make distribution and cancellation or redemption, in whole or in part, essentially
equivalent to the distribution of taxable dividend, the amount so distributed in redemption or cancellation of the
stock shall be considered taxable income

After considering the manner and the circumstances by which the issuance and redemption of stock dividends
were made, there is no other conclusion but that the proceeds thereof are essentially considered equivalent to a
distribution of taxable dividends. As taxable dividend under Section 83(b), it is part of the entire income
subject to tax under Section 22 in relation to Section 21 of the 1939 Code. Moreover, under Section 29(a) of
said Code, dividends are included in gross income. As income, it is subject to income tax which is required to
be withheld at source.

6. CIR vs. Solidbank Corporation

G.R. No. 148191

November 25, 2003

Bonganciso, Wiem Marie

FACTS: Solidbank seasonably filed its Quarterly Percentage Tax Returns reflecting gross receipts with
corresponding payments for calendar year 1995. Included in their total gross receipts were those from passive
income which was already subjected to 20% final withholding tax.

In January 2016, when the CTA rendered a decision holding that the 20% final withholding tax on a banks
interest income should not form part of its taxable gross receipts for purposes of computing the gross receipts
tax, Solidbank filed with the BIR a letter-request for the refund or issuance of a tax credit certificate in the
amount of their allegedly overpaid gross receipts tax for the year 1995.

Without waiting for an action from the CIR, Solidbank filed a petition for review before the CTA on the same
day, in order to toll the running of the two-year prescriptive period to judicially claim for the refund of any
overpaid internal revenue tax, pursuant to Section 230 [now 229] of the Tax Code.

CTA rendered its decision ordering CIR to refund in favor of Solidbank the overpaid gross receipts tax for the
year 1995. When elevated to the CA, the CTA decision was affirmed and the CA held that the 20% FWT on a
banks interest income did not form part of the taxable gross receipts in computing the 5% GRT, because the
FWT was not actually received by the bank but was directly remitted to the government. Hence, CIR filed this
petition for review under Rule 45, seeking to annul the both the CTA Decision and CA Resolution.

ISSUE: Does the 20% final withholding tax on a banks interest income form part of the taxable gross receipts
in computing the 5% gross receipts tax?
RULING: Yes, although the 20% FWT on respondents interest income was not actually received by respondent
because it was remitted directly to the government, the fact that the amount redounded to the banks benefit
makes it part of the taxable gross receipts in computing the 5% GRT.

Two types of taxes are involved in the present controversy: (1) the GRT, which is a percentage tax; and (2) the
FWT, which is an income tax. As a bank, petitioner is covered by both taxes.
A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged
in the sale of services. It is not subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable
year. It is subject to withholding.
Under the Tax Code, the earnings of banks from "passive" income are subject to a twenty percent final
withholding tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by
the banks, because it is paid directly to the government by the entities from which the banks derived the income.
Apart from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is
imposed by the Tax Code on their gross receipts, including the "passive" income.
7. B. Van Zuiden Bros vs GTVL

FACTS: A petition for review on certiorari of a decision of the Court of Appeals dismissing the complaint for
sum of money filed by B. Van Zuiden Bros., (petitioner) against GTVL Manufacturing Industries, Inc.
(respondent). ZUIDEN is a corporation, incorporated under the laws of Hong Kong. It is not engaged in
business in the Philippines, but is suing before the Philippine Courts. On several occasions, GTVL purchased
lace products from ZUIDEN. However, GTVL has failed and refused to pay the agreed purchase price for
several deliveries ordered by it and delivered by ZUIDEN.
Respondent then filed a Motion to Dismiss against the complaint filed by the petitioner on the ground that
petitioner has no legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines
without securing the required license. Accordingly, petitioner cannot sue before Philippine courts.
ISSUE: Whether or not the petitioner, an unlicensed foreign corporation, has legal capacity to sue before
Philippine courts. The resolution of this issue depends on whether petitioner is doing business in the
Philippines.
RULING: The court ruled in the affirmative. Section 133 of the Corporation Code provides: Doing business
without license. No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court
or administrative agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.
The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before
Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the Philippines
can sue before Philippine courts.
An essential condition to be considered as "doing business" in the Philippines under Section 3(d) of Republic
Act No. 7042 (RA 7042) or "The Foreign Investments Act of 1991," is the actual performance of specific
commercial acts within the territory of the Philippines for the plain reason that the Philippines has no
jurisdiction over commercial acts performed in foreign territories.

To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code,
the foreign corporation must actually transact business in the Philippines, that is, perform specific business
transactions within the Philippine territory on a continuing basis in its own name and for its own account.
Considering that petitioner is not doing business in the Philippines, it does not need a license in order to initiate
and maintain a collection suit against respondent for the unpaid balance of respondents purchases.

