UPDATES on NEW COURT DECISIONS - PICPA | Home · CTA (Third Division) Case No. 8588, January 4,...

UPDATES on NEW COURT DECISIONS(June 2016 – January 2017)

Atty. Luis Jose P. Ferrer, CPA

Partner, SGV & Co.

PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS(PICPA)

TAX COMMITTEE

Seminar on Tax Updates

February 15, 2017

EDSA, Mandaluyong City

Shangri-la Hotel

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OUTLINE

I. Income Tax

II. Withholding Tax

III. Value-Added Tax

IV. Remedies

V. Others:

I. Real Property Tax

II. Ownership Requirements

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Income Tax

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Income Tax –Taxable Persons and Entities

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The entire earnings of an employee who earns additional compensation exceeding P30K (now P82K) are not exempt from income tax

Mt. Blanc Motors, Inc. vs. CIR

CTA (Third Division) Case No. 8588, January 4, 2017

Facts:

► BIR assessed Mt. Blanc Motors, Inc. (MBMI) for deficiency income

tax, VAT, and withholding tax on compensation (WTC) for taxable year

2008. It alleged, among others, that several of MBMI’s employees

should not have been classified Minimum Wage Earners (MWE) and

should have been subjected to WTC.

► In the Alphalist of MWEs submitted by MBMI under Schedules 7.1 and

7.2, the amounts of 13th Month Pay and Other Benefits, Deductions

(SSS, GSIS, PHIC, Pag-Ibig and Union Dues), and Salaries and

Other Forms of Compensation were shown. However, details of the

“Salaries and Other Forms of Compensation” were not provided.

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Facts:

► The BIR thus posited that since the details on the salaries and other

compensation of the alleged MWEs were unclear, said income must

be subjected to income tax and subsequently, to withholding tax. The

BIR raised the principle that tax exemptions are to be construed

strictly against the entity claiming the same.

► MBMI protested, arguing that its employees listed under Schedules

7.1 and 7.2 were MWEs whose de minimis benefits did not exceed

the threshold amount P30,000 pursuant to RR 10-08 and as such,

MBMI did not rightfully withhold taxes from its salary payments to

MWEs.

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Facts:

► Notwithstanding the protest, the CIR issued a Final Decision on

Disputed Assessment (FDDA) denying the protest.

► MBMI filed a Petition for Review with the CTA.

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Issue 1:

► Can an employee who earns additional compensation in excess of the

P30,000 (now P82,000) threshold still be considered a MWE exempt

from income tax and consequently, from withholding tax?

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Held:

► No. Section 2.78.1 (B) (13) of RR 2-98, as amended by RR 10-08,

provides that an employee who receives/earns additional

compensation such as commissions, honoraria, fringe benefits,

benefits in excess of the allowable statutory amount of P30,000 (now

P82,000), taxable allowances and other taxable income other than

statutory minimum wage (SMW), holiday pay, overtime pay, hazard

pay, and night differential pay shall not enjoy the privilege of being a

MWE and therefore, his entire earnings are not exempt from income

tax and consequently, from withholding tax.

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Documentation is required to prove that an employee is a MWE



Issue 2:

► Is documentation required to prove that an employee is a MWE?

Held:

► Yes. Without showing the details of the “Salaries and Other Forms of

Compensation” earned by MBMI’s employees, the court cannot

ascertain whether the same includes other forms of compensation

which may affect the enjoyment of the privilege of being a MWE as far

as the exemption from withholding tax is concerned.

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Income Tax –Exempt Transactions

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To be exempt from tax, a non-stock, non-profit educational institution must prove that its income is used actually, directly, and exclusively for educational purposes

The Abba’s Orchard School, Inc. vs. CIR

CTA (En Banc) Case No. 1298, September 20, 2016

Facts:

► CIR assessed Abbas’ Orchard School (the School), a non-stock, non-

profit educational institution, for deficiency income tax for taxable year

2008.

► The School argued that as a non-stock, non-profit educational

institution, it is exempt from tax on income derived from its school-

related activities pursuant to Section 30 (H) of the Tax Code.

► The CIR denied the School’s protest.

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Facts:

► CIR’s arguments:

► The School is not exempt from income tax but is subject to the

10% tax under Section 27 (B) of the Tax Code as a proprietary

educational institution.

► The School failed to:

► present a Certificate of Tax Exemption as provided in RMC No.

14-2001 and Revenue Memorandum Order (RMO) No. 20-

2013, and

► prove that its income was actually, directly, exclusively used

for educational purposes (CONST. Sec. 4 (3), Art. XIV)

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Issue:

► Is the School exempt from income tax?

Held:

► No. For the School to be exempt from income tax, it must show that:

► it is a non-stock, non-profit educational institution, and

► its income is used actually, directly, and exclusively for educational purposes.

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Held:

► While the school is correct that a Certificate of Tax Exemption is not a

condition precedent for the enjoyment or entitlement of the income tax

exemption, the School’s Audited FS, Annual ITR, as well as the

affidavits of the School’s chief accountant and independent CPA,

cannot adequately verify that the school’s income was utilized

actually, directly, and exclusively for educational purposes or that such

income has been derived from non-profit activities.

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Held:

► The School should have provided the Court with copies of its books of

accounts and source documents (i.e., official receipts, invoices, and

disbursement vouchers), upon which figures shown in the said AFS

were based.

► Due to its failure to discharge the burden of proving that the income it

seeks to be exempted from tax was used actually, directly, and

exclusively for educational purposes, the School’s income as a

proprietary educational institution, is subject to 10% income tax as

provided under Section 27 (B) of the Tax Code.

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Tax exemption of income of registered cooperatives from transactions with members and non-members under RA 6938

Kilusang Magkaibigan Multi-Purpose Cooperative vs. CIR

CTA (Third Division) Case No. 8751, November 17, 2016

Facts:

► CIR assessed Kilusang Magkaibigan Multi-Purpose Cooperative

(KMMC) for, among others, deficiency income tax, for alleged failure

to pay tax on income derived from its construction business,

equipment rental, and buy-and-sell of hardware materials and basic

commodities to members and non-members for taxable year 2006.

► KMMC protested the assessment, arguing that it is exempt from tax

under RA 6938 or the Cooperative Code of the Philippines since the

projects were undertaken by its members, who supervise and

implement them. In return, the cooperative gets only 4% to 6% of the

projects it implements. No outsiders are implementing the projects.

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Facts:

► CIR denied the protest and revoked KMMC’s tax exemption privileges

as a cooperative. It countered that KMMC has no adequate

construction equipment, hence, the cost of construction is done by a

sub-contractor. KMMC lacks self-reliance which is a core aspect

defining a cooperative under RA 6938.

► CIR subsequently issued a Preliminary Collection Letter and a Final

Notice before Seizure. KMMC filed a Petition for Review with the CTA.

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Issue 1:

► Is KMMC sub-contracting its projects to non-members?

Held:

► No. KMMC has sufficiently established that it has prohibited the

subcontracting of its projects. It has been dealing or transacting with

its members to implement its projects, and has not engaged

subcontractors for the project’s implementation.

► Under RA 6938, a registered cooperative is tax–exempt when it deals

or transacts with its members. Here, KMMC’s projects were

established to be undertaken by its members and are thus tax-

exempt.

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Issue 2:

► Assuming, for the sake of argument, that KMMC is subcontracting its

projects (i.e., transacted with non-members), would its tax-exempt

privilege be nullified?

Held:

► No. Under RA 6938, if a registered cooperative has transacted

business with non-members, it is still tax exempt when the said

cooperative has accumulated reserves and undivided net savings of

not more than ten (10) Million pesos.

