Delpher Trades Corporation vs.
IAC Corporation to take control of their properties and at
G.R. No. L-69259 January 26, 1988
Keywords: Section 40(c), Estate Planning
Bonganciso, Wiem Marie
Facts: Siblings Delfin and Pelagia Pacheco co-owned a
property which they leased to Construction
Components International. The lease contract
contained a provision giving the lessee the first option
to buy should the Pachecos decide to sell the property.
Construction Components later assigned its rights and
obligations under said contract in favor of Hydro Pipes
Philippines, with the signed conformity and consent of
the Pachecos.
Two years later, a deed of exchange was executed
between the Pachecos and Delpher Trades Corporation
whereby the former conveyed to the latter the leased
property together with another parcel of land also
located in Malinta Estate, Valenzuela, Metro Manila for
2,500 shares of stock of defendant corporation with a
total value of 1.5M pesos.
On the ground that it was not given the first option to
buy the leased property pursuant to the proviso in the
lease agreement, Hydro Pipes Philippines filed an
amended complaint for reconveyance of subject lot in
its favor under conditions similar to those whereby
Delpher Trades Corporation acquired the property from
the Pachecos. Both the CFI of Bulacan and the IAC upon
appeal, ruled in favor of the Hydro Pipes.
Eduardo Neria, a CPA and son-in-law of the late Pelagia
Pacheco testified that Delpher Trades Corporation is a
family corporation; that the corporation was organized
by the children of the Delfin and Pelagia, who owned in
common the parcel of land leased to Hydro Pipes
Philippines, in order to perpetuate their control over
the property through the corporation and to avoid
taxes; that in order to accomplish this end, two pieces
of real estate, including the lot leased to Hydro Pipes
Philippines, were transferred to the corporation; that
the leased property was transferred to the corporation
by virtue of a deed of exchange of property; that in
exchange for these properties, Pelagia and Delfin
acquired 2,500 unissued no par value shares of stock
which are equivalent to a 55% majority in the
corporation because the other owners only owned
2,000 shares; and that at the time of incorporation, he
knew all about the contract of lease with Hydro Pipes
Philippines. They refer to this scheme as "estate
planning."
Issue: Can the estate planning scheme be validly
considered a contract of sale which, in effect,
prejudiced the Hydro Pipes Philippines right of first
refusal over the leased property?
Ruling: No. The records do not point to anything wrong
or objectionable about this "estate planning" scheme
resorted to by the Pachecos. The legal right of a
taxpayer to decrease the amount of what otherwise
could be his taxes or altogether avoid them, by means
which the law permits, cannot be doubted. What they
really did was to invest their properties and change the
nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades
the same time save on inheritance taxes.
The "Deed of Exchange" of property between the
Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of
actual ownership interests by the Pachecos to a third
party. The Pacheco family merely changed their
ownership from one form to another. The ownership
remained in the same hands. Hence, the private
respondent has no basis for its claim of a light of first
refusal under the lease contract.
FILINVEST DEVELOPMENT CORPOARATION VS CIR
G.R. NO. 163653, JULY 19, 2011
FACTS: Filinvest Development Corporation (FDC) is the
owner of outstanding shares of both Filinvest Alabang,
Inc (FAI) and Filinvest Land, Inc. (FLI) with 80% and
67.42% respectively. Sometime in 1996, FDC and FAI
entered into a Deed of Exchange with FLI where both
transferred parcels of land in exchange for share of
stocks of FLI. As a result, the ownership structure of FLI
changed while FDC's ownership decreased from
67.42% to 61.03% meanwhile FAI now owned 9.96% of
shares of FLI. FLI then requested from the BIR a ruling
to the effect that no gain or loss should be recognized
on said transfer and BIR issued Ruling No. S-34-046-97
finding the exchange falling within Sec 34 (c) (2) (now
Section 40 (c)(2)) of the NIRC. Furthermore, FDC
extended advances in favor of its affiliates during 1996
and 1997 duly evidenced by instructional letters as
well as a cash and journal vouchers. Moreover, FDC
also entered into a shareholder's agreement with Reco-
Herrera PTE Ltd. (RHPL) for the formation of a
Singapore based joint venture company called Filinvest
Asia Corp. (FAC.) The equity participation of FDC was
pegged at 60% subscribing to P 500.7M worth of
shares of FAC.
