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OF LAW

SAN BEDA COLLEGE

NOTES
LAW

CRIMSON
TAXATION
1999 JURISPRUDENCE

Tax Ordinance REYES vs. COURT OF APPEALS G.R. No. 118233, December 10, 1999
Facts: Between September and October of 1992, the Municipality of San Juan promulgated Tax Ordinances 87, 91, 95, 100 and 101. On May 21, 1993 Petitioners appealed to the Department of Justice assailing the constitutionality of the foregoing tax ordinances on the ground that they were promulgated without prior public hearings and therefore was a violation of the due process clause. The appeal was however dismissed for having been filed out of time since they were filed more than 30 days from the effectivity of the subject tax ordinances contrary to the requirements of Sec. 187 of the 1991 Local Government Code (LGC). The Court of Appeals affirmed the foregoing ruling. Hence this petition for review. Issue: Is the 30-day statutory period to file an appeal mandatory?

Held: Yes. The failure of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187, 1991 LGC is fatal to their cause. The periods provided in the said Sec. 187 are clearly given for compliance as a prerequisite before seeking redress in a competent court. Courts construe these provisions of statutes as mandatory. A municipal tax ordinance empowers a local government unit (LGU) to Page 1 of 5

impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of LGUs for the delivery of basic services essential to the promotion of the general welfare. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames.

Prospective application of the assessment period TUPAZ vs. HON. ULEP G.R. NO. 127777 October 1, 1999
Facts: In April 1980 petitioner filed the corporations tax return for 1979. On July 16, 1984 the BIR issued a notice of assessment. On June 8, 1989 a complaint for nonpayment of deficiency corporate income tax for 1979 was filed. Petitioner contends that applying the 3-year period provided under BP 700 which amended the 1977 NIRC, the said assessment was made out of time. The Solicitor General on the otherhand, asserts that the provision of BP 700 applies to assessments and collections beginning taxable year 1984. Petitioner also contends that the offense charged has already prescribed since Sec. 340 (now 281 of 1997 NIRC) of the Tax Code provides that violations of any provision of the Code prescribes in 5 years. She asserts that the period began to run in 1979 after she failed to pay the correct corporate tax. The Solicitor General argues that it is only when the assessment has become final and unappealable that the 5 year period commences to run. Issues: (1) Is the 3-year period of assessment provided under BP 700 applicable to this case? (2) Does the 5-year prescriptive period for filing complaints for failure to pay deficiency taxes commence to run from the filing of the income tax return? Held: (1) No. The shortened period of 3 years prescribed under BP 700 is not applicable to petitioner. BP 700 is not applicable to petitioner. BP 700, effective April 5, 1984 specifically states that the shortened period of 3 years shall apply to assessments and collections of internal revenue taxes beginning taxable year 1984. Assessments made on or after April 5, 1984 are governed by the 5-year period provided under the 1977 NIRC if the taxes assessed cover taxable years prior to Jan. 1, 1984. The deficiency income tax under consideration is for taxable year 1979. Thus, the period of assessment is still 5 years under the old law. Hence, the 1984 tax assessment was issued within the prescribed period of 5 years from the last day of filing the return or from the date the return is filed, whichever comes later. (2) No. By its nature the violation could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot be said that the offense has been committed as early as 1980, upon filing of the income tax return. This is so because prior to the finality of then assessment, the taxpayer has not committed any violation for the nonpayment of the tax. The offense was committed only after the finality of the assessment coupled with taxpayers willful refusal to pay the taxes within the allotted period. In this case, when the notice of assessment was issued on July 16, 1984 the taxpayer still had 30 days from receipt to protest or question the

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assessment, Otherwise, the assessment would become final and unappealable. As he did not protest, the assessment became final and unappealable on Aug. 16, 1984. Hence, the criminal action filed on June 8, 1989 was instituted within the 5-year prescriptive period.

Accrual basis method of accounting FILIPINAS SYNTHETIC FIBER CORP. VS. COURT OF APPEALS 316 SCRA 480 October 12, 1999

Facts: Petitioner domestic corporation was assessed for deficiency withholding tax at source from 1974 to 1975. The bulk of the deficiency assessment consisted of interest and compromise penalties for alleged late payment of withholding taxes due on interest loans, royalties and guarantee fees paid by petitioner to non-resident corporations. The assessment was seasonably protested but was denied by respondent. The CIR ruled that for Phil. internal revenue tax purposes, the liability to withhold and pay income withheld at source from certain payments due to a foreign corporation is at the time of accrual and not at the time of actual payment or remittance thereof. Issue: When does the liability to withhold tax at source on income payments to non-resident foreign corporation arise: upon remittance of the amounts due to the foreign creditors or upon accrual thereof? Held: The method of withholding tax at source is a procedure of collecting income tax sanctioned by the NIRC. Under Sec. 53 thereof, the withholding agent is explicitly made personally liable for the income tax withheld under Sec. 54. On the otherhand, under the accrual basis method of accounting, income is reportable when all events have occurred that fix the taxpayers right to receive the income, and the amount can be determined with reasonable accuracy. Thus, it is the right to receive income, and not the actual receipt, that determines when to include the amount in the gross income. Gleanable from this notion are the following requisites of accrual method of accounting, to wit: (1) that the right to receive the amount must be valid, unconditional and enforceable; (2) the amount must be reasonably susceptible of accurate estimate; and (3) there must be a reasonable expectation that the amount will be paid in due course. After a careful examination of pertinent records, Filipinas had a definite liability, a clear and imminent certainty that at the maturity of loan contracts, the foreign corporation was going to earn income in an ascertained amount, so much so that petitioner already deducted as business expense the said amount as interest due to the foreign corporation. This is allowed under the law, petitioner having adopted the accrual method of accounting in reporting its incomes.