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Held:

► Thus, assuming that KMMC is subcontracting its projects, it is still not

liable to pay income tax derived from non-members because it only

has P293,421.12 reserves, which is less than the required P10 Million

of accumulated reserves and undivided net savings pursuant to RA

6938 and its implementing rules and regulations.

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ABS issued by a special purpose entity pursuant to a SEC-approved securitization plan is not considered as deposit substitutes under the Tax Code

Bahay Bonds 2 Special Purpose Trust vs. CIR

CTA (First Division) Case No. 8944, November 5, 2016

Facts:

► The National Home Mortgage Finance Corporation (NHMFC) filed a

claim for refund with the BIR for erroneously paid final withholding tax

(FWT) on the interest income derived from asset-backed securities

(ABS) or the so-called Bahay Bonds issued pursuant to Republic Act

9627 or the Securitization Act of 2004.

► NHMFC securitized receivables worth P600 Million from long-term

secured low-cost and socialized housing loans by transferring on a

“true sale” and without recourse basis these loans at book value to

Bahay Bond 2 Special Purpose Trust (SPT).

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Facts:

► All loans did not exceed P400,000 and were within the loan ceiling for

low-cost and socialized housing packages.

► July 2012 – NHMFC filed a request for ruling with the BIR seeking

confirmation that the interest earned by SPT from note holders,

including NHMFC, is exempt from income and withholding tax under

Section 33 of RA 9267 being income from low-cost and socialized

housing-related ABS.

► CIR issued BIR Ruling No. 516-2012 and held that the ABS are

“deposit substitutes” subject to, among others, the 20% FWT.

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Facts:

► NHMFC filed a Request for Reconsideration but pending the decision,

SPT reported and paid the quarterly FWT from November 2012 to

May 2014.

► In October 2014, NHMFC requested for a refund of the FWT paid.

► SPT filed a Petition for Review with the CTA arguing that the ABS is

exempt from income and withholding taxes pursuant to Section 33 of

RA 9267 and Section 19 of RA 8763 or the Home Guaranty

Corporation Act of 2000.

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Issue 1:

► Are Bahay Bonds issued pursuant to RA 9267 considered deposit

substitutes?

Held:

► No. The Bahay Bonds are not deposit substitutes covered by Section

22 (Y) of the Tax Code, as amended.

► Section 31 of RA 9267 (a more recent law than the Tax Code)

expressly declared that ABS issued by a special purpose entity

pursuant to a SEC-approved securitization plan is not considered as

deposit substitutes under the Tax Code.

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Income derived by investors and bondholders from low-cost or socialized housing-related ABS is exempt from income tax and FWT



Issue 2:

► Is the income derived from Bahay Bonds exempt from income and

withholding tax?

Held:

► Yes. Under Sec. 27 of RA 9267, a special purpose entity like SPT is

generally subject to income tax in accordance with Sec. 61 of the Tax

Code, as amended.

► However, to promote the securitization of the mortgage and housing-

related receivables of the government housing agencies, Sec. 33 of

RA 9267 exempts from income tax the yield or income of the holders

of ABS from any low-cost or socialized housing-related ABS.

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Income Tax –Others

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Settlement of trade and other payables does not fall under reasonable needs of the business to justify the accumulation of earnings exempt from IAET

1Maple Sales, Inc. vs. CIR

CTA (Third Division) Case No. 8925, December 16, 2016

Facts:

► CIR assessed 1Maple Sales, Inc. (1Maple) for Improperly

Accumulated Earnings Tax (IAET) for taxable year 2009 after it was

found that the company had earnings in excess of 100% of its capital

stock.

► 1Maple protested, insisting that there was no improper accumulation

of profits and that the accumulation of earnings was necessitated by

the reasonable needs of the business, particularly to fund its planned

expansion, pursuant to an Exclusive Marketing Agreement with

Fortune Tobacco Corporation.

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Facts:

► Under the Agreement, 1Maple became the exclusive distributor of

cigarettes manufactured by FTC in the whole Visayas Region and

was required to expand business by investing in additional goods and

inventories to generate sales and maintain presence in the region.

► In support of this, it submitted a notarized Corporate Secretary’s

Certificate stating that 100% of the retained earnings as of December

31, 2009 have been appropriated. This appropriation was also

reflected in the 2009 Audited Financial Statements.

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Facts:

► Due to the CIR’s inaction, 1Maple filed a Petition for Review with the

CTA.

► At the CTA, the CIR argued that:

► Under Section 29 of the Tax Code, 1Maple must clearly prove that

the accumulation of the earnings or profits is not for the purpose of

avoiding the tax, which it allegedly failed to do.

► 1Maple did not establish that the retained earnings will be used for

the immediate and reasonable needs of the business.

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Issue 1:

► Is 1Maple liable to IAET?

Held:

► Yes. 1Maple is a closely-held corporation under the Lucio Tan Group

of Companies and is therefore covered by the provisions of the IAET

under Section 29 of the Tax Code, as amended, and implemented by

RR 2-2001 and Revenue Memorandum Circular 35-2011.

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Held:

► Moreover, the planned corporate expansion never took place and an

analysis of the cash flow statement disclosed that earnings were used

to pay for the corporation’s current liabilities as shown by the

decrease in the amount of 1Maple’s Trade and Other Payables

account in 2010.

► This was contrary to the resolution passed and approved by 1Maple’s

Board of Directors authorizing the corporation to retain

P110,000,000.00 of its earnings for “planned expansion.”

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Held:

► As settlement of trade and other payables does not fall under

reasonable needs of the business, it was improper for 1Maple to

accumulate its profits.

► Further, 1Maple’s Audited Financial Statements for taxable years

2007 to 2010 showed that its appropriated earnings were reverted to

unappropriated status as soon as the reasonable demands of the

business ceased, which negates 1Maple’s claim that its earmarking

was for the immediate and reasonable needs of the business

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Absent definiteness of plans coupled with actions taken towards consummation of such, a Secretary’s Certificate is not sufficient to establish a valid appropriation


CTA (Third Division) Case 8925, December 16, 2016

Issue 2:

► Is the Corporate Secretary’s Certificate sufficient to establish a valid

appropriation?

Held:

► No. 1Maple’s Secretary’s Certificate is wanting as the details of the

alleged planned expansion were not included therein.

► Section 7 of RR 2-2001 provides that a speculative and indefinite

purpose will not suffice. Definiteness of plans coupled with actions

taken towards its consummation are essential.

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Absent definiteness plans coupled with actions taken towards consummation of such, a Secretary’s Certificate is not sufficient to establish a valid appropriation


CTA (Third Division) Case 8925, December 16, 2016

Held:

► Lastly, 1Maple failed to disclose in its Notes to Financial Statements

the appropriations made, which are significant transactions and/or

information that the stockholders, the government, and the public

should be apprised about and a requirement under Philippine

Accounting Standards 1: Presentation of Financial Statements.

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Withholding Tax

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Withholding Tax -Final Withholding Tax

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Satellite airtime service fees paid to a NRFC areconsidered income from sources within the Philippinessubject to FWT

Aces Philippines Cellular Satellite Corporation vs. CIRCTA (En Banc) Case No. 1242, June 8, 2016

Facts:

► CIR assessed Aces Philippines Cellular Satellite Corporation (Aces)

for, among others, deficiency final withholding tax (FWT) for taxable

year 2006.

► CIR alleged that Aces is liable for 35% FWT on the satellite airtime

fees paid to Aces International Limited (AIL), a non-resident foreign

corporation.