On Jan 3, 2000, FDC received assessment notices for
deficiency income tax and deficiency stamp taxes. The
foregoing deficiency taxes were assessed on the
taxable gain realized by the FDC on the taxable gain
supposedly realized by the FDC from the Deed of
Exchange it executed with FAI and FLI, on the dilution
resulting from the shareholder's agreement FDC
executed with RHPL and the interest rate and
documentary stamp taxes imposable on the advances
executed by FDC. FAI also received similar assessment
on deficiency income tax relating to the deed of
exchange. Both FDC and FAI protested and after having
failed to act on the protest they docketed their case
with the CTA. They raised the issue that pursuant to
BIR Ruling No. S-34-046-97, no taxable gain should
have been assessed from The deed of exchange and
that the BIR cannot impute theoretical interests on the
cash advances of the FDC in the absence of stipulation
and that not being promissory notes such are not
subject to documentary stamp taxes. CIR, for its part,
raised that the said transfer of property resulted to a
dimunition of ownership by FDC of FLI rather than
gaining further control and as such should not be tax-
free. Furthermore, CIR invoked Sec. 43 (now Sec. 50) of
NIRC as implemented by RR No. 2, the CIR is given "the
power to allocate, distribute or apportion income or
deductions between or among such organizations,
trades or business in order to prevent evasion of
taxes." Also the CIR justified the imposition of
documentary stamp taxes on instructional letters citing
Sec. 180 of the NIRC and RR No. 9-94 which provide
that loan transactions are subject to tax irrespective of
whether or not they are evidenced by a formal
agreement or by mere office memo. Lastly, it reiterated
that there was dilution of its shares as a result of its
shareholders agreement with RHPL.
CTA decided in favor of FDC with the exception on the
deficiency income tax on the interest income from the
income it supposedly realized from the advances to its
affiliates, the rest of the assessment were cancelled.
The CTA opined that CIR was justifies in assessing
undeclared interests on the same cash advances
pursuant to its authority under Section 42 of the NIRC
in order to forestall tax evasion. Dissatisfied, FDC filed
a petition for review with the Court of Appeals claiming
that the cash advances it extended to its affiliates were
interest-free in the absence of express stipulation.
Moreover, it claimed under Sec. 43 (now Sec. 50) the
CIR's authority does not include the power to impute
imaginary interests, directed only to controlled
corporation and not to holding company and can be
involved only on cases of understatement of taxable
income or evident tax evasion. The CA rendered a
decision in favor of FDC cancelling said assessment.
The CIR filed a petition for review with the CA, which
was subsequently denied for lack of merit. The CA had
the following conclusions: (1) The Deed of Exchange
resulted in a combined control of more than 51% of FLI,
hence no taxable gain; (2) The instructional letters do
not partake the nature of loan agreements; (3)
Although subsequently modified by the BIR Ruling No.
108-99 to the effect that documentary stamp tax are
now imposable on interoffice memos, to give a
retroactive application would be prejudicial to the
taxpayer; (4) FDC's alleged gain from the increase of
its shareholding in FAC are mere unrealized increase in
capital unless converted thru sale are not taxable.
Hence, this petition for review on certiorari.
ISSUE: WON FDC met all the requirements for non-
recognition of taxable gain under Section 34 (c)(2)
(now Section 40 (c)(2)) of the NIRC and therefore is not
taxable.
RULING: Yes. It was admitted in the stipulation of facts
that the ff. are the requisites: a) the transferee is a
corporation; b) the transferee exchanges its shares of
stock for properties of the transferor; c) the transfer is
made by a person, acting alone or together with
others, not exceeding four persons; and d) as a result
of the exchange the transferor, alone or together with
others, not exceeding four, gains control of the
transferee. Moreover, it is not taxable because the
exchange did not result to a decrease of the ownership
of FDC in FLI rather combining the interests of FDC and
FAI resulted to 70.99% of FLI's outstanding shares.
Since the term "control" is clearly defined as
"ownership of stocks in a corporation possessing at
least fifty-one (51%) percent of the total voting power
if classes of stocks entitled to one vote" then the said
exchange clearly qualify as a tax-free transaction.
Therefore, both FDC and FAI cannot be held liable for
deficiency income tax on said transfer.
Systra v. CIR
September 21, 2007
Julius Anthony Ragay
Facts: On April 16, 2001, Systra reported revenues of
P18,252,719 for the taxable year ended December 31,
2000, the bulk of which consists of income from
management consultancy services rendered to the
Philippine Branch of Group Systra SA, France. Total
creditable withholding tax of P4,703,019 thereon was
also reported. For the same period, petitioner reflected
a net loss of P17,930 and a minimum corporate income
tax (MCIT) of P75,043. Said MCIT of P75,043 was offset
against its total tax credits for the year 2000
amounting to [P4,703,019] thereby leaving a total
unutilized tax credits of P4,627,976. In its 2001 ITR,
Systra opted to carry over the said excess tax credit to
the succeeding taxable year 2001. On August 9, 2002,
petitioner instituted a claim for refund or issuance of a
tax credit certificate with the BIR of its unutilized
creditable withholding taxes in the amount of
P5,342,246.00 as of December 31, 2001.
