PM Reyes 2017 Bar Supplement

TAXATION LAW QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (With Salient Provisions of the CMTA) PIERRE MARTIN D. REYES This supplement covers significant and relevant Supreme Court jurisprudence on taxation law and Bureau of Internal Revenue (BIR) issuances from June 1, 2016 to June 30, 2017. For jurisprudence and BIR issuances for the period prior to June 1, 2016, please refer to the previous supplements. A review of the jurisprudence and BIR issuances cited in previous supplements is strongly encouraged. In addition, this supplement covers the salient provisions of the Customs Modernization and Tariff Act (CMTA), which took effect on June 16, 2016.

GENERAL PRINCIPLES Q. A non-stock, non-profit educational institution argues that is rental income from restaurants/canteens and bookstores operating within its campus are exempt from income tax considering that such revenues derived therefrom are used for educational purposes. The BIR argues that under the Tax Code, income of whatever kind and character of a non-stock and non-profit educational institution from any of its properties, real or personal, or from any of its activities conducted for profit regardless of the disposition made of such income shall be subject to income tax. Is the BIR correct? No. The income, revenues and assets of non-stock, non-profit educational institutions proved to have been used actually, directly, and exclusively for education purposes are exempt from duties and taxes. There is a distinction between the tax treatment of non-stock, non-profit educational institutions and proprietary educational institutions. The latter is granted tax exemption conditioned only on the actual, direct and exclusive use of their revenues and assets for educational purposes while tax exemptions for the former are subject to limitations imposed by law such as Section 30(H) of the Tax Code. The Tax Code

cannot qualify the exemption constitutionally-granted to non-stock, non-profit educational institutions. (Commissioner of Internal Revenue v. De La Salle

University, G.R. No. 196596, 198841, and 198941, November 9, 2016)

It is clear and unmistakable from the Constitution that non-stock, non-profit educational institutions are constitutionally exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. This constitutional exemption gives the non-stock, non profit educational institutions a distinct character. And for the constitutional exemption to be enjoyed, jurisprudence and tax rulings affirm the doctrinal rule that there are only two requisites: (1) The school must be non-stock and non-profit; and (2) The income is actually, directly and exclusively used for educational purposes. There are no other conditions and limitations. (RMO 442016 dated July 25, 2016 as cited in Commissioner

of Internal Revenue v. St. Paul College of Makati, G.R. No. 215383, March 8, 2017)

Q. St. Lukes Medical Center (SLMC) is a hospital organized as a non-stock and non-profit corporation. It admits both paying and nonpaying patients. The BIR claimed that SLMC was liable for income tax at 10% as provided under Section 27(B) of the NIRC. SLMC argues that it is a non-stock, non-profit institution for charitable and social welfare purposes exempt from income tax under Section 30(E) and (G) of the NIRC. Is SLMC correct? No. To be exempt, Section 30(E) and (G) of the NIRC requires an institution to operate exclusively for charitable or social welfare purpose. In case an exempt institution earns income from its profit activities, it will not lose its tax exemption. However, its income from profit activities shall be subject to income tax. For proprietary educational institutions and hospitals, the rate shall be 10%. (Commissioner of Internal

Page 1 of 14 NOTICE This material supplements the author’s 2013 Bar Reviewer and its supplements. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