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Facts:

► Aces protested the assessment and argued that:

► It is not liable for deficiency FWT because the payments to AIL

arise from satellite airtime services rendered outside the

Philippines; and

► Even assuming that services are rendered within the Philippines, it

should only be subject to 7.5% FWT for the use of AIL’s

equipment.

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Facts:

► CIR denied the protest.

► Aces filed a Petition for Review with the CTA Division.

► The CTA (Div) ruled that satellite air time service fees paid by Aces to

AIL are considered income from sources within the Philippines that

are subject to 35% (now 30%) FWT.

► Aces elevated the case to the CTA En Banc. It insisted that payments

for satellite air transmission are derived from sources outside of the

Philippines, hence, not subject to FWT.

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Issue:

► Are the satellite air time service fees paid by Aces to AIL considered

income from sources within the Philippines that are subject to 35%

(now 30%) FWT?

Held:

► Yes. The source of income relates to the property, activity or services

that produced the income. Under Philippine tax law, it is sufficient that

the income was derived from an activity within the Philippines. The

place of activity, not place of business, is controlling.

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Held:

► Section 28 (B) (1) of the Tax Code provides that income of a non-

resident foreign corporation from all sources within the Philippines is

subject to 35% (now 30%) income tax.

► The services for satellite airtime fees do not only cover the use of the

Garuda satellite (located in outer space) and the Network Control

Center (located in Indonesia), but also require that satellite

communication time be available and delivered in the Philippines.

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Held:

► There is continuous and very real connection starting from the

Philippines (i.e., agreement to sell satellite communications time for

the Aces System in the Philippines), Garuda Satellite, Network

Control Center, and again the Philippines, through Aces’ gateway

facilities.

► AIL’s contract with Aces extended its activities within the Philippine

boundaries, which arises from the activity and services that produce

the income within the Philippines.

Page 44

A debt instrument is considered a deposit substitute, theinterest of which shall be subject to 20% FWT, if theborrowing is made from 20 or more lenders at any one time

Banco De Oro, et al vs. Republic of the Philippines et al

Supreme Court (En Banc Resolution), G.R. No. 198756, August 16 2016

Facts:

► In 2001, the Bureau of Treasury (BTr) announced the auction of 10-

year Zero-Coupon Bonds, which the BTr states shall not be subject to

the 20% FWT since the issue is limited to 19 lenders.

► At auction date, the Rizal Commercial Banking Corporation (RCBC),

on behalf of Caucus of Development NGO Networks (CODE-NGO),

participated and won the bid.

► Thus, the BTr issued the bonds to RCBC.

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Supreme Court (En Banc Resolution), G.R. No. 198756, August 16 2016

Facts:

► Meanwhile, RCBC Capital entered into an underwriting agreement

with CODE-NGO whereby RCBC Capital was appointed as the Issue

Manager and Lead Underwriter for the offering of the bonds which will

be called Poverty Eradication and Alleviation Certificates or PEACe

Bonds.

► RCBC Capital then sold and distributed the government bonds, and

petitioner-banks purchased the PEACe Bonds on different dates.

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Supreme Court (En Banc Resolution), G.R. No. 198756, August 16, 2016

Facts:

► Before maturity of the PEACe Bonds, the BIR issued the following:

► BIR Ruling No. 370-2011 – declared that the PEACe Bonds, being deposit

substitutes, were subject to 20% FWT and directed the BTr to withhold the tax from

the face value of the PEACe Bonds upon their payment at maturity; and

► BIR Ruling No. DA 378-2011 – clarified that the FWT due on the discount or

interest earned on the PEACe Bonds should be imposed and withheld not only on

RCBC CODE-NGO but also on all subsequent holders of the bonds.

► Banco de Oro et al (BDO et al) thus filed before the Supreme Court a

Petition for Certiorari, Prohibition, and/or Mandamus (with urgent

application for a TRO and/or writ of preliminary injunction).

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Facts:

► SC then issued a TRO enjoining implementation of the BIR Ruling,

subject to the condition that the 20% FWT shall be delivered by the

BTr to the banks and placed by said banks in escrow pending

resolution of the petition.

► In its Decision promulgated January 13, 2015, the SC granted the

petition and ruled that the number of lenders/investors at every

transaction determines whether a debt instrument is a deposit

substitute subject to the 20% FWT.

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Facts:

► January 13, 2015 SC Decision:

► When at any transaction, funds are simultaneously obtained from 20 or more

lenders/investors, there is deemed to be a public borrowing and the bonds at that

point are deemed deposit substitutes. Hence, the seller is required to withhold the

20% FWT on the imputed interest income from the bonds.

► The two BIR Rulings are void for having disregarded the 20-lender rule provided in

Section 22 (Y) of the Tax Code.

► The BTr is reprimanded for its continued retention of the amount corresponding to

the 20% FWT despite its directive in the TRO to deliver the amounts to the banks,

which shall be placed in escrow pending resolution of the case, and despite its

subsequent Order to comply with such directive.

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CTA has jurisdiction and may take cognizance of casesdirectly challenging the constitutionality or validity of a taxlaw, regulation or administrative issuance



Facts:

► Separate motions for reconsideration and clarification were filed by

both BDO et al and the Republic et al.

Issue 1:

► Does the CTA have jurisdiction to determine the constitutionality or

validity of tax laws, rules and regulations, and other administrative

issuances of the CIR?

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CTA has jurisdiction and may take cognizance of casesdirectly challenging the constitutionality or validity of a taxlaw, regulation or administrative issuance



Held:

► Yes. The CTA has jurisdiction and may take cognizance of cases

directly challenging the constitutionality or validity of a tax law,

regulation or administrative issuance (such as revenue order, revenue

memorandum circular, and ruling).

► Section 7 of Republic Act 1125 (Act Creating the CTA), as amended

by RA 9282, is explicit that except for local taxes, appeals from the

decisions of quasi-judicial agencies (CIR, Commissioner of Customs,

Secretary of Finance, Central Board of Assessment Appeals,

Secretary of Trade and Industry) on tax-related problems must be

brought exclusively to the CTA.

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Depending on the number of lenders “at any one time,” the20-lender rule may apply to the PEACe Bonds



Issue 2:

► May the 20-lender rule apply to the PEACe Bonds?

Held:

► Yes. The 20-lender rule may apply to the PEACe Bonds, depending

on the number of lenders “at any one time.”

► The definition of deposit substitutes in Section 22 (Y) specifically

defined “public” to mean “twenty or more individual or corporate

lenders at any one time.” Hence, if there are 20 or more lenders, the

debt instrument is considered a deposit substitute which is subject to

the 20% FWT.

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Held:

► The existence of 20 or more lenders should be reckoned at the time

when the successful Government Securities Eligible Dealer (GSED)-

bidder distributes (by itself or through an underwriter) the government

securities to final holders.

► When the GSED sells the government securities to 20 or more

investors, the government securities are deemed to be in the nature of

a deposit substitute.

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Held:► In this case, the PEACe Bonds were awarded to RCBC/CODE-NGO as the

winning bidder in the primary auction. At the same time, CODE-NGO got

RCBC-Capital as underwriter to distribute and sell the bonds to the public.

► The Underwriting Agreement and RCBC term Sheet for the sale of the

PEACe Bonds show that the settlement dates for the issuance by the BTr of

the bonds to RCBC CODE-NGO and the distribution by RCBC Capital of the

PEACe Bonds to various investors fall on the same day, October 18, 2001.

► Hence, the reckoning of the phrase “20 or more lenders” should be at the time

when RCBC Capital sold the PEACe Bonds to investors.

Page 54

However, the phrase “at any one time” cannot be appliedto the PEACe Bonds and should instead be givenprospective application



Issue 3:

► Assuming that the PEACe Bonds are deposit substitutes, may RCBC,

RCBC Capital, and CODE-NGO be held liable to pay the 20% FWT?