Issue: Whether the exercise of the option to carry-over
excess income tax credits under Section 76 of the Tax
Code bars a taxpayer from claiming the excess tax
credits for refund even if the amount remains
unutilized in the succeeding taxable year.
Ruling: It does. In this case, it was in the year 2000 that
Systra derived excess tax credits and exercised the
irrevocable option to carry them over as tax credits for
the next taxable year. Under Section 76 of the Tax
Code, a claim for refund of such excess credits can no
longer be made. The excess credits will only be applied
against income tax due for the taxable quarters of the
succeeding taxable years. Section 76 of the present
Tax Code formulates an irrevocability rule which
stresses and fortifies the nature of the remedies or
options as alternative, not cumulative. It also provides
that the excess tax credits may be carried over and
credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding
taxable years until fully utilized. Since Systra elected to
carry over its excess credits for the year 2000 in the
amount of P4,627,976 as tax credits for the following
year, it could no longer claim a refund.
A corporation entitled to a tax credit or refund of the
excess estimated quarterly income taxes paid has two
options: (1) to carry over the excess credit or (2) to
apply for the issuance of a tax credit certificate or to
claim a cash refund. If the option to carry over the
excess credit is exercised, the same shall be
irrevocable for that taxable period. In exercising its
option, the corporation must signify in its annual
corporate adjustment return its intention either to carry
over the excess credit or to claim a refund. To facilitate
tax collection, these remedies are in the alternative
and the choice of one precludes the other.
This is known as the irrevocability rule and is embodied
in the last sentence of Section 76 of the Tax Code. The
phrase such option shall be considered irrevocable for
that taxable period means that the option to carry over
the excess tax credits of a particular taxable year can
no longer be revoked.
The rule prevents a taxpayer from claiming twice the
excess quarterly taxes paid: (1) as automatic credit
against taxes for the taxable quarters of the
succeeding years for which no tax credit certificate has
been issued and (2) as a tax credit either for which a
tax credit certificate will be issued or which will be
claimed for cash refund.
Philam Asset Management, Inc. vs CIR
December 14, 2005 (Guazon)
Philam has creditable withholding taxes from 1997. The
following year, Philam wanted to utilize the credit. It
applied for a tax refund by filing a written claim before
the Commissioner. The Commissioner refused to grant
a refund, holding that for a 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 final adjustment
return (FAR). Section 76of the NIRC offers two options
to a taxable corporation whose total quarterly income
tax payments in a given taxable year exceeds its total
income tax due. These options are (1) filing for a tax
refund or (2)availing of a tax credit.
Issue: Whether or not petitioner is entitled to a refund
of its creditable taxes notwithstanding its failure to
mark the option box.
Ruling: Yes. Any tax income that is paid in excess of its
amount due to the government may be refunded,
provided that a taxpayer properly applies for the
refund. One cannot get a tax refund and a tax credit at
the same time for the same excess to income taxes
paid. Failure to signify ones intention in Final
Assessment Return (FAR) does not mean outright
barring of a valid request for a refund . Requiring that
the ITR on the FAR of the succeeding year be presented
to the BIR in requesting a tax refund has no basis in
law and jurisprudence. The Tax Code likewise allows
the refund of taxes to taxpayer that claims it in writing
within 2 years after payment of the taxes.
Technicalities and legalism should not be misused by
the government to keep money not belonging to it, and
thereby enriched itself at the expense of its law-
abiding citizens.
State Land Inv. Corp vs CIR GR 171956, 18
January 2008
Facts:
State Land Investment Corporation is a real
estate developer corporation engaged in the
development and marketing of low, medium and high
cost subdivision projects in the different cities of the
Philippines. It filed with BIR its annual income tax
return for the calendar year ending December 31,
1997. Its taxable income was P27,723,328.00 with tax
due in the amount ofP9,703,165.54. Its total tax credits
for the same year amounted to P23,632,959.05,
inclusive of its prior years excess tax credits of
P9,289,084.00. Thus, after applying its total tax credits
of P23,632,959.05 against its income tax liability of
P9,703,165.54, the amount of P13,929,793.51
remained unutilized. State Land Investment Co. chose
to apply the amount as tax credit to the next taxable
year, 1998. On April 1998, it again filed with the BIR its
annual income tax return for the calendar year ending
December 31, 1998, declaring a minimum corporate
income tax due in the amount of P4,187,523.00.