Revenue v. St. Luke’s Medical Center, G.R. No. 203514, February 13, 2017) Q. Is a Revenue Regulation which treats petroleum and petroleum products brought into Freeport and economic zones (FEZs) as taxable importations valid and constitutional? No. Such a revenue regulation is invalid and unconstitutional because: 1. It erroneously considers petroleum and petroleum products brought into a FEZ as taxable importations. Goods brought into an FEZ remain to be in foreign territory and are not therefore goods introduced into Philippine customs territory subject to Philippine customs and tax laws; 2. It illegally imposes taxes upon Freeport and economic zones (FEZs), which, by law, enjoy tax and duty-free incentives on its importations; 3. It illegally amends the law – a power vested solely on the Legislature. Regulations may not enlarge, alter, restrict, or otherwise go beyond the provisions of the law they administer. The revenue regulation, an executive issuance, attempts to withdraw the tax incentives clearly accorded by the Legislature to FEZ enterprises. (Secretary of Finance v. Lazatin, G.R. No. 210588, November 29, 2016) Q. The governments of Japan and the Philippines executed an Exchange of Notes, whereby the former agreed to extend a loan amounting to Forty Billion Four Hundred Million Japanese Yen (¥40,400,000,000) to the latter for the implementation of a Coal-Fired Thermal Power Plant Project. In Paragraph 5 (2) of the Exchange of Notes, the Philippine Government, by itself or through its executing agency, i.e. National Power Corporation, undertook to assume all taxes imposed by the Philippines on Japanese contractors, i.e. Mitsubishi Corporation, engaged in the Project. Mitsubishi Corporation included in its income tax payments to the BIR income pertaining to the Japanese Government-funded portion of the project. Thus, Mitsubishi filed for a claim for refund. The BIR argues that (a) Mitsubishi is not entitled to the refund as the Exchange of Notes cannot be read as a treaty validly granting tax exemption considering the

lack of Senate concurrence; and (b) that, based on a revenue memorandum circular it issued, the proper remedy of Mitsubishi is to recover or obtain a refund from the National Power Corporation, the executing agency. Is the BIR correct? No. The subject taxes was erroneously collected from the taxpayer, considering that the obligation to pay the same had already been assumed by the Philippine Government by virtue of its Exchange of Notes with the Japanese Government. Case law explains that an exchange of notes is considered as an executive agreement, which is binding on the State even without Senate concurrence. Further, the Tax Code vests upon the CIR, being the head of the BIR, the authority to credit or refund taxes which are erroneously collected by the government. This specific statutory mandate cannot be overridden by averse interpretations made through mere administrative issuances, which - as argued by the CIR - shifts to the executing agencies the power to refund the subject taxes. (Mitsubishi Corporation – Manila

Branch v. Commissioner of Internal Revenue, G.R. No. 175772, June 29, 2017)

INCOME TAXATION Q. A law was passed granting income tax exemption for minimum wage earners (MWE) as well as increase in personal and additional exemptions. The law became effective on July 6, 2008. The BIR issued a revenue regulation providing for (a) the prorated application of the personal and additional exemptions for taxable year 2008 and for the period of applicability of the MWE exemption for taxable year 2008 to begin only on 6 July 2008; and (b) the disqualification of MWEs who earn purely compensation income, whether in the private or public sector, from the privilege of availing themselves of the MWE exemption in case they receive compensation related benefits exceeding the statutory ceiling of P30,000 (now P82,000). Is the revenue regulation valid? No. The personal and additional exemptions should be applied to the entire taxable year 2008. The test is whether the new set of personal and additional exemptions was available at the time of the filing of the income tax return. In other words, while the status of Page 2 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

the individual taxpayers is determined at the close of the taxable year, their personal and additional exemptions - and consequently the computation of their taxable income - are reckoned when the tax becomes due, and not while the income is being earned or received. As in the case of the adjusted personal and additional exemptions, the MWE exemption should apply to the entire taxable year 2008, and not only from 6 July 2008 onwards. The revenue regulations adds a requirement not found in the law by effectively declaring that an MWE who receives other benefits in excess of the statutory limit is no longer entitled to the exemption provided by the law. To be exempt, one must be an MWE, a term that is clearly defined. Section 22(HH) says he/she must be one who is paid the statutory minimum wage if he/she works in the private sector, or not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned, if he/she is a government employee. Thus, one is either an MWE or he/she is not. Simply put, MWE is the status acquired upon passing the litmus test - whether one receives wages not exceeding the prescribed minimum wage.(Soriano

v. Secretary of Finance, G.R. Nos. 184450, 184508, 184538, and 185234, January 24, 2017)