Held:► No. They may still not be held liable to pay the 20% FWT.

► The Supreme Court interpretation in its January 2015 decision of the phrase “at any

one time” cannot be applied to the PEACe Bonds and should instead be given

prospective application.

► RCBC and the rest of the investors relied on the opinions of the BIR in its Ruling Nos.

020-2011, 035-2001 and DA 175-01 which provide that the “20 or more lenders” is to be

determined at the time of the original issuance. Under the said rulings, the PEACe

Bonds were not to be treated as deposit substitutes.

Page 55

BTr is liable to pay legal interest for refusal to releasewithheld tax pursuant to an Order of the Supreme Court



Issue 4:

► May the BTr be held liable to pay legal interest for refusal to release

the withheld tax to the banks, as ordered by the SC?

Held:► Yes. The BTr made no effort to release the amount corresponding to the 20%

FWT which it had not shown to have already been remitted to the BIR. It

remained obstinate in its refusal to release the monies and exhibited utter

disregard and defiance of the SC’s order.

► The BTr is ordered to immediately release and pay the bondholders the 20%

FWT on the PEACe Bonds, with legal interest of 6% per annum from October

19, 2011, the day the BTr received the TRO, until full payment.

Page 56

Value-Added Tax

Page 57

An insurance broker that issued VAT official receipts onthe gross premiums collected is liable for output tax on thewhole amount

Lacson & Lacson Insurance Brokers, Inc. vs. CIR

CTA (En Banc) Case No. 1272, October 4, 2016

Facts:

► CIR assessed Lacson & Lacson Insurance Brokers, Inc. (Lacson) for

alleged deficiency VAT arising from a discrepancy between its sales

per VAT returns and the purchases reported by its customers.

► Lacson protested the assessment.

► Upon denial of its protest, Lacson filed a Petition for Review with the

CTA.

Page 58




Facts:

► At the CTA, Lacson argued that:

► As an insurance broker that liaises between the clients and the insurance

companies, it is liable for VAT only on the commission earned from policies placed

with various insurance companies and not on the gross premiums collected; and

► The assessment was issued beyond the 3-year prescriptive period.

► The BIR countered that:

► Lacson is liable for VAT based on the gross premiums since it issued VAT official

receipts (ORs) for the full amount of premiums and the clients claimed input tax

based on gross premiums reflected on the VAT ORs issued to them; and

► The 10-year prescriptive period applies since Lacson filed a false return.

Page 59




Facts:

► The CTA (Third Division) sustained the BIR’s deficiency VAT

assessment, noting that Lacson issued VAT ORs to its clients on the

gross amount of premiums collection from which the latter claimed

their input VAT.

► Lacson elevated the case to the CTA En Banc and argued that:

► The VAT returns were not false by themselves as the mistake was merely brought

about by the erroneous claim of input VAT by some of Lacson’s clients; and

► The 10-year prescriptive period should not apply since the government was not

placed at a disadvantage as to prevent the proper assessment of tax liabilities. To

justify the imposition of the 50% surcharge, proof of actual fraud or filing of a false

return with intent to evade taxes is required.

Page 60




Issue 1:

► Is Lacson liable for VAT on the gross amount of premiums?

Held:

► Yes. Although Lacson is only a broker, it becomes liable to output tax on

the gross premiums collected for issuing VAT ORs for the said premiums

and considering that the clients claimed input tax based on the gross

premiums reflected on the VAT ORs issued to them.

► Lacson failed to present documentary evidence to refute the existence of

the undeclared gross receipts. The CTA cannot rely on testimony that

Lacson wrongfully issued ORs on insurance premium of the insurance

company in the absence of documentary evidence to prove otherwise.

Page 61

Lack of malicious intent to evade payment of tax does notpreclude a finding of a false return since a false returnmerely implies a deviation from the correct amount of tax



Issue 2:

► Did Lacson file false returns (which justifies the application of the 10-

year prescriptive period by the CIR)?

Held:

► Yes. False returns were willfully made and this is evident from

Lacson’s own admission that its VAT returns only reflected its income,

which consists of commissions. It did not report in its VAT return the

gross amount of premiums reflected in the VAT official receipts it

issued to its clients resulting in substantial under-declaration of sales

more than 30%.

Page 62

Lack of malicious intent to evade payment of tax does notpreclude a finding of a false return since a false returnmerely implies a deviation from the correct amount of tax



Held:

► Quoting the decision of Court of Appeals in Holiday Inn (Phils), Inc vs.

CIR (CA-G.R. SP No. 78828, September 9, 2004):

► “…although there may be no malicious intent to evade payment of tax, this does

not preclude a finding of a false return. While a fraudulent return implies a malicious

and deliberate intent to evade payment of tax, a false return merely implies a

deviation from the correct amount of tax.”

► As the false returns were willfully made upon an admission of Lacson,

the 50% surcharge applies.

Page 63

Remedies

Page 64

Remedies –Tax Assessment/Investigation

Page 65

Farcon Marketing Corp. vs. BIR

CTA (En Banc) Case No. 1306, November 21, 2016

Facts:

► CIR issued a Tax Verification Notice to Farcon Marketing Corp.

(Farcon) to verify its supporting documents and pertinent records

relative to all its internal revenue taxes for taxable year 2007. When

required to present its books of accounts and accounting records,

Farcon claimed that it cannot comply as the documents were

destroyed and damaged by typhoons Ondoy and Pepeng.

► CIR assessed Farcon for alleged deficiency income tax for taxable

year 2007 arising from disallowed expenses, such as gas and oil,

postage, telephone and telegraph, and other purchases.

Best evidence obtainable ruleWhen may BIR properly apply the rule

Page 66



Facts:

► Farcon protested the assessment. Upon denial of its protest, Farcon

filed a Petition for Review with the CTA.

► Farcon argued that:

► The assessment is without factual and legal bases;

► Farcon’s its failure to submit the required documents was not willful but due to

reasonable and justifiable causes, i.e., records were destroyed by the flood caused

by typhoons; and

► It was able to submit to the BIR reconstructed worksheets and schedule of

purchases and expenses to support its protest, which were not considered by BIR.


Page 67



Facts:

► CIR countered that:

► Farcon’s failure to submit the required supporting documents within the prescribed

period justifies the BIR’s resort to the Best Evidence Obtainable Rule under Section

6 (B) of the Tax Code; and

► Farcon failed to substantiate the expenses claimed as deduction from gross income

as provided under Section 34 (A) (1) of the Tax Code.


Page 68



Facts:

► The CTA (2nd Division) ruled in favor of Farcon. It held that the law

allows the BIR wide latitude to resort to the Best Evidence Obtainable

Rule to make an assessment. The BIR may determine Farcon’s tax

liability through estimation considering the absence of accounting

records, which were destroyed by the typhoons.

► But while the approximation in the calculation of the taxes due is

justified, the CTA ruled that such estimation should still be based on

sufficient evidence. In this case, the BIR failed to present any

evidence which it used as basis or foundation for the subject

deficiency assessment. Thus, the assessment is void for lack of

factual basis.


Page 69



Issue 1:

► Was the deficiency income tax assessment valid on the basis of the

Best Evidence Obtainable Rule?

Held:

► No. While the BIR can resort to the Best Evidence Obtainable Rule

and estimate the tax liability of taxpayers who failed to submit its

accounting records, it is still required to provide sufficient evidence as

basis for its deficiency tax assessment.


Page 70



Held:

► CIR did not follow the requirements under Section 6 (B), which

authorizes him to amend what may be deemed a false or fraudulent

return based on his own knowledge and from such information he can

obtain through testimony, among others, which shall be presumed

correct and sufficient.