Petitioner charged the said amount against its 1997
excess credit of P13,929,793.51, leaving a balance of
P9,742,270.51. Subsequently on April 7, 2000, it filed
with the BIR a claim for refund of its unutilized tax
credit for the year 1997 in the amount P9,742,270.51.
On April 13, 2000, in order to toll the running of
the two-year prescriptive period and there being no
immediate action on the part of respondent
Commissioner of Internal Revenue, petitioner filed a
petition for review with the Court of Tax Appeals (CTA).
On April 4, 2002, the CTA denied petitioners
claim for refund of its unutilized tax credit for 1997. In
its Decision dated April 4, 2002, the CTA held that
petitioners 1998 income tax return showed its intention
of carrying over its 1997 excess tax credit to the
following taxable year 1999 by marking an x on the
box (appearing on its 1998 income tax return)
indicating to be carried as tax credit next year; and
that petitioner failed to present its 1999 income tax
return to enable the CTA to determine with certainty
that its 1997 tax credit was not charged against its tax
liabilities for the said year (1999). Specifically, the CTA
ruled that the failure of petitioner to present its 1999
corporate annual income tax return is fatal to its claim
for refund. Well-settled is the rule that tax refunds, like
tax exemptions, are construed strictly against the
taxpayer.
Petitioner filed a motion for reconsideration
and attached its 1999 and 2000 income tax returns. In
its motion, petitioner alleged that the x mark in its
1998 income tax return indicating to be carried as tax
credit next year was intended to show its intention to
carry over as tax credit for 1999 only what it earned
during the taxable year 1998 amounting to
P6,228,288.00, as it was aware it could no longer
utilize the 1997 excess tax credit for the year 1999.
However, in a Resolution dated August 8, 2002, the
CTA denied the motion.
Petitioner then filed with the Court of Appeals a
petition for review. In its Decision, the appellate court
affirmed the CTA judgment. Petitioner filed a motion for
reconsideration but the same was denied
Issue:
Whether petitioner is entitled to the refund of
P9,742,270.51 representing the excess creditable
withholding tax for taxable year 1997.
Ruling:
Yes. Section 69 (now Section 76) of the Tax
Code clearly provides that a taxable corporation is
entitled to a tax refund when the sum of the quarterly
income taxes it paid during a taxable year exceeds its
total income tax due also for that year. Consequently,
the refundable amount that is shown on its final
adjustment return may be credited, at its option,
against its quarterly income tax liabilities for the next
taxable year. Excess income taxes paid in a year that
could not be applied to taxes due the following year
may be refunded the next year. Thus, if the excess
income taxes paid in a given taxable year have not
been entirely used by a taxable corporation against its
quarterly income tax liabilities for the next taxable
year, the unused amount of the excess may still be
refunded, provided that the claim for such a refund is
made within two years after payment of the tax.
This was done by the petitioner. After applying
the excess credits for 1997 to its tax due for 1998,
there still remained an unutilized tax credit in the
amount of P9,742,270.51. Petitioner filed with the BIR
its claim for the refund of this amount within the two-
year statutory limitation.
Both the CTA and the Court of Appeals failed to
consider that petitioners intention was to apply the tax
credit corresponding to taxable year 1997 to its income
tax due in 1998. As previously mentioned, after paying
P4,187,523.00 as income tax due in 1998, there
remained an unutilized tax credit of P9,742,270.51. It
was not necessary on the part of petitioner to file with
the BIR its income tax return for 1999. In Philam Asset
Management, Inc. v. Commissioner of Internal
Revenue, we held that the Tax Code merely requires
the filing of the final adjustment return for the
preceding not the succeeding taxable year. Indeed, any
refundable amount indicated therein corresponding to
the preceding taxable year may be credited against the
estimated income tax liabilities for the taxable quarters
of the succeeding taxable year. Requiring that the
income tax return or the final adjustment return of the
succeeding year be presented to the BIR in requesting
a tax refund has no basis in law and jurisprudence.
In order to show that it would have been
impossible for petitioner to utilize the excess credit in
taxable year 1999, it attached its 1999 and 2000
annual income tax returns in its motion for
reconsideration filed with the CTA. These show that
petitioner incurred losses in 1999 in the amount of
P33,610,028.00. Clearly, petitioner has no tax liability
in 1999 to which the 1997 excess tax credits could be
applied or utilized. This Court has held that if a
taxpayer suffered a net loss in a subsequent year,
incurring no tax liability to which a previous years tax
credit could be applied, there is no reason for the BIR
to withhold the tax refund which rightfully belongs to
the taxpayer.