Q. The BIR contends that the 20-lender rule should not strictly apply to issuances of government debt instruments, which by nature, are borrowings from the public. Considering that the PEACe Bonds were intended to be freely tradable in the secondary market to 20 or more lenders/investors, they, like other similarly situated government securities-awarded to 19 or less Government Securities Eligible Dealers (GSEDs) in the primary market but freely tradable to 20 or more lenders/investors in the secondary market should be treated as deposit substitutes subject to the 20% final withholding tax. Is the BIR’s contention correct? No. The definition of deposit substitutes in Section 22(Y) specifically defined "public" to mean "twenty (20) or more individual or corporate lenders at any one time." Hence, reckoning of whether there are 20 or more individuals or corporate lenders is crucial in determining the tax treatment of the yield from the debt instrument. In other words, if there are 20 or more lenders, the debt instrument is considered a deposit substitute and subject to 20% final withholding tax.

The existence of 20 or more lenders should be reckoned at the time when the successful GSEDbidder distributes (either 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, taxable as such. (Banco de Oro v. Republic, G.R. No. 198756, August 16, 2016) Q. The authorized capital stock of a taxpayer was divided into common shares and preferred shares. The preferred shares were solely and exclusively subscribed by an affiliate non-resident foreign corporation. The taxpayer’s Board of Directors authorized a redemption of the preferred shares. The BIR argues that while the payment of the original subscription price could not be taxed as it represented return of capital, the additional amount of the redemption price represented accumulated dividends in arrears, subject to 15% final withholding tax. The taxpayer had no unrestricted retained earnings. Is the BIR correct? No. Dividends means any distribution out of earnings or profits. In this case, the taxpayer did not have unrestricted retained earnings. The primary feature of an ordinary dividends is that the distribution should be in the nature of a recurring return on stocks. In this case, there is no periodic distribution of dividends, but rather a payment for redemption of preferred shares. If the distribution is in the nature of a recurring return on stock it is an ordinary dividend. However, if the corporation is really winding up its business or recapitalizing and narrowing its activities, the distribution may properly be treated as in complete or partial liquidation and as payment by the corporation to the stockholder for his stock. (Commissioner of

Internal Revenue v. Goodyear Philippines, G.R. No. 216130, August 3, 2016)

VALUE-ADDED TAX Q. Invoking Section 108(B)(2) of the Tax Code, a business process outsourcing company filed a claim for refund or credit of input VAT attributable to zero-rated sales of its call services to foreign corporations. Is it indispensable that the said company prove that the recipient of its call services are foreign corporations doing business outside the Philippines? Page 3 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

Yes. An essential condition to qualify for zero-rating under Section 108(B)(2) of the Tax Code is that the service-recipient must be doing business outside the Philippines. A taxpayer claiming for a VAT refund or credit under Section 108(B)(2) has the burden to prove not only that the recipient of the service is a foreign corporation, but also that said corporation is doing business outside the Philippines. (Sitel v.

Commissioner of Internal Revenue, G.R. No. 201326, February 8, 2017) Q. What are the rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT? The rules are as follows: 1. An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. 2. The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction. 3. A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR. 4. All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day periods. (Harte-Hanks

Philippines v. Commissioner of Internal Revenue, G.R. No. 205721, September 14, 2016; Tekenaka Corporation v. Commissioner of Internal Revenue, G.R.

No. 193321, October 19, 2016; Commissioner of Internal Revenue v. Deutsche Knowledge Services, G.R. No. 211072, November 7, 2016; Deutsche Knowledge Services Pte v. Commissioner of Internal Revenue, G.R. No. 197980, December 1, 2016; Sitel v. Commissioner of Internal Revenue, G.R. No. 201326, February 8, 2017; Visayas Geothermal v. Commissioner of Internal Revenue, G.R. No. 205279, April 26 2017; Marubeni Philippines v. Commissioner of Internal Revenue, G.R. 198485, June 5, 2017) Q. What are the rules on VAT claims filed and pending prior to the effectivity of RMC No. 542014? The rules are as follows: 1. The claimant-taxpayer has two (2) years after the close of the taxable quarter when the sales were made to apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. Thus, before the administrative claim is barred by prescription, the taxpayer must have submitted his complete documents in support of the application. 2. In all case, whatever documents a taxpayer intends to file to support his claim must be completed within the two-year period under Section 112(A) of the Tax Code and the Commissioner, or his duly authorized representative should have decided on the claim for tax credit or refund within 120 days from the date of submission of complete documents or from the date of filing of the application if the claimant-taxpayer did not submit additional documents. Pending administrative claims prior to the effectivity of RMC No. 54-2014 shall be processed based on available documents submitted by the taxpayer within the two-year period. (RR No. 1-2017 dated January 3, 2017) NOTE: In Pilipinas Total Gas v. Commissioner of