8. Mobil Philippines Inc. v. City Treasurer of Makati

Julius Anthony Ragay
July 14, 2005
Facts: Mobils principal office was in Makati prior to September 1998. On August 20, 1998, Mobil filed an
application with the City Treasurer of Makati for the retirement of its business within Makati City as it moved
its principal place of business to Pasig City. Mobil declared its gross sales. Subsequently, the OIC of the License
Division assessed business taxes of P1,898,106.96 against Mobil. Mobil paid the same under protest. Mobil
filed a claim for refund, but was denied on the ground that Mobil merely transferred, and not retired its
business. Mobil still maintained its office in Makati from January 1 to August 31, 1998.
Issue: are the business taxes paid by Mobil in 1998, business taxes for 1997 or 1998?
Ruling:
Under the Makati Revenue Code, it appears that the business tax, like income tax, is computed based on the
previous years figures. This is the reason for the confusion. A newly-started business is already liable for
business taxes (i.e. license fees) at the start of the quarter when it commences operations. In computing the
amount of tax due for the first quarter of operations, the business capital investment is used as the basis. For the
subsequent quarters of the first year, the tax is based on the gross sales/receipts for the previous quarter. In the
following year(s), the business is then taxed based on the gross sales or receipts of the previous year. The
business taxes paid in the year 1998 is for the privilege of engaging in business for the same year, and not for
having engaged in business for 1997. On the year an establishment retires or terminates its business within the
municipality, it would be required to pay the difference in the amount if the tax collected, based on the previous
years gross sales or receipts, is less than the actual tax due based on the current years gross sales or receipts.
Business taxes imposed in the exercise of police power for regulatory purposes are paid for the privilege of
carrying on a business in the year the tax was paid. It is paid at the beginning of the year as a fee to allow the
business to operate for the rest of the year. It is deemed a prerequisite to the conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising from property, professions, trades or offices,
or as a tax on a persons income, emoluments, profits and the like. It is tax on income, whether net or gross
realized in one taxable year. It is due on or before the 15 th day of the 4th month following the close of the
taxpayers taxable year and is generally regarded as an excise tax, levied upon the right of a person or entity to
receive income or profits.

9. CIR vs Baier Nickel (junn)

Facts: Juliane Baier-Nickel, a non-resident German citizen, was appointed and engaged as commission agent of
a domestic corporation in the Phils. It was agreed between them that respondent will receive 10% sales
commission on all sales actually concluded and collected through her efforts. She now contends that her sales
commission income is not taxable in the Philippines because the same was a compensation for her services
rendered in Germany and therefore considered as income from sources outside the Philippines.
Issue: WON respondents sales commission income is taxable in the Philippines.
Ruling: Yes. The important factor which determines the source of income of personal services is not the
residence of the payor(Julian), or the place where the contract for service is entered into, or the place of
payment, but the place where the services were actually rendered. The rule is that source of income relates to
the property, activity or service that produced the income. With respect to rendition of labor or personal service,
as in the instant case, it is the place where the labor or service was performed that determines the source of the
income. (See Sec 25 A-1. & B) Juliane did not prove by substantial evidence that it was in Germany where she
performed the income producing service. She thus failed to discharge the burden of proving that her income
was from sources outside the Philippines and exempt from the application of our income tax law.
10. CIR VS CA AND CASTANEDA 203 SCRA 72 (terminal leave pay; exclusion)
Facts:
Private respondent Efren P. Castaneda retired from the government service as Revenue Attache in the
Philippine Embassy in London, England, on December 10, 1982 under the provisions of Section 12(c) of CA
186. Upon retirement, he received terminal leave pay from which petitioner CIR withheld P12,557.13 allegedly
representing income tax thereon. Castanada filed a formal written claim with CIR seeking refund of income tax
withheld from his terminal leave pay, within the two-year prescriptive period within which claims for refund
may be filed. The CTA ordered the CIR to refund Castaneda the P12,557.13.
Issue:
Whether or not terminal leave pay received by a government official of employee on the occasion of his
compulsory retirement from the government service is subject to withholding income tax.
Ruling:
No. The Court has already ruled that the terminal leave pay received by a government official or
employee is not subject to withholding income tax. In the recent case of Jesus N. Borromeo vs. The Hon. Civil
Service Commission, et al., GR NO. 96032, July 31, 1991, the Court explained the rationale behind the
employees entitlement to an exemption from withholding income tax on his terminal leave pay as follows:
. . . commutation of leave credits, more commonly known as terminal leave, is applied for by an officer or
employee who retires, resigns or is separated from the service through no fault of his own. (Manual on Leave
Administration Course for Effectiveness published by the Civil Service Commission, pages 16-17). In the
exercise of sound personnel policy, the Government encourages unused leaves to be accumulated. The
Government recognizes that for most public servants, retirement pay is always less than generous if not meager
and scrimpy. A modest nest egg which the senior citizen may look forward to is thus avoided. Terminal leave

payments are given not only at the same time but also for the same policy considerations governing retirement
benefits.
In fine, not being part of the gross salary or income of a government official or employee but a
retirement benefit, terminal leave pay is not subject to income tax.