Substantial justice, equity and fair play are on
the side of petitioner. Technicalities and legalisms,
however exalted, should not be misused by the
government to keep money not belonging to it, thereby
enriching itself at the expense of its law-abiding
citizens. Under the principle of solutio indebiti provided
in Art. 2154, Civil Code, the BIR received something
when there [was] no right to demand it, and thus, it
has the obligation to return it. Heavily militating
against respondent Commissioner is the ancient
principle that no one, not even the state, shall enrich
oneself at the expense of another. Indeed, simple
justice requires the speedy refund of the wrongly held
taxes.
Disclaimer:
The facts are detailed because maam might ask a lot
of questions.
CIR vs PHILAMGEN
GR 175124, September 29, 2010
FACTS:
On 15 April 1998, PHILAMGEN filed with the BIR
its Annual Income Tax Return (ITR) for the taxable year
1997, declaring a net loss of P165,701,508.
On 16 December 1999, respondent filed with
the BIR-Appellate Division a claim for refund in the
amount of P9,326,979.35, representing a portion of its
overpaid and unapplied creditable taxes for the
calendar year 1997. When the BIR-Appellate Division
failed to act on respondents claim, respondent filed
with the CTA a petition for review on 23 December
1999.
CTA denied respondents claim stating that the
1997 overpaid tax was carried forward to the
succeeding taxable year and now forms part of the
1998 total overpaid tax which petitioner opted again to
carry over to the next taxable year 1999. This further
refutes its claim that the 1997 claimed amount was
unutilized. As the amount being claimed had been
charged against its tax liabilities for 1998 and 1999,
the claim for refund cannot be granted. Respondent
appealed to the CA, reversing the CTA Decision and
Resolution.
ISSUE:
Whether respondent is entitled to a refund of
its excess income tax credit in the taxable year 1997
even if it had already opted to carry-over the excess
income tax credit against the tax due in the
succeeding taxable years.
RULING:
Once the taxpayer opts to carry-over the
excess income tax against the taxes due for the
succeeding taxable years, such option is irrevocable for
the whole amount of the excess income tax, thus,
prohibiting the taxpayer from applying for a refund for
that same excess income tax in the next succeeding
taxable years.The unutilized excess tax credits will
remain in the taxpayers account and will be carried
over and applied against the taxpayers income tax
liabilities in the succeeding taxable years until fully
utilized.
The resolution of the case involves the
application of Section 76 of the National Internal
Revenue Code (NIRC) of 1997.
Section 76 of the NIRC of 1997 clearly states:
"Once the option to carry-over and apply the excess
quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has
been made, such option shall be considered
irrevocable for that taxable periodand no application
for cash refund or issuance of a tax credit certificate
shall be allowed therefore." The words "the option shall
be considered irrevocable for that taxable period,"
refers to the period comprising the "succeeding taxable
years." Section 76 further states that "no application
for cash refund or issuance of a tax credit certificate
shall be allowed therefore" referring to "that taxable
period" comprising the "succeeding taxable years."
CIR v. MC.GEORGE FOOD INDUSTRIES, INC.
G.R. No. 174157 October 20, 2010
Income Taxation- Section 76 irrevocable but
unused
Facts:
On 15 April 1998, respondent filed with the BIR
its final adjustment income tax return for the calendar
year ending 31 December 1997. The return indicated a
net overpayment of P4,736,188. Exercising its option to
either seek a refund of this amount or carry it over to
the succeeding year as tax credit, respondent chose
the latter, indicating in its 1997 final return that it
wished the amount to be applied as credit to next
year.
 On 15 April 1999, respondent filed its final
adjustment return for the calendar year ending 31
December 1998, indicating a tax liability of P5,799,056.
Instead of applying to this amount its unused tax credit
carried over from 1997 (P4,736,188), respondent
merely deducted from its tax liability the taxes
withheld at source for 1998 and paid the balance of
P5,581,877.
On 14 April 2000, respondent simultaneously
filed with the BIR and the Court of Tax Appeals (CTA) a
claim for refund of its overpayment in 1997 of
P4,736,188. The CTA held that refund was proper
because respondent complied with the requirements of
timely filing of the claim and its substantiation.