Internal Revenue, G.R. No. 207112, December 8, 2016, the Supreme Court held that RMC No. 54-2014 cannot be applied retroactively as this would prejudice taxpayers whose VAT claims for tax credit or tax refund were filed and pending before June 11, 2014,

Page 4 of 14 NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

the date when RMC No. 54-2014 took effect. In light of this, the BIR issued RR No. 1-2017 because RMC No. 54-2014 was given retroactive affect as pending claims were deemed denied upon expiration of the 120-day period from the date the claims were filed even through the taxpayer-claimants are still in the processing of submitting the complete documents under the then RMC No. 49-2003. RMC No. 49-2003 gives the taxpayers a period of 30 days from filing of the application for tax credit/refund to complete the required documents unless given further extension which shall not exceed 30 days. BUT NOTE: As it now stands, RMC 54-2014 dated June 11, 2014 mandates that the application for VAT refund/tax credit must be accompanied by complete supporting documents. Under the current rule, the reckoning of the 120-day period has been withdrawn from the taxpayer by RMC 54-2014, since it requires him at the time he files his claim to complete his supporting documents and attest that he will no longer submit any other document to prove his claim. Further, the taxpayer is barred from submitting additional documents after he has filed his administrative claim. Thus, the 120-day has to be counted from the filing of the administrative claim. Q. Can an entity located within an ECOZONE be entitled to refund of its unutilized input taxes? No. ECOZONES are by legal fiction foreign territory. Thus, sales made by suppliers from a customs territory to a purchaser located within an ECOZONE shall be considered exportations. Following the Cross Border Doctrine and Destination Principle, no VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial border of the taxing authority. As such, purchases of goods and services that are destined for consumption within the ECOZONE should be free of VAT. No input should be paid on such purchases and thus the entity located within the ECOZONE is not entitled to claim a tax refund or credit. If the taxpayer paid the input VAT, the proper recourse is not a claim for tax refund or credit against the government, but reimbursement against the seller who shifted the output VAT. (Coral Bay Nickel

Corporation v. Commissioner of Internal Revenue, G.R. No. 190506, June 13, 2016)

Q. (1) What is the distinction between a ‘receipt’ and an ‘invoice’ as evidence in a claim for refund or tax credit of unutilized input VAT? (2) Does the grant of the application for zero-rating of a PEZAregistered enterprise dispense with the need to present the VAT official receipts? (1) A VAT invoice is necessary for every sale, barter, or exchange of goods or properties, while a VAT official receipt properly pertains to every lease of goods or properties as well as to every sale, barter, or exchange of services. (2) The fact that the application for zero-rating has been approved does not, by itself, justify the grant of refund or tax credit. Invoicing and accounting requirements must be further complied with. Without proper VAT official receipts issued to clients, the payments received by a taxpayer for providing services to PEZA-registered enterprises cannot qualify for VAT zero-rating. Hence, it cannot claim such sales as zero-rated VAT not subject to output tax. (Tekenaka

Corporation v. Commissioner of Internal Revenue, G.R. No. 193321, October 19, 2016)

EXCISE TAX Q. Is “San Mig Light” a new brand or a variant of one of San Miguel Corporation’s existing beer brands, the variant being subject to a higher excise tax rate than a new brand? It is a new brand. The variant contemplated under the Tax Code has a technical meaning. A variant is determined by the brand (name) of the beer product, whether it was formed by prefixing or suffixing a modifier to the root name of the alleged parent brand, or whether it carries the same logo or design. “San Mig Light” and “Pale Pilsen” do not share a root word. Neither is there an existing brand called “San Mig” to conclude that “Light” is a suffix rendering “San Mig Light” as its “variant.” Thus, “San Mig Light” should be considered as one brand name. (Commissioner of