11. Abello vs CIR

452 SCRA 162, 23 February 2005
FACTS: During the 1987 national elections, petitioners, who are partners in the ACCRA law firm, contributed
P882, 661.31 each to the campaign funds of Senator Edgardo Angara, then running for the Senate. BIR assessed
each of the petitioners P263, 032.66 for their contributions. Petitioners questioned the assessment to the BIR,
claiming that political or electoral contributions are not considered gifts under the NIRC so they are not liable
for donors tax. The claim for exemption was denied by the Commissioner. The CTA ruled in favor of the
petitioners, but such ruling was overturned by the CA, thus this petition for review.
ISSUE: Whether or not political contributions are subject to donors tax?
RULING: Yes. The Supreme Court laid down several reasons why political contributions are subject to donors
tax:

Section 91 of the NIRC levies tax to the transfer of property by gift. Though transfer of property by gift
was not defined by the NIRC, Article 725 of the Civil Code supplements the deficiency of the NIRC (by
virtue of Article 18 of the Civil Code stating: In matters which are governed by the Code of Commerce
and special laws, their deficiency shall be supplied by the provisions of this Code.) which defines
donation as: an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it. Donation has the following elements: (a) the reduction of the patrimony of the
donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or
animus donandi. The present case falls squarely within the definition of a donation. All three elements
of a donation are present. a) The patrimony of the four petitioners was reduced by P 882,661.31 each. b)
Correspondingly, Senator Angaras patrimony was increased by P 3,530,645.24. c) There was intent to
do an act of liberality since each of the petitioners gave their contributions without any consideration.
Thus being a donation, the political contributions are subject to donors tax.

Petitioners contribution of money without any material consideration evinces animus donandi.
Donative intent is presumed present when one gives a part of ones patrimony to another
without consideration. Furthermore, donative intent is not negated when the person donating has
other intentions, motives or purposes which do not contradict donative intent. The fact that
petitioners purpose for donating was to aid in the election of the donee does not negate the presence of
donative intent.

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.

BIR is not precluded from making a new interpretation of the law, especially when the old interpretation
was flawed. The fact that since 1939 when the first Tax Code was enacted, up to 1988 the BIR
never attempted to subject political contributions to donors tax does not block the subsequent correct
application of the statute.

Section 91 of the N I RC is clear and unambiguous, thereby leaving no room for construction.
The rule that tax laws are construed liberally in favor of the taxpayer and strictly against the
government only applies when the statute is doubtful and ambiguous.

Republic Act No. 7166 enacted on November 25, 1991, which exempts political/electoral contributions,
duly reported to the Commission on Elections, from tax has no retroactive effect. Only political
contributions made subsequent to this exempting legislation are covered. The political contributions in
this case were made in 1987. Thus, they are still subject to donors tax.

12. CIR vs. BPI

April 17, 2007
INCOME (Gross Receipts)
Batulan
FACTS:
In October 28, 1988, CIR assessed BPI of deficiency percentage and documentary stamp tax for the year
1986, in the total amount of P129,488,056.63. A letter reply by BPI was sent on December 10, 1988 stating
among other:
... we shall inform you the taxpayers decision on whether to pay of protest the assessment, CTA ruled that BPI
failed to protest on time under Sec 270 of NIRC of 1986.
ISSUE:
Whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes
for 1986 had already become final and un-appealable.
RULING:

In merely notifying BPI of his findings CIR relied on the provisions of the former Section 270 prior to
its amendment by RA 8424. The sentence
the taxpayers shall be informed in writing of the law and the facts on which the assessment is made Was
not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997.
Tax assessments by tax examiners are presumed correct and are made in good faith. The taxpayer has
the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an
assessment duly made by BIR examiner and approved by his superior officers will not be distributed. All
presumptions are in favor of the correctness of tax assessment
13. CYANAMID PHIL., INC. vs. COURT OF APPEALS, ET AL.
June Lacpao
Facts:
Cyanamid Philippines, Inc., is a corporation engaged in the manufacture of pharmaceutical products and
chemicals, a wholesaler of imported finished goods, and an importer/indentor. The CIR sent an assessment letter
to petitioner Cyanamid Phil., Inc. and demanded the payment of deficiency income tax for 1981. Petitioner
then protested the assessments, particularly, (1) the 25% Surtax Assessment; (2) the 1981 Deficiency Income
Assessment; and (3) the 1981 Deficiency Percentage Assessment. Petitioner claimed that the surtax for the
undue accumulation of earnings was not proper because the said profits were retained to increase petitioners
working capital and it would be used for reasonable business needs of the company. The CIR, however, refused
to allow the cancellation of the assessment notices. Petitioner appealed to the CTA. During the pendency of the
case, both parties agreed to compromise the 1981 Deficiency Income Assessment. However, the surtax on
improperly accumulated profits remained unresolved.

Issue: Is a manufacturing company liable for the accumulated earnings tax, despite its claim that earnings were
accumulated to increase working capital and to be used for its reasonable needs, if it fails to present evidence to
prove such allegations?
Ruling:
Yes. The respondent court correctly decided that the petitioner is liable for the accumulated
earnings tax for the year 1981 based on the following grounds:
1.
The amendatory provision of Sec. 25 of the 1977 NIRC, which was PD 1739, enumerated the
corporations exempt from the imposition of improperly accumulated tax such as banks, non-bank financial
intermediaries, insurance companies and corporations authorized by the Central Bank of the Phils. to hold
shares of stocks of banks. The petitioner does not fall among those exempt classes.
2.