Petitioners sought reconsideration, contending
that respondent is precluded from seeking a refund for
its overpayment in 1997 after respondent opted to
carry-over and apply it to its future tax liability,
following Section 76 of the 1997 NIRC. Petitioner
claimed that Section 76 applies to respondent because
by the time respondent filed its final adjustment return
for 1997 on 15 April 1998, the 1997 NIRC was already
in force, having taken effect on 1 January 1998. The
CTA denied reconsideration, holding that the 1997 NIRC
only covers transactions done after 1 January 1998.
The Court of Appeals affirmed the CTA, ruling that the
right to claim for refund or tax credit must be governed
by the law in effect at the time the excess credits were
earned. Thus, the pertinent law applicable to the case
at bar is Section 69 of the old Tax Code.
Issue:
Whether or not the sec 76 of the 1997 NIRC is the
governing law
Held:
Yes. Section 76 of the 1997 NIRC controls.
Section 76 should be applied following the general rule
on the prospective application of laws such that they
operate to govern the conduct of corporate taxpayers
the moment the 1997 NIRC took effect on 1 January
1998.
The lower courts grounded their contrary conclusion on
the fact that respondents overpayment in 1997 was
based on transactions occurring before 1 January 1998.
This analysis suffers from the twin defects of missing
the gist of the present controversy and misconceiving
the nature and purpose of Section 76. None of
respondents corporate transactions in 1997 is
disputed here. Nor can it be argued that Section 76
determines the taxability of corporate transactions. To
sustain the rulings below is to subscribe to the
untenable proposition that, had Congress in the 1997
NIRC moved the deadline for the filing of final
adjustment returns from 15 April to 15 March of each
year, taxpayers filing returns after 15 March 1998 can
excuse their tardiness by invoking the 1977 NIRC
because the transactions subject of the returns took
place before 1 January 1998. A keener appreciation of
the nature and purpose of the varied provisions of the
1997 NIRC cautions against sanctioning this reasoning.
Belle Corporation v. CIR (2011)
June Lacpao
Facts:
Petitioner Belle Corp, a domestic corporation engaged
in the real estate and property business, filed with the
BIR its income tax return (ITR) for the first quarter of
1997. Subsequently, it filed with the BIR its second
quarter ITR, declaring an overpayment of taxes. In view
of the overpayment, no taxes were paid for the second
and third quarters of 1997. Instead of claiming the
amount as a tax refund, petitioner decided to apply it
as a tax credit to the succeeding taxable year by
marking the tax credit option in the box in its 1997 ITR.
On April 12, 2000, petitioner filed with the BIR an
administrative claim for refund its unutilized excess
income tax payments for the taxable year 1997.
Notwithstanding the filing of the administrative claim
for refund, petitioner carried over the excess amount to
the taxable year 1999. Due to the inaction of the
respondent CIR and in order to toll the running period
of the two-year prescriptive period, petitioner appealed
its claim for refund of unutilized excess income tax
payments for the taxable year 1997 via petition for
review.
Issue: Whether or not the petitioner is entitled to a
refund of its excess income tax payment for the
taxable year 1997?
Ruling:
No. in case the corporation is entitled to a refund of the
excess estimated quarterly income taxes paid, the
refundable amount shown on its final adjustment
return may be credited against the quarterly income
tax liabilities for the taxable quarters of the succeeding
taxable years. Once the option to carry over and apply
the excess quarterly income tax against income tax
due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered
irrevocable and for that taxable period and no
application for tax refund or issuance of tax credit
certificate shall be allowed therefor. Under Sec. 76 of
the NIRC, in case of overpayment of income taxes, the
remedies are still the same; and the availing of one
remedy still precludes the other. The carry-over of
excess income tax payments is no longer limited to the
succeeding taxable year. Utilized excess income tax
payments may now be accrued over to the succeeding
taxable years until fully realized.
In this case, since the petitioner carried over its 1997
excess income tax to the succeeding taxable year
1998, it may no longer file a claim for refund and
unutilized tax credits for taxable year 1997. Once the
option to carry over excess income tax payments to
the succeeding years has been made, it becomes
irrevocable. Thus application for refund of the
unutilized excess income tax payments may no longer
be allowed.
CIR vs. Sony, GR No. 178697, Nov. 17, 2010
Facts: The CIR assessed Sony Philippines of having
deficiency taxes and penalties for the year 1997. The
CIR argued that Sony should pay for VAT deficiency
concerning the money given by Sony Singapore to help
Sony Phils. in their advertising expenses. Sony
Singapore did not receive goods or services in return
for the money they gave Sony Phils. The Court of Tax
Appeals First Division ruled that Sony Phils should not
pay VAT deficiency for the subsidized advertising
expenses.