Internal Revenue v. San Miguel Corporation, G.R. No. 205405 & 205723, January 25, 2017)

DOCUMENTARY STAMP TAX Q. Do ‘interbank call loans’ fall under the definition of ‘loan agreements’ and thus subject to documentary stamp tax? Page 5 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

No. An ‘interbank call loan’ refers to the cost of borrowings from other resident banks and non-bank financial institutions with quasi-banking authority that is payable on call or demand. It is transacted primarily to correct a bank's reserve requirements. As such, it does not fall under the definition of a loan agreement. (Commissioner of Internal Revenue v. Philippine National Bank, G.R. No. 195147, July 11, 2016)

TAX REMEDIES UNDER THE NIRC

convert or treat the LN into the LOA required under the law. If no LOA is secured, the assessment on the basis of a LN is void. (Medicard Philippines v.

Commissioner of Internal Revenue, G.R. No. 222743, April 5, 2017)

Q. (1) What is the consequence if a FAN does not contain a definite due date for payment by the taxpayer? (2) Can the reckoning date of the accrual of the penalties and surcharges be considered as the due date for payment?

Q. The BIR issued a Letter of Authority authorizing its revenue officers to examine the taxpayer’s books of accounts and other accounting records for all internal revenue taxes for the period “Fiscal Year Ending 2003 and Unverified Prior Years.” Is the assessment made pursuant to this Letter of Authority valid?

(1) A Final Assessment Notice that does not contain a definite due date for payment by the taxpayer is void.

Partly. A LOA which contains a specified year and unverified prior years is not entirely void. The assessment for the year clearly specified remains to be valid while the assessments which pertain to the unverified prior years are void for having been unspecified on separate LOAs. (Commissioner of

v. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016)

Internal Revenue v. De La Salle University, G.R. No. 196596, 198841, and 198941, November 9, 2016) Q. Is an assessment based merely on a Letter Notice (LN) valid? No. An assessment based only on a LN is void. A Letter of Authority (LOA) cannot be dispensed with just because none of the financial books or records being physically kept was examined. The SC opined that the statutory requirement of a LOA is not dependent on whether the taxpayer may be required to physically open his books or financial records but only on whether a taxpayer is being subject to examination. A LN is issued only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR’s RELIEF System and nothing more. Revenue Memorandum Order (RMO) No. 32-2005 states that in case the discrepancies shown in the LN remained unresolved within 120 days from issuance of the LN, the revenue officer shall recommend the issuance of a LOA to replace the LN. Due process requires that the revenue officer should secure first a LOA before proceeding with the further examination and assessment of a taxpayer. The Court cannot

(2) The reckoning date of the accrual of penalties and surcharges cannot be considered as the due date for payment of tax liabilities In the absence of an actual due date, a FAN does not contain a definite and actual demand to pay. (Commissioner of Internal Revenue

Q. The taxpayer filed its income tax return in 1995. In 2014, the BIR issued a final assessment notice. The taxpayer argued prescription as its defense. The BIR, on the other hand, contends that the assessment is based on fraud and thus the period of assessment is 10 years, not 3 years. Is the BIR correct? No Fraud is a question of fact that should be alleged and duly proven. To avail of the 10-year period to assess, the BIR should show that the facts upon which the fraud is based is communicated to the taxpayer. The BIR must include the basis for its allegations of fraud in the assessment notice. (Commissioner of

Internal Revenue v. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016)

Q. The BIR’s audit investigation revealed that there were undeclared VATable sales more than 30% of that declared in a taxpayer’s VAT returns. The BIR concluded that there was prima facie evidence of a false return warranting the application of the ten (10) year prescriptive period to assess. The taxpayer argues that the BIR’s right to assess had already prescribed considering that the 3-year period had lapsed and that the CIR should substantiate with clear and convincing evidence its claim that it filed a false return for the 10-year period to apply. Is the taxpayer correct? Page 6 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