If the CIR determined that the corporation avoided the tax on shareholders by permitting earnings or
profits to accumulate, and the taxpayer contested such a determination, the burden of proving is on the
taxpayer. And in order to determine whether profits are accumulated for the reasonable needs of the
business to avoid the surtax upon shareholders, it must be shown that the controlling intention of the
taxpayer is manifested at the time of accumulation, not intentions declared subsequently, which are mere
afterthoughts. Furthermore, the accumulated profits must be used within a reasonable time after the

close of the taxable years. In this case, petitioner did not establish, by clear and convincing evidence
when such accumulation of profit was for the immediate needs of the business.
Lastly, in the present case, the Tax Court opted to determine the working capital sufficiency by using the ratio
between current assets to current liabilities. The working capital needs of a business depend upon the nature of
the business, its credit policies, the amount of inventories, the rate of turnover, the amount of accounts
receivable, the collection rate, the availability of credit to the business, and similar factors. Petitioner, by
adhering to the bardahl formula, failed to impress the tax court with the required definiteness envisioned by
the statute. We agree with the tax court that the burden of proof to establish that the profits accumulated were
not beyond the reasonable needs of the company, remained on the taxpayer. Hence, this Court will not set aside
lightly the conclusion reached by the CTA, which by the very nature of its function, is dedicated exclusively to
the consideration of tax problems and has necessarily developed expertise on the subject unless there has been
an abuse of improvident exercise of authority.
14. Christal
15. Republic of the Phil. vs. Soriano-Duron
FACTS:
On October 20, 2010, petitioner Republic of the Philippines, represented by the Department of Public Works
and Highways (DPWH), filed a Complaint for expropriation against respondent Arlene R. Soriano, the
registered owner of a parcel of land consisting of an area of 200 square meters. In its Complaint, petitioner
averred that pursuant to Republic Act (RA) No. 8974, otherwise known as "An Act to Facilitate the Acquisition
of Right-Of-Way, Site or Location for National Government Infrastructure Projects and for other Purposes," the
property sought to be expropriated shall be used in implementing the construction of the North Luzon
Expressway (NLEX)- Harbor Link Project (Segment 9) from NLEX to MacArthur Highway, Valenzuela City.
Petitioner duly deposited to the Acting Branch Clerk of Court the amount of P420,000.00 representing 100% of
the zonal value of the subject property. Consequently, in an Order dated May 27, 2011, the RTC ordered the
issuance of a Writ of Possession and a Writ of Expropriation for failure of respondent, or any of her
representatives, to appear despite notice during the hearing called for the purpose. Furthermore, RTC ordered
the Plaintiff to pay the defendant consequential damages which shall include the value of the transfer tax
necessary for the transfer of the subject property from the name of the defendant to that of the plaintiff.
Petitioner claims that contrary to the RTCs instruction, transfer taxes, in the nature of Capital Gains Tax and
Documentary Stamp Tax, necessary for the transfer of the subject property from the name of the respondent to
that of the petitioner are liabilities of respondent and not petitioner.
ISSUE:
In Expropriation proceedings, who should pay the transfer taxes in the nature of Capital Gains Tax and
Documentary Stamp Tax?
RULING:
Capital gains is a tax on passive income, it is the seller, not the buyer, who generally would shoulder the tax. As
a general rule, therefore, any of the parties to a transaction shall be liable for the full amount of the documentary
stamp tax due, unless they agree among themselves on who shall be liable for the same. In this case, with
respect to the capital gains tax, there is merit in petitioners posture that pursuant to Sections 24(D) and 56(A)
(3) of the 1997 National Internal Revenue Code (NIRC), capital gains tax due on the sale of real property is a
liability for the account of the seller. It has been held that since capital gains is a tax on passive income, it is the
seller, not the buyer, who generally would shoulder the tax. Also, there is no agreement as to the party liable for

the documentary stamp tax due on the sale of the land to be expropriated. But while DPWH rejects any liability
for the same, the Court take note of petitioners Citizens Charter, which functions as a guide for the procedure
to be taken by the DPWH in acquiring real property through expropriation under RA 8974. The Citizens
Charter, issued by DPWH itself on December 4, 2013, explicitly provides that the documentary stamp tax,
transfer tax, and registration fee due on the transfer of the title of land in the name of the Republic shall be
shouldered by the implementing agency of the DPWH, while the capital gains tax shall be paid by the affected
property owner.