► CIR cannot use Farcon’s ITR as the factual basis for the deficiency

income tax assessment as tax returns filed with the BIR are presumed

to have been filed in accordance with law.

► Moreover, the ITR did not prove that there were unsupported

expenses, for it merely showed Farcon’s operations in 2007 and the

income tax due for the year.


Page 71



Issue 2:

► Can the Revenue District Officer authorize the examination of a

taxpayer’s records in lieu of the Regional Director?

Held:

► No. Pursuant to Sec. 13 of the NIRC, a Revenue Officer assigned to

perform assessment functions in any district may examine taxpayers

pursuant to a LOA issued by the Revenue Regional Director.

► The assessment or examination is a nullity in the absence of such

authority. In the instant case, only the Revenue District Officer, not the

Regional Director, signed the Tax Verification Notice to conduct the

examination and verification. (CIR vs. Sony Philippines, Inc. G.R. No. 178697,

November 17, 2010)

RDO cannot authorize the examination of a taxpayer’s records in lieu of the Regional Director

Page 72

An assessment should contain a computation of taxliabilities as well as a demand for payment within theprescribed period

CIR vs. 3M Philippines, Inc.


Facts:

► CIR assessed 3M Philippines, Inc. (3M) for, among others, deficiency

income tax, withholding tax, and expanded withholding tax, for taxable

year 2002.

► 3M received an advance copy of the Preliminary Assessment Notice

(PAN) through fax.

► In August 2008, 3M paid the alleged deficiency taxes on the same day

to stop the continuous accrual of interest charges but reserved the

right to file a formal protest upon receipt of the Formal Assessment

Notice (FAN).

Page 73




Facts:

► After 3M filed its reply to the PAN, the BIR neither acted on it nor

issued a FAN.

► In June 2010, 3M filed a claim for refund of the amount paid based on

the PAN. It argued that the period for BIR to assess had prescribed

and the taxes it paid were erroneously or illegally collected. To toll the

running of the 2-year prescriptive period, 3M filed a Petition for

Review with the CTA.

Page 74




Facts:

► At the CTA, the BIR contended that:

► The payment in response to the PAN dispensed with the need for the issuance of

the FAN;

► 3M’s actions after the PAN issuance, particularly the payment of the assessed

deficiency, support the view that it recognized and treated the PAN as FAN; and

► 3M should not be permitted to use a refund petition when it lost its right to contest

the assessment.

► The CTA 3rd Division ordered the refund of the erroneously paid

deficiency income tax and withholding taxes, VAT, FBT, prompting the

CIR to elevate the case to the CTA En Banc.

Page 75




Issue 1:

► Can taxes paid based on the PAN be considered erroneously or

illegally collected which can be subject of a refund?

Held:

► Yes. Erroneously paid taxes may come in the form of amounts that

should not have been paid. In this case, the CTA held that it was not

shown that what 3M paid was legally due nor was 3M legally bound to

pay the amount.

Page 76




Held:

► An assessment contains not only a computation of tax liabilities, but

also a demand for payment within the prescribed period. A cursory

reading of the PAN revealed that while there was a computation of

3M’s supposed tax liabilities, there was not a demand for payment

thereof. The demand had yet to be made and, as stated in the PAN,

only after the BIR fails to hear from 3M will such demand be issued.

► There was no assessment to speak of which may create a liability to

pay tax on the part of 3M.

Page 77

A FAN has to be issued or served for the tax liability toarise



Issue 2:

► Is there a need to issue a FAN even if 3M voluntarily paid the

deficiency taxes alleged in the PAN?

Held:

► Yes. A FAN is necessary. For the tax liability to arise, an assessment

has to be issued and served to the taxpayer. The issuance of a valid

formal assessment is a substantive prerequisite to tax collection. Due

process requires that it must be served on and received by the

taxpayer to enable the taxpayer to determine the remedies thereon.

Page 78

A FAN has to be issued or served for the tax liability toarise



Held:

► Contrary to the CIR’s claim, payment was made not to extinguish

3M’s supposed tax liability but to “stop the accrual of interest charges”

and “without prejudice to the right to file a formal protest upon receipt

of the FAN.” The intention was supported by the 3M’s subsequent

filing of the protest to the PAN and the filing of the refund claim.

Page 79

Assessments issued based on data extrapolated from surveillance operations are presumed valid, if there is reason to believe that the taxpayer is not declaring the correct income

Heavenly Urban Chef, Inc vs. CIR

CTA (Third Division) Case No. 8556, August 9, 2016

Facts:

► Based on confidential information, the BIR initially conducted

surveillance and monitoring of Heavenly Urban Chef, Inc.’s (HUCI)

place of establishment on January 19 to February 5, 2010, for

possible violation of bookkeeping and invoicing rules.

► In June 2010, the BIR issued a Letter of Authority (LOA) for the

investigation of HUCI’s books of accounts and accounting records for

taxable year 2009.

► In March 2010, the CIR issued a Formal Assessment Notice (FAN)

against HUCI for alleged deficiency income tax, VAT and improperly

accumulated earnings tax (IAET) for taxable year 2009.

Page 80




Facts:

► HUCI protested the FAN and requested for reinvestigation.

► The CIR denied the protest and issued a Final Decision on Disputed

Assessment (FDDA). HUCI filed a Petition for Review at the CTA.

► HUCI argued that:

► The assessments are speculative, hypothetical and fictional as these were based

on mere “extrapolation” of data unsupported by written testimony or report of a duly

authorized personnel, who is professionally competent to perform statistical

computations; and

► The IAET assessment is not valid since HUCI had appropriated retained earnings

for expansion purposes.

Page 81




Issue 1:

► Are assessments issued based on “extrapolation method” valid?

Held:

► Yes. Assessments issued based on data extrapolated from

surveillance operations are valid subject to compliance with Section 6

(C) of the Tax Code, as implemented by Revenue Memorandum

Order No. 3-09, which prescribes the guidelines in the conduct of

surveillance and stock-taking activities.

Page 82




Held:

► The BIR may use the results of its surveillance as basis for assessing

the taxes for the other months or quarters of the same or different

taxable years if there is reason to believe that a person is not

declaring his correct income, sales or receipts for internal revenue tax

purposes and such assessment shall be deemed prima facie correct.

► Since there is sufficient reason to believe that HUCI had undeclared

sales and no evidence was presented to controvert the BIR’s findings,

resorting to surveillance and extrapolation method in assessing HUCI

for undeclared sales is justified. The sales amount used by the BIR

can be considered as prima facie valid and correct for purposes of

determining the internal revenue tax liabilities of HUCI.

Page 83

A speculative and indefinite purpose will not suffice against theIAET assessment. Definiteness of plans coupled with actions takentowards its consummation is essential.



Issue 2:

► Is HUCI subject to IAET?

Held:

► Yes. The allegation that its retained earnings will be reserved for

expansion is not sufficient as details of the planned expansion or

transfer was not included in the Board Resolution.

► Section 7 of RR 02-01 explicitly provides that a speculative and

indefinite purpose will not suffice. Definiteness of plans coupled with

actions taken towards its consummation is essential. Considering that

no other evidentiary documents were presented, HUCI’s contention

against the IAET assessment has no leg to stand on.

Page 84

The issuance of a LOA covering “unverified prior years” isprohibited and does not confer any authority to audit the taxpayer’sbook of accounts

Priscilla J. Cruz and Jocelyn Cruz De los Reyes (in

substitution of the deceased Julio S. Cruz) vs. CIR

CTA (First Division) Case No. 8103, September 2, 2016

Facts:

► CIR assessed Petitioners Priscilla J. Cruz and Jocelyn Cruz De los

Reyes (Cruz family) for deficiency income taxes for taxable years

1992 to 2004.