No. A mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud, is sufficient to warrant the application of the ten (10) year prescriptive period under Section 222 of the NIRC. Under Section 248(B) of the NIRC, there is a prima facie evidence of a false return if there is a substantial underdeclaration of taxable sales, receipt or income. The failure to report sales, receipts or income in an amount exceeding 30% what is declared in the returns constitute substantial underdeclaration. A prima facie evidence is one which that will establish a fact or sustain a judgment unless contradictory evidence is produced. In other words, when there is a showing that a taxpayer has substantially underdeclared its sales, receipt or income, there is a presumption that it has filed a false return. As such, the CIR need not immediately present evidence to support the falsity of the return, unless the taxpayer fails to overcome the presumption against it. (Commissioner of Internal

Revenue v. Asalus Corporation, G.R. No. 221590, February 22, 2017)

HOWEVER: To warrant the application of the 10year prescriptive period, the filing of a false return must be intentional and not due to honest mistake. Entry of wrong information due to mistake, carelessness, or ignorance, without intent to evade tax, does not constitute a false return. (Philippine Daily Inquirer

v. Commissioner of Internal Revenue, G.R. No. 213943, March 22, 2017)

Q. (1) What is the effect of non-compliance with the requirements of a valid waiver per RMO No. 20-90 and RDAO 05-01? (2) Is the taxpayer estopped from questioning the validity of a waiver? (1) A waiver in order to be valid must comply with the requirements per RMO No. 20-90 and RDAO 05-01. A defective waiver does not extend the 3-year prescriptive period and thus any assessment issued beyond said period is void. (2) No. The taxpayer is not estopped from questioning the validity of a waiver. The BIR cannot shift the blame to the taxpayer for issuing defective waivers. The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 0501 which were issued by the BIR itself. A waiver of the

statute of limitations is a derogation of the taxpayer's right to security against prolonged and unscrupulous investigations and thus, it must be carefully and strictly construed. (Philippine Daily Inquirer v.

Commissioner of Internal Revenue, G.R. No. 213943, March 22, 2017)

BUT NOTE: In the above-cited case, the CIR failed to provide the office accepting the 1st and 2nd waivers with their respective third copies. Further, the third waiver was not executed in three copies. Thus, the waivers were defective. Note that there was no finding that the taxpayer was equally at fault, thus, the case of

Commissioner of Internal Revenue v. Next Mobile, G.R. No. 212825, December 7, 2015 applying the in pari delicto doctrine does not apply.

Q. Can the BIR collect deficiency taxes from a corporation subject of rehabilitation proceedings and where a Commencement Order has already been issued? No. Section 16 of RA 10142 or the Financial Rehabilitation and Insolvency Act (FRIA) provides that upon issuance of a Commencement Order which includes a Stay or Suspension Order – all actions or proceedings, in court or otherwise, for the enforcement of “claims” against a distressed company shall be suspended. “Claims” includes all claims of the government, whether national or local, including taxes, tariffs and customs duties. Creditors, including the government, must ventilate their claims before the rehabilitation. Thus, it is improper for the BIR to collect, or even attempt to collect deficiency taxes outside of the rehabilitation proceedings in willful disregard of a Commencement Order lawfully issued by a Rehabilitation Court. (Bureau of Internal Revenue v.

Lepanto Ceramics, G.R. No. 224764, April 24, 2017)

Q. When is an application for tax abatement deemed approved? An application for tax abatement is deemed approved only upon issuance of a termination letter by the BIR. The last step in the abatement process is the issuance of the termination letter. The presentation of the termination letter is essential as it proves that the taxpayer’s application for tax abatement has been approved. Thus, without a termination letter, a tax Page 7 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

assessment cannot be considered closed or terminated. (Commissioner of Internal Revenue v. Asiatrust

counted from the date of the payment of the tax or penalty.

Q. A taxpayer filed its administrative claim and judicial claim for refund of tax erroneously or illegally collected only 13 days apart. The BIR argues that this does not satisfy the requirement of exhaustion of administrative remedies. Is the BIR correct?