16. CIR vs Aquafresh Seafoods Mamugay

Facts:
On June 7, 1999, respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land,
including improvements thereon, located at Barrio Banica, Roxas City, for the consideration of Three Million
One Hundred Thousand Pesos (Php 3,100, 000.00).
The Bureau of Internal Revenue (BIR) received a report that the lots sold were undervalued for taxation
purposes. After an investigation, BIR concluded that the subject properties were commercial with a zonal value
of Php 2,000.00 per square meter. BIR assessed Aquafresh of Capital Gains Tax (CGT) and Documentary
Stamp Tax (DST) deficiencies in the sum of Php 1,372,171.46 and Php 356,267.62,respectively. Aquafresh
protested the assessments. Aquafresh's argued that the subject properties were located in Barrio Banica, Roxas,
where the pre-defined zonal value was Php 650.00 per square meter based on the Revised Zonal Values of Real
Properties in the City of Roxas. Aquafresh argued that since there was already a pre-defined zonal value for
properties located in Barrio Banica, the BIR officials had no business re-classifying the subject properties to
commercial.
Issue: Is Aquafresh correct in asserting that it should only pay CGT and DST for the properties based on its
current classification as residential zone?
Ruling: Yes.
Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%) percent is imposed on the gains presumed to
have been realized in the sale, exchange or disposition of lands and/or buildings which are not actively used in
the business of a corporation and which are treated as capital assets based on the gross selling price or fair
market value as determined in accordance with Section 6(E) of the NIRC, whichever is higher.
On the other hand, under Section 196 of the NIRC, DST is based on the consideration contracted to be paid or
on its fair market value determined in accordance with Section 6(E) of the NIRC, whichever is higher.
Section 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. xxxx

(E) Authority of the Commissioner to Prescribe Real Property Values The Commissioner is hereby authorized to
divide the Philippines into different zones or area and shall, upon consultation with competent appraisers both
from the private and public sectors, determine the fair market value of real properties located in each zone or
area. For purposes of computing internal revenue tax, the value of the property shall be, whichever is higher of:
(1)

the fair market value as determined by the Commissioner; or

(2)

the fair market value as shown in the schedule of values of the Provincial and City Assessors.

The CIR has the authority to prescribe real property values and divide the Philippines into zones. But it has to
be done upon consultation with competent appraisers for both public and private sectors.
Clearly, at the time of the sale of the properties, they were already classified as residential based on the 1995
Revised Zonal Value of Real Properties. Thus, CIR cannot unilaterally change the zonal valuation from
residential to commercial without a re-evaluation as provided by Section 6(E).
Regardless if the properties were actually used as commercial and not residential, the same remains to be
residential for zonal value purposes. It appears that actual use is not considered for zonal valuation, but the
predominant use of other classification of properties located in the zone. To note, the entire Barrio Banica has
been classified as residential.
17. HSBC vs. CIR
G.R. No. 166018, June 4, 2014
HSBC performs custodial services on behalf of its investor-clients, corporate and individual, resident or nonresident of the Philippines, with respect to their passive investments in the Philippines, particularly investments
in shares of stocks in domestic corporations. As a custodian bank, HSBC serves as the collection/payment agent
with respect to dividends and other income derived from its investor-clients passive investments.
HSBCs investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed by
HSBC through instructions given through electronic messages. The said instructions are standard forms known
in the banking industry as SWIFT, or "Society for Worldwide Interbank Financial Telecommunication." In
purchasing shares of stock and other investment in securities, the investor-clients would send electronic
messages from abroad instructing HSBC to debit their local or foreign currency accounts and to pay the
purchase price therefor upon receipt of the securities.
Pursuant to the electronic messages of its investor-clients, HSBC paid Documentary Stamp Tax (DST) from
September to December 1997 and also from January to December 1998.
On August 23, 1999, the BIR Commissioner issued BIR Ruling No. 132-99 to the effect that instructions or
advises from abroad on the management of funds located in the Philippines which do not involve transfer of
funds from abroad are not subject to DST.
With the BIR Ruling as its basis, HSBC filed an administrative claim for the refund for the period covering
September to December 1997 and January to December 1998.

As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter to the
CTA.The CTA ruled that HSBC is entitled to a tax refund or tax credit because Sections 180 and 181 of the
1997 Tax Code do not apply to electronic message instructions transmitted by HSBCs non-resident investorclients. However, the CA reversed both decisions of the CTA and ruled that the electronic messages of HSBCs
investor-clients are subject to DST
ISSUE: WON electronic message are considered transactions pertaining to negotiable instruments thatis subject
to DST?
No. The electronic messages of HSBCs investor-clients containing instructions to debit their respective local or
foreign currency accounts in the Philippines and pay a certain named recipient also residing in the Philippines is
not the transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel to an
automatic bank transfer of local funds from a savings account to a checking account maintained by a depositor
in one bank." Electronic messages "cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred" and that the said electronic messages are "mere
memoranda" of the transaction consisting of the "actual debiting of the [investor-client-payors] local or foreign
currency account in the Philippines" and "entered as such in the books of account of the local bank," HSBC.
DST is levied as an excise tax on the privilege of the drawee to accept or pay a bill of exchange or order for the
payment of money, which has been drawn abroad but payable in the Philippines, and on the corresponding
privilege of the drawer to have acceptance of or payment for the bill of exchange or order for the payment of
money which it has drawn abroad but payable in the Philippines.
In this case, there had been no acceptance of a bill of exchange or order for the payment of money on the part of
HSBC. There was no bill of exchange or order for the payment drawn abroad and made payable here in the
Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and signed
manifestation of HSBC to a drawer's order to pay money. As HSBC could not have been an acceptor, then it
could not have made any payment of a bill of exchange or order for the payment of money drawn abroad but
payable here in the Philippines. Hence, HSBC could not have been held liable for DST as it is not "a person
making, signing, issuing, accepting, or, transferring" the taxable instruments under the said provision.
18. CIR. v La Tondea Distillers Inc (Now Ginebra San Miguel)
G.R. No. 175188
July 15, 2015