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Value Added Tax Registration ATLAS CONSOLIDATED MINING & DEVT CORP. vs. CIR 318 SCRA 386 November 17, 1999
Facts: Petitioner is engaged in the business of mining, production and sale of various mineral products, consisting of copper concentrates and gold and duly registered with the BIR as a VAT enterprise. As agreed to by the parties in the Joint Stipulation of Facts submitted to the CTA, respondent BIR duly approved petitioners application for VAT zero-rating of the following sales: (1) gold to the Central Bank; (2) copper concentrates to PASAR; and (3) pyrite to Philphos. The BIRs approval of sales to CB and PASAR was dated April 21, 1988 while zero-rating sales to Philphos was approved effective June 1, 1988. In 1990, petitioner filed a VAT return with the BIR for the 1st quarter of 1990 whereby it declared its sales to the CB, PASAR and Philphos as zero-rated sales. In the same year, petitioner filed a claim with respondent for refund/credit of VAT input taxes on its purchase of goods and services for the 1st quarter of 1990. On or about Sept. 2, 1992, petitioner filed an Amended Application for tax credit/refund in the amount of P35,522,056.58. On Sept. 9, 1992, respondent resolved petitioners claim for VAT refund/credit by allowing only about P2.5 M as refundable/creditable while disallowing the rest. However, after the BIR examiners submitted a supplemental report of investigation the allowable input tax credit was increased from P2.5 M to P12.1 M. The parties further stipulated the issues to be resolved, mainly, (1) the validity of VAT Ruling No. 008-92 in connection with the applicability of 10% VAT to the above mentioned sales and (2) applicability of Rev. Regulation 2-88 in that it requires the purchaser to export more the 70% of its total sales for the supplier to be zero-rated. In reversing the CTAs decision, the CA held that the parties were bound by the Joint Stipulation of Facts and that petitioner is registered with the BIR as a VAT enterprise effective Aug. 15, 1990. It upheld VAT Ruling No. 008-92 regarding the schedule of taxes to be imposed on VAT-registered entities, explaining that the zero percent rating of BOI-registered enterprises shall be set in proportion to the amount of its actual exports; and that EPZA and BOI registrations were by themselves not enough for zero-rating to apply. Issues: (1) Was petitioner VAT-registered for the 1st quarter of 1998, considering the date of effectivity of said registration was shown to be Jan. 1, 1998? (2) Should the totality of sales to EPZA-registered enterprises be zerorated, not merely apportioned to the actual exports of the enterprise? (3) Is Sec. 21 of Rev. Reg. No. 5-87 invalid insofar as it went beyond the law by disallowing input VAT for purchases not covered by VAT invoices?

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Held: (1) Yes. As a rule, a judicial admission, such as that made by petitioner in the Joint Stipulation of Facts, is binding on the declarant. However, the rule does not apply when there is showing that the admission was made through palpable mistake. In the present case, a palpable mistake was committed. Petitioner was VAT-registered under Registration No. 32-A-6-00224 as indicated in the stipulation and became effective on Aug. 15, 1990. But the actual VAT Registration Certificate, which petitioner mentioned in the stipulation is numbered 32-A-002224 and became effective on Jan. 1, 1988, thereby showing that petitioner had been VAT-registered even prior to the 1st quarter of 1990. Even the respondent Commissioner, as shown in the other provisions of the joint stipulation, has granted it VAT exemption for the period even prior to the 1st quarter of 1990; that is, as early as Jan. 1, 1988. In view of the foregoing, the petitioner should be taxed only or such amount and under the circumstances as are true, fair and equitable. (2) Yes. An examination of Sec. 4.100.2 of Rev. Reg. 7-95in relation to Sec. 102(b) of the Tax Code shows that sales to an export-oriented enterprise whose export sales exceed 70% on its annual production are to be zero-rated, provided the seller complies with other requirements, like registration with the BOI and the EPZA. The said Regulation does not even hint, much less mention, that only a percentage of the sales would be zero-rated. Stated otherwise, the totality of sales to an export-oriented enterprise whose export sales exceed 70% of its annual production are to be zero-rated, not merely the proportion of such sales to actual exports of said enterprise. (3) No. A VAT invoice can be used only for the sale of goods and services that are subject to VAT. The corresponding taxes thereon shall be allowed as input tax credits for those subject to VAT. Sec. 21 of Rev. Reg. 5-87 is not invalid, as it simply prescribes the penalty for failure to comply with the accounting and invoicing requirements laid down in Sec. 108 of the Tax Code, a penalty similar to that found in Sec. 111 and 263.

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