► The assessment was pursuant to a Letter of Authority (LOA) issued by

the BIR National Investigation Division to audit the taxpayers for

taxable years 2004 and Unverified Prior Years (UPY).

► The Cruz family filed a protest against the assessments, which was

denied. The Cruz family then filed a Petition for Review with the CTA.

Page 85





Facts:

► The Cruz family argued that:

► The LOA authorizing the review of their books of accounts for “unverified prior

years” is not valid; and

► They can no longer be assessed for 1992 to 2004 after they have availed of tax

amnesty in 2005 under Republic Act 9480.

► The CIR argued that:

► The Cruz family were not deprived of their right to due process even as the

deficiency income tax assessment notices covered 13 years, as they were properly

informed of the findings of the BIR.

► There was no tax amnesty return filed, thus, they cannot claim immunity.

Page 86





Issue 1:

► Is a Letter of Authority covering “Unverified Prior Years” valid?

Held:

► No. The assessment notices for taxable years 1992 to 2003 are null

and void for lack of a valid LOA.

► There must be a grant of authority before a revenue officer can

conduct an examination of the taxpayer’s books of accounts and other

accounting records for the purpose of determining the correct tax rule.

Page 87





Held:

► In this case, the revenue officers conducted the examination on the

strength of an LOA covering 2004 to Unverified Prior Years, without

any specification as to the years.

► The issuance of an LOA covering “unverified prior years” is a

prohibited practice under Section C of Revenue Memorandum Order

No. 43-90 and does not confer any authority to audit the taxpayer’s

books outside the specific taxable years mentioned therein.

► However, the assessment notice for 2004 is valid.

Page 88

The benefits of a tax amnesty granted to a corporation donot extend to its stockholders




Issue 2:

► Can the benefits of a tax amnesty granted to a corporation extend to

its stockholders?

Held:

► No. Records show that the Cruz family were major stockholders of

J.S. Cruz Construction Development Corporation (Cruzcon) which

supposedly availed of tax amnesty in 2005. Even assuming that a tax

amnesty was availed by Cruzcon, the benefits and privileges granted

to it cannot inure to the benefit of the Cruz family.

Page 89

The benefits of a tax amnesty granted to a corporation donot extend to its stockholders




Held:

► Section 6 of RA 9480 provides that only those who availed of the tax

amnesty and have fully complied with all its conditions shall be

entitled to immunities and privileges.

► In the instant case, the rights and privileges granted to a corporation

will not extend to its stockholders in their personal capacity

considering that a corporation has personality separate and distinct

from its shareholders.

Page 90

A Letter of Authority should be properly served on the taxpayerwithin 30 days from the date of issue; otherwise it becomes null andvoid

Dakay Construction and Dev’t Corporation vs. CIR


Facts:

► CIR assessed Dakay Construction Development Corporation (DCDC)

for deficiency VAT and DST for taxable year 2007.

► DCDC assailed the validity of the assessment, arguing that the Letter

of Authority (LOA) is void and without force and effect as it was

received beyond 30 days from the date of issuance:

► The LOA was dated October 22, 2008 but was received only on November 24,

2008. Thus, the revenue officers had no valid authority to conduct the examination

and subsequently issue the deficiency assessments.

► Upon receipt of the Final Decision on Disputed Assessment (FDDA)

denying its protests, DCDC filed a Petition for Review with the CTA.

Page 91




Facts:

► At the CTA, the CIR argued that:

► Neither the LOA nor other internal revenue issuances or audit programs and

policies provide that failure of revenue examiners to serve the LOA to the taxpayers

within 30 days from the date of issuance will give rise to taxpayer immunity from

audit for that particular period. The requirement is merely directory and is intended

to enhance the efficiency and ensure quality of audit; and

► DCDC can no longer assail the validity of the LOA as it has voluntarily submitted its

books of accounts and accounting records for audit. Neither did it raise the

invalidity of the LOA in its protest letter.

Page 92




Issue:

► Is the LOA valid and binding?

Held:

► No. All audits or investigations must be conducted under a valid LOA,

which should be properly served on the taxpayer within 30 days from

the date of issue or it becomes null and void pursuant to Revenue

Memorandum Order 43-90 and Revenue Audit Memorandum Order 1-

2000.

► Revenue Memorandum Order 23-83 even states that a simple

erasure on a LOA already renders it void; more so if it is improperly or

belatedly served.

Page 93




Held:

► The LOA no longer has any force or effect having been served

beyond the prescribed 30-day period.

► The assessment conducted by the revenue officers was already

unauthorized, because there was no valid covering LOA.

Page 94

Receipt of the notices by unauthorized personnel cannotbe deemed receipt by the taxpayer

Mannasoft Technology Corporation vs. CIR


Facts:

► CIR assessed Mannasoft Technology Corporation (MTC) for

deficiency income tax, VAT, EWT for taxable year 2008, which MTC

protested.

► The BIR issued a Warrant of Distraint and/or Levy (WDL), which MTC

protested.

► MTC then filed for a request for investigation, which the BIR denied

with a statement that it was the final decision on the matter.

► MTC filed a Petition for Review with the CTA.

Page 95




Facts:

► At the CTA, MTC argued that:

► The BIR violated its right to due process when it did not receive the Notice of

Informal Conference (NIC), the Preliminary Assessment Notice, and the FAN.

► The FAN and WDL were not received by the company’s duly authorized officers:

► The NIC was received by the client service assistant;

► The PAN was received by the receptionist; and

► The FAN was received by the reliever security guard.

► The BIR, on the other hand, maintained that the assessments were

made and issued in accordance with the law, rules and regulations.

Page 96




Issue 1:

► Did the receipt of the NIC, PAN and FAN by unauthorized personnel

invalidate the assessment?

Held:

► Yes. The client service assistant, receptionist, and the reliever security

guard, who received the NIC, PAN, and FAN respectively, do not have

the authority to receive the notices from the BIR.

► The receipt of the notices by unauthorized personnel cannot be

deemed receipt by MTC.

Page 97




Held:

► It is incumbent upon the BIR to prove that the personal service of the

notices was done properly and that the taxpayer or the taxpayer’s

authorized representative received the notices.

► Non-receipt of the NIC and the PAN results in the invalidity of the FAN

issued thereafter, for being violative of MTC’s right to due process.

Page 98

Filing of protest does not cure the BIR’s violation of thetaxpayer’s right to due process



Issue 2:

► Did the submission of a protest by the taxpayer cure the infirmity?

Held:

► No. The fact that the MTC was able to protest the FAN, albeit

belatedly, does not cure the BIR’s violation of its right to due process.

► The filing of a protest to the FAN “does not denigrate the fact that it

was deprived of statutory and procedural due process to contest the

assessment before it was issued.”

Page 99

The CTA En Banc cannot annul a final and executoryjudgment of a division of the court; remedy is certiorariunder Rule 65

CIR vs. Kepco Ilijan Corporation

Supreme Court (En Banc) G.R. No. 199422, June 21, 2016

Facts:

► Kepco Ilijan Corporation (KIC) filed a claim for refund with the BIR for

input tax incurred in 2000 from its importation and domestic

purchases of capital goods and services preparatory to its production

and sales of electricity to the National Power Corporation.

► Due to the inaction of the CIR on its claim, KIC filed a Petition for

Review with the CTA.

► While the CIR filed her Answer, she failed to file the requisite

Memorandum despite notice. The CTA First Division rendered its

decision finding KIC entitled to refund.