Facts:
In 2001, respondent La Tondena entered into a Plan of Merger with Sugarland Beverage Corp., SMC Juice Inc.,
and Metro Bottled Water Corp of which assets and liabilities of these three were absorbed by respondent, newly
name Ginebra San Miguel. Respondent requested from BIR a confirmation of the tax-free nature of the merger.
BIR ruled there shall be no gain or loss recognized by the absorbed corps., but the transfer of assets shall be
subject to Documentary Stamp Tax (DST) under Sec. 196 of NIRC. In 2004, Respondent filed an administrative
complaint for tax refund or tax credit for P14,140,980 for the paid DST for 2001. CTA found respondent entitle

to such. CTA en banc found no reversible error. Petitioner argued that DST is imposed on all conveyances of
realty, including realty transfer during a corporate merger. CIR also claimed that respondent cannot benefit from
the subsequent enactment of RA 9243 as laws apply prospectively.
ISSUES:
1. Is the conveyance of real properties in a merger exempt from DST?
2. Is La Tondea entitled to a claim for tax refund or tax credit?

HELD:
1. Yes. It is already ruled in CIR v. Pilipinas Shell Petroleum Corp. that Section 196 of the NIRC does not
include the transfer of real property from one corporation to another pursuant to a merger. The provision would
clearly show it pertains only to sale transactions where real property is conveyed to a purchaser for a
consideration. The phrase "granted, assigned, transferred or otherwise conveyed" is qualified by the word
"sold".
In a merger:
- the real properties are not deemed "sold" to the surviving corporation and;
- the latter could not be considered as "purchaser" of realty since the real properties subject of the merger were
merely absorbed by the surviving corporation by operation of law and;
- these properties are deemed automatically transferred to and vested in the surviving corporation without
further act or deed.
Thus, the transfer of real properties to the surviving corporation in pursuance of a merger is not subject to
documentary stamp tax which is imposed only on all conveyances, deeds, instruments or writing where realty
sold shall be conveyed to a purchaser or purchasers.
Respondent did not file its claim for tax refund or tax credit based on the exemption found in RA 9243, rather
on the ground that Section 196 of the MRC does not include the transfer of real property pursuant to a merger.
RA 9243 was mentioned only to emphasize that "the enactment of the said law now removes any doubt and had
made clear that the transfer of real properties as a consequence of merger or consolidation is not subject to
[DST]."
Taxes must not be imposed beyond what the law expressly and clearly declares, as tax laws must be construed
strictly against the State and liberally in favor of the taxpayer.
2. Yes. CIR's Petition is denied.
19. Reyes v. NLRC and Universal Robina Corporation Grocery Division - (Retirement Pay)
GR No. 160233
August 8, 2007
GALLO

FACTS: Petitioner Reyes was employed as a salesman at private respondents Grocery Division in Davao City.
He was eventually appointed as unit manager of Sales Department-South Mindanao District, a position he held
until his retirement. Thereafter, he received a letter regarding the computation of his separation. Said letter
mentioned that the Company rejects his suggested basis for computation and that it cannot pay him the Sales
Commission and Tax Refund ahead of the other payments. Insisting that his retirement benefits and 13th month
pay must be based on the average monthly salary of P42,766.19, which consists of P10,919.22 basic salary
and P31,846.97 average monthly commission, petitioner refused to accept the check issued by private
respondent in the amount of P200,322.21. Instead, he filed a complaint before the arbitration branch of the
NLRC for retirement benefits, 13th month pay, tax refund, earned sick and vacation leaves, financial assistance,
service incentive leave pay, damages and attorneys fees.
ISSUE: Should the average monthly sales commission be included in the computation of his retirement benefits
and 13th month pay?
RULING: No, the basis in computing his retirement benefits is his latest salary rate of P10, 919.22. Unit
Managers are not salesmen; they do not effect any sale of article at all. Therefore, any commission which they
receive is certainly not the basic salary which measures the standard or amount of work of complainant as Unit
Manager. Accordingly, the additional payments made to petitioner were not in fact sales commissions but rather
partook of the nature of profit-sharing business. Under Presidential Decree 851 and its implementing rules,
Profit sharing payments are deemed not part of the basic salary. The basic salary of an employee is used as the
basis in the determination of his 13th-month pay. Any compensations or remunerations which are deemed not
part of the basic pay is excluded as basis in the computation of the mandatory bonus.
Aside from the fact that as unit manager petitioner did not enter into actual sale transactions, but merely
supervised the salesmen under his control, the disputed commissions were not regularly received by him. Only
when the salesmen were able to collect from the sale transactions can petitioner receive the commissions.
Conversely, if no collections were made by the salesmen, then petitioner would receive no commissions at
all. In fine, the commissions which petitioner received were not part of his salary structure but were profitsharing payments and had no clear, direct or necessary relation to the amount of work he actually performed.
The collection made by the salesmen from the sale transactions was the profit of private respondent from which
petitioner had a share in the form of a commission.