In this case, the tax involved in the case is the final withholding tax on the taxpayer’s interest income on its foreign currency denominated loan. Final withholding taxes are considered as full and final payment of the income tax due and thus are not subject to any adjustments. Thus, the two-year prescriptive period shall commence to run from the time the refund is ascertained, i.e. date such tax was paid, and not upon discovery of the taxpayer of the erroneous or excessive payment of taxes. (Metropolitan Bank and Trust

Development Bank, G.R. Nos. 201680-81, April 19, 2017)

No. Section 229 of the Tax Code states that judicial claims for refund of tax erroneously or illegally collected must be filed within 2 years from the date of payment of the tax or penalty providing further that the same may not be maintained until a claim for refund or credit has been duly filed with the CIR. Section 229 does not mean that the taxpayer must await the final resolution of its administrative claim. Section 229 only requires that the administrative claim should first be filed. The purpose of the administrative claim is to serve as notice of warning to the CIR that court action would follow unless the tax erroneously or illegally collected is refunded. (Commissioner of

Internal Revenue v. Goodyear Philippines, G.R. No. 216130, August 3, 2016) Q. A taxpayer-bank extended a foreign currency denominated loan to a company. As agreed, the company withheld and paid to the BIR the final withholding tax on taxpayer-bank’s interest income on the said loan. However, the taxpayerbank mistakenly remitted the same amounts to the BIR on April 25, 2001. Thus, the taxpayer-bank filed its administrative claim for refund on December 27, 2002 while the judicial claim was filed only on September 10, 2003. The taxpayerbank argues that the two-year prescriptive period of its claim for refund should be reckoned not from April 25, 2001, when it remitted the tax to the BIR but at the time it filed its Final Adjustment Return or Annual Income Tax Return for the taxable year of 2001, or in April 2002, as it was only at this time that its right to refund was ascertained. Is the taxpayer-bank correct? No. In claims for refund of tax erroneously or illegally collected, both the administrative and judicial claims for refund should be filed within the two-year prescriptive period. The two-year prescriptive period is

Company v. Commissioner of Internal Revenue, G.R. No. 182582, April 17, 2017)

Q. For taxpayers using the On-line Electronic Documentary Stamp Metering Machine (DS metering machine), what should be deemed the “date of payment” of the DST for the purpose of counting the two-year prescriptive period for filing a claim for a refund or tax credit? The “date of payment” of the DST when the prescriptive period to file a claim for refund/credit must commence shall be the date when the documentary stamps are imprinted upon the documents and not the date of purchase of documentary stamps for loading or reloading on the DS metering machine. The payment of the DST and the filing of the DST Declaration Return upon loading/reloading of the DS Metering machine must not be considered as the “date of payment” when the prescriptive period to file a claim for refund/credit must commence. For DS metering machine users, the payment of DST upon loading/reloading is merely an advanced payment for future application. The liability of the payment of DST falls due only upon occurrence of the taxable transaction. (Philippine Bank of Communications

v. Commissioner of Internal Revenue, G.R. No. 194065, June 20, 2016)

LOCAL GOVERNMENT TAXATION Q. Uniwide conducted bsiness in buildings and establishments constructed on parcels of land covered by Transfer Certificates of Title (TCTs) issued by the Registry of Deeds of Pasig City. In the said TCTs, the location of the parcels of land is indicated as being in Pasig. From 1989 to 1996, Page 8 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

Uniwide paid business and realty taxes, fees, and other charges to the City of Pasig. However, beginning 1997 and after receiving notice from the Municipality of Cainta that the subject properties were within its territorial jurisdiction, Uniwide no longer paid local taxes to the City of Pasig. For purposes of complying with local tax liabilities in case of a boundary dispute between local governments, to whom should the taxpayer pay its local business tax and realty taxes? The taxpayer should pay its local business tax to the City of Pasig who has the apparent right to levy and collect local business tax and realty taxes on the subject properties on the basis of the TCTs. Under the Local Government Code, local business taxes are payable for every separate or distinct establishment or place where business subject to the tax is conducted, which must be paid by the person conduct the same. The situs of taxation shall be paid to the local government where such branch or sales outlet is located. For real property taxes, collection is vested in the locality where the property is situated. In determining the location for purposes of identifying the local government entitled to collect taxes, the taxpayer should follow the location stated in the certificate of title until amended through proper judicial proceedings. (Municipality of Cainta

v. City of Pasig and Uniwide, G.R. No. 176703, June 28, 2017)