Page 100




Facts:

► As the CIR did not contest the decision, it became final and executory.

The CTA issued an Entry of Judgment on October 10, 2009 and a

corresponding Writ of Execution on February 16, 2010.

► April 11, 2011 - The CIR filed a Petition for Annulment of Judgment

with the CTA En Banc and claimed that she only found out about the

decision and the issuance of the writ when the Office of the Deputy

Commissioner for Legal and Inspection Group received a

Memorandum from the BIR Appellate Division recommending the

issuance of a Tax Credit Certificate in favor of KIC.

Page 101




Facts:

► The CIR prayed that:

► the decision of the CTA First Division be annulled and set aside,;

► the Entry of Judgment and the Writ of Execution be nullified; and

► the CTA First Division be directed to re-open the case to allow the CIR to submit

her Memorandum setting forth her substantial legal defenses.

► After the CTA En Banc dismissed the petition, the CIR filed with the

Supreme Court a Petition for Review on Certiorari under Rule 45 of

the Rules of Court, where she asked for the reversal of the resolutions

of the CTA En Banc.

Page 102




Issue:

► Does the CTA En Banc have jurisdiction over the CIR’s Petition for

Annulment of Judgment of the CTA First Division?

Held:

► No. The CTA En Banc does not have jurisdiction over the CIR’s

petition.

Page 103




Held:

► Annulment of Judgment is provided for in Rule 47 of the Rules of

Court and is based solely on the grounds of extrinsic fraud and lack of

jurisdiction:

► It is a recourse that presupposes the filing of a separate and original action for the

purpose of annulling and avoiding a decision in another case.

► It is independent of the case where the judgment sought to be annulled is rendered.

► It is unlike a motion for reconsideration, appeal or even a petition for relief from

judgment, because annulment is not a continuation or a progression of the same

case as, in fact, the case it seeks to annul is already final and executory.

Page 104




Held:

► Annulment of judgment involves the exercise of original jurisdiction,

like the CA over the decision of the RTC, or like the RTC over the

decision of the MTC or MeTC.

► The laws creating the CTA and expanding its jurisdiction , and the

CTA’s own rules of procedure do not provide for a scenario where the

CTA sitting en banc is asked to annul a decision of one of its divisions.

► Similarly, the Supreme Court or the CA divisions are not considered

separate and distinct courts but are divisions of one and the same

court. There is no hierarchy of courts within the SC and the CA.

Page 105




Held:

► Thus, the annulment by a collegial court, sitting En Banc is

tantamount to allowing a court to annul its own judgment and

acknowledging that a hierarchy exists within such court.

► It also betrays the principle of finality of judgments.

Page 106




What is the proper remedy?

► A direct petition for annulment of judgment of the CTA to the SC is

unavailing since there is no identical remedy with the SC to annul a

final and executory judgment of the CA.

► Similarly, RA 9282 puts the CTA on the same level as the CA.

► Thus, a proper remedy would have been an original action for

Certiorari under Rule 65 of the Rules of Court directly before the SC

and not before the CTA En Banc. Certiorari is availed of when there is

no appeal, or any other plain, speedy, adequate remedy in the

ordinary course of law, such as in the present case.

Page 107

Claim for refund of DST erroneously paid through adocumentary stamp metering machine is reckoned fromdate of imprinting the documentary stamp

Philippine Bank of Communications vs. CIR

Supreme Court (First Division) G.R. No. 194065, June 20, 2016

Facts:

► Philippine Bank of Communications (PBCom) was authorized to

operate and use Online Electronic Documentary Stamp Metering

Machine (DS metering machine).

► PBCom purchased documentary stamps from the BIR and loaded

them to its DS Metering Machine.

► March 23 to December 23, 2004 - PBCom then entered into several

repurchase agreements with the Bangko Sentral ng Pilipinas, and the

documentary stamps were imprinted on the corresponding

Confirmation Letters.

Page 108




Facts:

► Claiming that the repurchase agreements were not subject to

documentary stamp tax (DST), PBCom filed a claim for issuance of

tax credit certificates.

► PBCom filed a Petition for Review with the CTA alleging inaction by

BIR.

Page 109




Facts:

► CTA (2nd Division) ruled that while the repurchase agreements were

exempt from DST under RA 9243 where 1) said agreements were

treated as derivatives, and 2) transaction with BSP were not subject to

DST, PBCom’s claim was barred by prescription, the two-year period

counted from the date of the Confirmation Letters.

► CTA (En Banc) ruled that for taxpayers using the DS metering

machine, the DST was deemed paid upon purchase of the

documentary stamps and the two-year period must be counted from

the reloading on the machine through the filing of the DST

Declaration BIR Form No. 2000.

Page 110




Issue:

► For taxpayers using the DS metering machine, what is the reckoning

date for purposes of counting the two-year prescriptive period for filing

a claim for refund of erroneously paid DST?

Held:

► The date of imprinting the documentary stamp on the taxable

document is considered as the date of payment from which the two-

year prescriptive period to recover erroneously paid tax commences.

Page 111




Held:

► The payment of DST upon loading/reloading is merely an advance

payment for future application. The liability for the payment of the DST

falls due only upon the occurrence of a taxable transaction. Therefore,

it is only then that the payment may be considered for the purpose of

filing a claim for a refund or tax credit.

► Since actual payment was already made upon loading/reloading of

the DS metering machine and the filing of the DST Declaration

Return, the date of imprinting the documentary stamp on the

taxable document must be considered as the date of payment

contemplated under Section 229 of the Tax Code on recovery of

erroneously paid taxes.

Page 112

Real Property Tax

Page 113

A taxpayer questioning the excessiveness orreasonableness of a RPT assessment should first pay thetax due before his protest can be entertained

National Power Corp. vs. Provincial Treasurer of Benguet et al

Supreme Court (Third Div), G.R. No. 209303, November 14, 2016

Facts:

► May 2000 – The Municipal Assessor of Itogon, Benguet, assessed

National Power Corporation (NPC) for real property tax (RPT) on

properties located within the Binga Hydro-Electric Power Plant.

► March 2006 – The Provincial Treasurer of Benguet demanded

payment of the RPT from NPC.

Page 114




Facts:

► April 20, 2006 - NPC challenged before the Local Board of

Assessment Appeals (LBAA) the legality of the assessment and the

authority of the respondents Municipal and Provincial Assessors to

assess and collect RPT from it. It asserts that its properties are

exempt from RPT pursuant to Section 234 (b) and (c) of the Local

Government Code (LGC).

► Previously, in letters dated Sept 3, 2000 and April 19, 2001, NPC filed

its requests for exemption from RPT before the Municipal Treasurer,

which the latter has not acted upon.

Page 115




Facts:

► August 9, 2006 – NPC received the LBAA’s Order deferring the proceedings

conditioned upon NPC’s payment under protest of the assessed amount, or

upon filing of a surety bond to cover the disputed RPT.

► August 25, 2006, NPC filed a Motion for Reconsideration (MR) of the LBAA’s

order, which was denied by the LBAA.

► NPC filed a petition for review with the Central Board of Assessment Appeals

(CBAA) where it claimed that payment under protest was not required before

it could challenge the authority of respondents to assess RPT on tax-exempt

properties. The CBAA dismissed the appeal for being filed out of time.

Page 116




Facts:

► NPC then appealed to the CTA En Banc, but the same was denied for

lack of merit. The CTA ruled that Section 252 of the LGC requires

payment under protest before a written protest against the

assessment may be filed before the LBAA.