Issue: Should Sony Phils pay for the VAT deficiency
when Sony Singapore only gave it without any return of
goods and services?
Ruling: No. Under SEC. 106 of the Tax Code, There
shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, value-added
tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor. Thus, there must be a
sale, barter or exchange of goods or properties before
any VAT may be levied. Certainly, there was no such
sale, barter or exchange in the subsidy given by SIS to
Sony. It was but a dole out by SIS and not in payment
for goods or properties sold, bartered or exchanged by
Sony.
CIR VS. CA AND COMMONWEALTH MGT. AND
SERVICES CORP. -Duron
FACTS:Commonwealth Management and Services
Corporation (COMASERCO), an affiliate of Philamlife, is
organized to perform collection, consultative and other
technical services, including functioning as an internal
auditor of Philamlife and its other affiliates. The BIR
issued an assessment to COMASERCO for deficiency
VAT for taxable year 1988. COMASERCO's annual
corporate income tax return ending December 31,
1988 indicated a net loss in its operations. It 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.
COMASERCO filed with the CTA a petition for review
contesting the Commissioner's assessment asserting
that the services it rendered to Philamlife and its
affiliates were on a "no-profit, reimbursement-of-cost-
only" basis. It averred that it was not engaged in the
business of providing services to Philamlife and its
affiliates; not profit-motivated, thus not engaged in
business; and, it did not generate profit but suffered a
net loss in taxable year 1988. It averred that since it
was not engaged in business, it was not liable to pay
VAT.
ISSUE:Whether COMASERCO was engaged in the sale
of services, and thus liable to pay VAT thereon
RULING:Contrary to COMASERCO's contention, Sec.
105 of the National Internal Revenue Code of 1997
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 applies to all transactions even
to those made prior to its enactment.
Sec. 108 of the National Internal Revenue Code of
1997 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."
BIR Ruling No. 010-98 12 emphasizes that a domestic
corporation that provided technical, research,
management and technical assistance to its affiliated
companies and received payments on a
reimbursement-of-cost basis, without any intention of
realizing profit, was subject to VAT on services
rendered. In fact, even if such corporation was
organized without any intention realizing profit, any
income or profit generated by the entity in the conduct
of its activities was subject to income tax.
Hence, 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.
Any exemption from the payment of a tax must be
clearly stated in the language of the law; it cannot be
merely implied therefrom. In the case of VAT, Section
109, Republic Act 8424 clearly enumerates the
transactions exempted from VAT. The services rendered
by COMASERCO do not fall within the exemptions.
Exxon vs CIR Mamugay
Facts: Petitioner Exxon is a foreign corporation
authorized in the PH to engage in the business of
selling petroleum products to domestic and
international carriers. It purchased from Caltex and
Petron Jet A-1 fuel and other petroleum products, the
excise taxes were paid by both Caltex and Petron.
However, the excise taxes were passed on to Exxon
which ultimately shouldered the excise taxes on the
fuel and petroleum products (as part of the
purchase price). On various dates, Exxon filed
administrative claims for refund with the Bureau of
Internal Revenue (BIR) amounting to
Php105,093,536.47, representing the amount of excise
taxes paid on Jet A-1 fuel and other petroleum products
it sold to international carriers from November 2001 to
June 2002.
Note: Petitioner believes that since it ended up paying
the tax (indirectly because the amount was added by
the sellers to the purchase price), then it is a proper
party to claim refund based on tax exemption on Sec
135.
Basis of claim:
SEC. 135. Petroleum Products Sold to International
Carriers and Exempt Entities or Agencies. - Petroleum
products sold to the following are exempt from excise
tax:
(a) International carriers of Philippine or foreign registry
on their use or consumption outside the Philippines:
Provided, That the petroleum products sold to these
international carriers shall be stored in a bonded
storage tank and may be disposed of only in
accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner
On the other hand, CIR contends that petitioner is not
the proper party to claim tax refund.
CTA En Banc dismissed Exxons petition. CTA ruled that
only the taxpayer or the manufacturer of the petroleum
products sold has the legal personality to claim the
refund of excise taxes paid on petroleum products sold
to international carriers. The CTA stated that Section
130(A)(2) makes the manufacturer or producer of the
petroleum products directly liable for the payment of
excise taxes. Therefore, it follows that the
manufacturer or producer is the taxpayer.
Issue 1 (as a matter of discussion in the syllabus):
What are excise taxes?