20. Intercontinental Broadcasting Corp. vs Amarilla G.R. No. 162775

October 27, 2006

Bonganciso, Wiem Marie

FACTS: Amarilla and three other employees of IBC Cebu Station retired from the company and received, on
staggered basis, their retirement benefits under the 1993 CBA between IBC and the bargaining unit of its
employees. When a salary increase was given to all employees of the company, current and retired, the four
retirees demanded theirs. However, IBC refused and instead informed them via a letter that their differentials
would be used to offset the tax due on their retirement benefits in accordance with the NIRC. The four retirees
filed separate complaints against IBC Cebu and its Station Manager for unfair labor practice and non-payment
of backwages before the NLRC.

For its part, IBC averred that under Section 21 of the NIRC, the retirement benefits received by employees from
their employers constitute taxable income. While retirement benefits are exempt from taxes under Section 28(b)
of said Code, the law requires that such benefits received should be in accord with a reasonable retirement plan
duly registered with the BIR after compliance with the requirements therein enumerated. Since its retirement
plan in the 1993 CBA was not approved by the BIR, complainants were liable for income tax on their retirement
benefits. Petitioner claimed that it was mandated to withhold the income tax due from the retirement benefits of
said complainants. It was not estopped from correcting the mistakes of its former officers. Under the law,
complainants are obliged to return what had been mistakenly delivered to them.
The NLRC held that the benefits of the retirement plan under the CBAs between petitioner and its union
members were subject to tax as the scheme was not approved by the BIR. However, it had also been the practice
of petitioner to give retiring employees their retirement pay without tax deductions and there was no justifiable
reason for the respondent to deviate from such practice. The NLRC concluded that petitioner was deemed to
have assumed the tax liabilities of the complainants on their retirement benefits, hence, had no right to deduct
taxes from their salary differentials.

Aggrieved, petitioner elevated the decision before the CA. The appellate court declared that the salary
differentials of the respondents are part of their taxable gross income, considering that the CBA was not
approved, much less submitted to the BIR. However, petitioner could not withhold the corresponding tax
liabilities of respondents due to the then existing CBA, providing that such retirement benefits would not be
subjected to any tax deduction, and that any such taxes would be for its account. IBC filed a motion for
reconsideration, which the appellate court denied. Hence, the present petition.
ISSUE 1: Are retirement benefits part of their gross income?
ISSUE 2: Is petitioner estopped from reneging on its agreement with respondent to pay for the taxes on said
retirement benefits?
RULING 1: Yes. Under Section 28 (b) (7) (A) of the NIRC, the retirement benefits of respondents are part of
their gross income subject to taxes. For the retirement benefits to be exempt from the withholding tax, the
taxpayer is burdened to prove the concurrence of the following elements: (1) a reasonable private benefit plan is
maintained by the employer; (2) the retiring official or employee has been in the service of the same employer
for at least 10 years; (3) the retiring official or employee is not less than 50 years of age at the time of his
retirement; and (4) the benefit had been availed of only once.
Respondents were qualified to retire optionally from their employment with petitioner. However, there is no
evidence on record that the 1993 CBA had been approved or was ever presented to the BIR; hence, the
retirement benefits of respondents are taxable. Under Section 80 of the NIRC, petitioner, as employer, was
obliged to withhold the taxes on said benefits and remit the same to the BIR.
RULING 2: Yes. Respondents received their retirement benefits from the petitioner in three staggered
instalments without any tax deduction for the simple reason that petitioner had remitted the same to the BIR
with the use of its own funds conformably with its agreement with the retirees. It was only when respondents
demanded the payment of their salary differentials that petitioner alleged, for the first time, that it had failed to
present the 1993 CBA to the BIR for approval, rendering such retirement benefits not exempt from taxes;
consequently, they were obliged to refund to it the amounts it had remitted to the BIR in payment of their taxes.

Petitioner used this "failure" as an afterthought, as an excuse for its refusal to remit to the respondents their
salary differentials. Patently, petitioner is estopped from doing so. It cannot renege on its commitment to pay the
taxes on respondents retirement benefits on the pretext that the "new management" had found the policy
disadvantageous.
There is no showing that before respondents demanded the payment of their salary differentials, petitioner had
rejected its commitment to shoulder the taxes on respondents retirement benefits and sought its nullification
before the court; nor is there any showing that petitioners "new management" filed any criminal or
administrative charges against the former officers/board of directors comprising the "old management" relative
to the payment of the taxes on respondents retirement benefits.
21. Manila Banking Corp vs CIR
GR 168118, 28 August 2006