► NPC filed its petition for review before the Supreme Court, and

alleged that payment under protest is required when the

reasonableness of the amount assessed is being questioned, and not

in the present case, when the taxpayer challenges the very authority

and power of the assessor to impose the assessment.

Page 117




Issue 1:

► Is NPC’s payment of the RPT under protest a condition prior to the

appeal to the LBAA?

Held:

► Yes. It is only after the taxpayer has paid the tax due that he may file a

protest in writing within 30 days from payment of the tax to the

provincial or Municipal Treasurer, who shall decide the protest within

sixty days from receipt. The local treasurer is not obliged to entertain

the protest unless the tax due has been paid.

Page 118




Held:

► There was nothing in the petition before the LBAA which supports the

petitioner’s claim regarding the respondent’s alleged lack of authority.

Though couched in terms which challenge the validity of the

assessment and authority of the respondents, NPC essentially

anchors its petition based on a claim of exemption from RPT.

► A claim for RPT exemption not actually questions the assessor’s

authority to assess and collect such taxes, but pertains to the

reasonableness or correctness of the assessment by the local

assessor, a question of fact which should be resolved, at the very first

instance, by the LBAA.

Page 119




Held:

► Under Section 206 of the LGC, a person claiming RPT exemption

shall file with the provincial, city or municipal assessor within 30 days

from the date of declaration of real property sufficient documentary

evidence in support of such claim. If the required evidence is not

submitted within the 30-day period, the property shall be listed as

taxable in the assessment roll. However, if the property shall be

proven to be tax exempt, it shall be dropped from the assessment roll.

► There was no evidence to show that, within 30 days from the filing of

its Tax Declaration, NPC filed with the Municipal Assessor an

application for exemption or any supporting documentary evidence of

the exempt status of its properties.

Page 120

A taxpayer has 30 days from its receipt of the assailedorder of the LBAA to file its appeal before the CBAA



Issue 2:

► Was the appeal before the CBAA filed out of time?

Held:

► Yes, the appeal to the CBAA was filed out of time.

► Under Section 229 (c) of the LGC, the taxpayer has 30 days from its

receipt of the assailed order of the LBAA to file its appeal before the

CBAA.

Page 121

A taxpayer has 30 days from its receipt of the assailedorder of the LBAA to file its appeal before the CBAA



Held:

► On August 9, 2006, NPC received the LBAA’s Order postponing the

hearing subject to the condition that payment of the RPT should first

be made, and on August 25, 2006, or on the sixteenth day from its

receipt of the LBAA’s Order, NPC filed a MR. When NPC received, on

October 17, 2006, the Resolution of the LBAA denying its MR, it had

only 14 days left within which to appeal to the CBAA.

► The filing of the appeal before the CBAA through registered mail on

November 16, 2006 which was received by the CBAA on November

22, 2006, was already late.

Page 122

Ownership Requirements

Page 123

The interpretation of the term “capital” in the GamboaDecision, as referring only to voting shares, stands.

Jose M. Roy III vs. Chairperson Teresita Herbosa, the SEC, et al

Supreme Court (En Banc), G.R. No. 207246, November 22, 2016

Facts:

► Section 11 of Article XII of the 1987 Constitution provides in part:

► “No franchise, certificate, or any other form of authorization for the operation of a

public utility shall be granted except to citizens of the Philippines or to corporations

or associations organized under the laws of the Philippines, at least sixty per

centum of whose capital is owned by such citizens; nor shall such franchise,

certificate, or authorization be exclusive in character or for a longer period than fifty

years x x x”

Page 124




Facts:

► June 28, 2011 – Wilson P. Gamboa vs. Finance Secretary Margarito

B. Teves et al (Gamboa Decision) was promulgated by the SC.

► Ruling: Capital refers only to shares of stock entitled to vote in the election of

directors.

► October 9, 2012 – a Resolution on the MR of the Gamboa Decision

was promulgated by SC (Gamboa Resolution).

► Ruling: The Constitutional requirement of 60% Filipino ownership of public utility

companies applies not only to voting control but also to beneficial ownership of

the corporation.

Page 125




Facts:

► May 20, 2013 – SEC issued SEC-MC No. 8, which provided

guidelines on compliance with the Filipino-Foreign ownership

requirements, Section 2 of which provides:

► “Section 2. All covered corporations shall, at all times, observe the constitutional or

statutory ownership requirement. For purposes of determining compliance

therewith, the required percentage of Filipino ownership shall be applied to both: (a)

the total number of outstanding shares of stock entitled to vote in the election of

directors; AND (b) the total number of outstanding shares of stock, whether or not

entitled to vote in the election of directors.

► Corporations covered by special laws which provide specific citizenship

requirements shall comply with the provisions of said law.”

Page 126




Facts:

► Jose M. Roy III (Roy) questioned the validity of the SEC circular as

unconstitutional for not conforming to the letter and spirit of the

Gamboa Decision and Resolution.

► Roy seeks to apply the 60-40 Filipino ownership requirement

separately to each class of shares of public utility corporation, whether

common, preferred non-voting, preferred voting or any other class of

shares.

Page 127




Issue:

► Did the Gamboa Decision and Resolution interpret the law to mean

that the 60-40 Filipino ownership requirement shall apply separately

to each class of shares of a public utility corporation?

Held:

► No. As ruled in the Gamboa Decision, the term “capital” in Section 11,

Article XII of the Constitution refers only to shares of stock entitled to

vote in the election of directors, and thus pertains only to common

shares and not to the total outstanding capital stock comprising both

common and non-voting preferred shares.

Page 128




Held:

► Considering that common shares have voting rights which translate to

control, as opposed to preferred shares which usually have no voting

rights, the term “capital” in Sec. 11, Art XII of the Constitution refers

only to common shares.

► However, if the preferred shares also have the right to vote in the

election of directors, the term “capital” shall include such preferred

shares because the right to participate in the control or management

of the corporation is exercised through the right to vote in the election

of directors.

Page 129




Held:

► With regard to the SEC-MC No. 8, the SC ruled that the circular

clearly incorporates the Voting Control Test (pursuant to the Gamboa

pronouncement that “full 60% beneficial ownership of 60% of the

outstanding capital stock, coupled with 60% of the voting rights, is

required” (full beneficial ownership test).

► Although SEC-MC No. 8 does not expressly mention the full beneficial

ownership test, it is not rendered invalid as it does not follow that SEC

will not apply this test in determining the Filipino-Foreign ownership

requirement.

Page 130




Held:

► The pronouncement in the Gamboa Resolution that the Constitutional

requirement shall apply “uniformly to and across the board to all

classes of shares, regardless of nomenclature and category,

comprising the capital of a corporation” is a mere obiter dictum (or

something said in passing) that cannot override the SC’s unequivocal

definition of the term “capital” in both the Gamboa Decision and

Resolution.

Page 131

These seminar materials are provided to you for your exclusiveuse. These materials may not be sold in part or in their entirety to anythird party. Furthermore, these may not be shown to, shared with, ortransferred to any third party, without the express written consent of SGV.The information in these materials and any oral presentations made bySGV are confidential and proprietary and should not be disclosed, used,or duplicated - in whole or in part - for any purpose.

SGV has no responsibility to update these materials for events,transactions, or circumstances occurring after the date of the issuance ofthese materials. The opinions expressed herein are based upon ourinterpretation of the tax laws, regulations, rulings and court decisionspromulgated there under and discussed in these materials. Note thatthese laws, regulations, rulings and court decisions are subject tochange, and such changes could affect the opinions expressed in thesematerials. If there is a change in the tax law, regulations andadministrative guidance issued, or the prevailing juridical interpretation ofthe foregoing, the opinions expressed herein would necessarily have tobe reevaluated in light of any such changes.

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