Answer:
Excise taxes apply to specific goods manufactured or
produced in the Philippines for domestic sale or
consumption or for any other disposition, and to those
that are imported. In effect, these taxes are imposed
when two conditions concur: first, that the articles
subject to tax belong to any of the categories of goods
enumerated in Title VI of the NIRC; and second, that
said articles are for domestic sale or consumption,
excluding those that are actually exported. There are,
however, certain exemptions to the coverage of excise
taxes, such as petroleum products sold to international
carriers and exempt entities or agencies Sec 135
above.
Note: Petitioner claims that Sec 135 applies to the
petroleum product itself, so as long as it is ultimately
sold to international carriers, it doesnt matter whether
the manufacturer or the re-seller paid, the tax
exemption still applies. This contention is incorrect
because it is an excise tax and Exxon is not the proper
party to claim tax exemption as discussed below.
Issue 2: Is petitioner Exxon the proper party to claim
tax refund?
Ruling: No. Excise taxes are in the form of indirect
taxes and the party liable for the tax can or may shift
the burden to another, as part of the purchase price
of the goods or services. In short, and under Sec 130,
the manufacturer or seller is the statutorily liable for
tax but the burden of payment is shifted to the buyer.
Past jurisprudence has already ruled that the proper
party to seek a refund of, an indirect tax, is the
statutory taxpayer, or the person on whom the tax is
imposed by law and who paid the same, even if he
shifts the burden thereof to another.
Note: in excise taxes, the seller pays the tax itself
before the products are removed from place of
creation/production. It is only that the seller adds the
amount to the price. Thus, the buyer takes the burden.
Even if the buyer (Exxon) ends up paying that burden,
it still doesnt matter because the additional amount is
not a tax but part of the purchase price. The amount
added is paid by the buyer to get the goods, and
nothing else.
REPUBLIC OF THE PHILIPPINES vs. PHILIPPINE
AIRLINES
G.R. Nos. 209353-54, July 6, 2015
FACTS: PAL claimed for a refund amounting to
P4,469,199.98 representing the alleged erroneously
paid excise tax for the period covering July 2005 to
February 2006. PAL filed written claims for a refund
with the BIR. For failure of the BIR to act on the
administrative claim, PAL filed two separate Petitions
for Review with the CTA. The CTA Second Division
rendered a Decision granting the Petitions and ordered
the CIR and the Commissioner of Customs (COC) to
refund PAL.
The CIR and the COC filed their respective Motions for
Reconsideration, which were both denied. The CIR, in
its Petition for Review before the CTA en bane, raised
the issue of whether PAL is entitled to a tax refund of
the alleged erroneously paid excise tax. The CIR
argued that P.D No. 1590, particularly Section 13
thereof, had already been expressly amended by R.A.
No. 9334. A separate Petition for Review was filed
before the CT A en bane by the COC. Like the CIR, the
COC maintained that Sections 6 and 10 of R.A. 9334
had repealed Sections 13 and 24 of P.D. 1590. The CTA
ruled that PAL was entitled to a refund of excise taxes
paid on the latter's commissary supplies. The appellate
court explained that the exemption granted to PAL
under P.D. 1590 was not expressly repealed by R.A.
9334. Note: pls refer to the full text re the cited
provisions
ISSUE: Whether or not the the tax privilege of PAL
provided in Sec. 13 of PD 1590 has been revoked by
Sec. 131 of the NIRC of 1997, as amended by Sec. 6 of
RA 9334?
HELD: No. As ruled in CIR vs. PAL, the franchise of PAL
remains the governing law on its exemption from
taxes.1wphi1 Its payment of either basic corporate
income tax or franchise tax - whichever is lower - shall
be in lieu of all other taxes, duties, royalties,
registrations, licenses, and other fees and charges,
except only real property tax. The phrase "in lieu of
all other taxes" includes but is not limited to taxes,
duties, charges, royalties, or fees due on all
importations by the grantee of the commissary and
catering supplies, provided that such articles or
supplies or materials are imported for the use of the
grantee in its transport and nontransport operations
and other activities incidental thereto and are not
locally available in reasonable quantity, quality, or
price. However, upon the amendment of the 1997
NIRC, Section 22 of R.A. 9337 abolished the franchise
tax and subjected PAL and similar entities to corporate
income tax and value-added tax (VAT). PAL
nevertheless remains exempt from taxes, duties,
royalties, registrations, licenses, and other fees and
charges, provided it pays corporate income tax as
granted in its franchise agreement. Accordingly, PAL is
left with no other option but to pay its basic corporate
income tax, the payment of which shall be in lieu of all
other taxes, except VAT, and subject to certain
conditions provided in its charter.