FACTS: The Manila Banking Corporation was incorporated in 1961 and since then had engaged in the
commercial banking industry until 1987. On May 22, 1987, the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP) issued Resolution No. 505, pursuant to Section 29 of Republic Act (R.A.) No. 265 (the Central
Bank Act), prohibiting petitioner from engaging in business by reason of insolvency. Thus, petitioner ceased
operations that year and its assets and liabilities were placed under the charge of a government-appointed
receiver.
On June 23, 1999, after 12 years since petitioner stopped its business operations, the BSP authorized it
to operate as a thrift bank, which allows it a period of four(4) year suspension of tax payment. Pursuant to the
above ruling, petitioner filed with the BIR a claim for refund of the sum of P33,816,164.00 erroneously paid as
minimum corporate income tax for taxable year 1999.
ISSUE: Whether or not petitioner is entitled to a refund of its minimum corporate income tax paid to the BIR
for taxable year 1999.
RULING: Yes, Manila Banking Corporation is entitled to a refund.
Clearly, under Revenue Regulations No. 4-95, being a thrift bank, the date of commencement of operations is
the date it was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it
by the Monetary Board of the BSP, whichever comes later.
The intent of Congress relative to the minimum corporate income tax is to grant a four (4)-year suspension of
tax payment to newly formed corporations. Corporations still starting their business operations have to stabilize
their venture in order to obtain a stronghold in the industry. It does not come as a surprise then when many
companies reported losses in their initial years of operations. Apparently, it was shown in the case at bar that
indeed, Manila Banking Corporation is at a point of recovery from their insolvency in the previous years. BSP
is only giving it a chance to revive its business by granting the authority to operate with a new identity under the
classification of a thrift bank registered in the SEC, and venture anew under such regulations.
Consequently, it should only pay its minimum corporate income tax after four(4) years from year 1999.

22. FAR EAST BANK AND TRUST COMPANY v. CIR

Julius Anthony Ragay
Income from employees trust is tax exempt
Facts:
Far East Bank is the trustee of various retirement plans established by several companies for its employees. As
trustee of the retirement plans, Far East Bank was authorized to hold, manage, invest and reinvest the assets of
these plans. Far East Bank utilized such authority to invest these retirement funds in various money market
placements, bank deposits, deposit substitute instruments and government securities. These investments
necessarily earned interest income. Far East Banks 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, on the aforementioned interest
income.
Issue: Whether or not Far East Bank is entitled to the refund claimed.
Ruling: FEBTC is not entitled to the refund.
The same exemption was provided in Republic Act No. 8424, the Tax Reform Act of 1997, and may now be
found under Section 60(B) of the present National Internal Revenue Code. Such interest income of Far East
Bank for 1993 was not subject to income tax. Still, Far East Bank did pay the income tax it was not liable for
when it withheld such tax on interest income for the year 1993. Such taxes were erroneously assessed or
collected, and thus, Section 230 of the National Internal Revenue Code then in effect comes into full
application.
The tax exemption enjoyed by employees trusts was absolute, irrespective of the nature of the tax. There was
no need for Far East Bank to particularly show that the tax withheld was derived from interest income from
money market placements, bank deposits, other deposit substitute instruments and government securities, since
the source of the interest income does not have any effect on the exemption enjoyed by employees trusts. What
has to be established is that the amount sought to be refunded to Far East Bank 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 militates, considering that Far East Bank, in the ordinary course of its banking business, 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.
The submitted certifications from Citibank, the BSP, and Far East Banks own Accounting Department attest
only to the total amount of final withholding taxes remitted to the BIR. Evidently, the sum includes not only
such taxes withheld from the interest income of the exempt employees trusts, but also from other transactions
between Far East Bank and the BSP or Citibank which are not similarly exempt from taxation. 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.
23. Ossorio Pension Foundation Vs CA &CIR
Facts:

Petitioner, a non-stock and non-profit corporation, was organized for the purpose of holding title to and
administering the employees trust or retirement funds for the benefit of the employees of Victorias Milling
Company, Inc. Petitioner purchased a lot in the Madrigal Business Park lot through VMC. VMC eventually
sold the MBP lot to Metrobank. Petitioner claims that the income earned by the Employees Trust Fund is tax
exempt under Section 53(b) of the NIRC. Petitioner, as trustee, purchased 49.59% of the MBP lot using funds of
the employees trust fund, and asserts that the employees trust fund's 49.59% share in the income tax paid
should be refunded. The CA ruled that documents presented by petitioner failed to show that the funds used to
purchase the MBP lot came from the employees trust fund.
Issue: WON it was established that the funds used to purchase the MBP lot is from the Employees Trust Fund
and thus entitled to tax exemption for its share in the proceeds from the sale of the MBP lot.
Ruling: Yes. Employees Trust Fund is tax exempt. The Citytrust report reflecting petitioners investment in the
MBP lot is concrete proof that money of the Employees Trust Funds was used to purchase the MBP lot. In fact,
the CIR did not dispute the authenticity and existence of this documentary evidence. Together with the notarized
memorandum of agreement, clearly establish that petitioner, on behalf of the employees trust fund, indeed
invested in the purchase of the MBP lot. Thus, the Employees' Trust Fund owns 49.59% of the MBP lot. It is
also settled that petitioner exists for the purpose of holding title to, and administering, the tax-exempt
Employees Trust Fund established for the benefit of VMCs employees. As such, petitioner has the personality
to claim tax refunds due the Employees' Trust Fund.