REAL PROPERTY TAXATION Q. Does the exemption from real property taxes given to cooperatives exclude real property leased to other persons? No. The Local Government Code exempts duly registered cooperatives from payment of real property taxes without distinction. Nothing in the law suggests that real property tax exemption only applies when the property is used by the cooperative itself. Thus, the exemption from real property taxes given to cooperatives applies regardless of whether or not the land owned is leased. The instance that the real property is leased to either an individual or corporation is not a ground for withdrawal of tax exemption. (Provincial Assessor of Agusan del Sur v. Filipinas

Government Code, its ‘road equipment’ and ‘mini haulers’ should be considered machinery directly used by the taxpayer to meet the needs of its operations and thus real property subject to real property tax. The taxpayer, on the other hand, contends that, under the Civil Code, they are movables by nature. Is the taxpayer correct? No. The characterization of machinery as real property is governed by the Local Government Code and not the Civil Code. In this case, the phrase pertaining to physical facilities for production in the definition of ‘machinery’ in the Local Government Code is comprehensive enough to include road equipment and mini haulers as actually, directly, and exclusively used by the taxpayer to meet the needs of its operations in palm oil production. (Provincial Assessor of Agusan

del Sur v. Filipinas Palm Oil Plantation, G.R. No. 183416, October 5, 2016)

Q. A taxpayer argues that payment under protest is not required before it could challenge the authority of the local government to assess tax on its tax exempt properties before the LBAA. Is the taxpayer correct? No. Settled is the rule that should the taxpayer/real property owner question the excessiveness or reasonableness of the assessment, the law directs that the taxpayer should first pay the tax due before his protest can be entertained. A claim for exemption from the payment of real property taxes does not question the assessor’s authority to assess and collect such taxes, but pertains to the reasonableness or correctness of the assessment by the local assessor. Thus, payment under protest is required. (National Power Corporation v. The

Provincial Treasurer of Benguet, G.R. No. 209303, November 14, 2016) Q. Does the filing of a Motion for Reconsideration before the LBAA toll the 30-day period within which to appeal before the CBAA?

Palm Oil Plantation, G.R. No. 183416, October 5, 2016)

No. Filing of a Motion for Reconsideration before the Local Board of Assessment Appeals (LBAA) will not toll the 30-day period within which to appeal before the Central Board of Assessment Appeals (CBAA).

Q. A taxpayer is engaged in palm oil production. The Local Assessor argues that, under the Local

The “fresh period rule” in Neypes does not apply as the appeal from a decision of the LBAA to the CBAA is Page 9 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

administrative in nature, not judicial. (National Power

Corporation v. The Provincial Treasurer of Benguet, G.R. No. 209303, November 14, 2016)

TARIFF AND CUSTOMS DUTIES Q. Can a forfeiture proceeding be instituted on the basis of a certification issued by the Philippine Coast Guard that the vessel did not log in or submitted any Master’s Oath of Safe Departure? No. There must be a prior showing of probable cause before any proceeding for seizure and/or forfeiture is instituted. The determination must be made by the BOC who ordered the forfeiture. Once established, the burden of proof is shifted to the claimant. A forfeiture proceeding cannot be instituted on the basis of a certification issued by the Philippine Coast Guard that the vessel did not log in or submitted any Master’s Oath of Safe Departure. (Commissioner of

Customs v. William Singson and Triton Shipping Corporation, G.R. No. 181007, November 21, 2016) Q. Does the Commissioner of Customs have the power to interpret the provisions of the CMTA? Yes. The Commissioner of Customs now has the exclusive and original jurisdiction to interpret the provisions of the CMTA in collaboration with other relevant government agencies, subject to review by the Secretary of Finance. (Section 201, CMTA) Q. What are “de minimis importations”? This pertains to imported goods with an FOB or FCA value of ten thousand pesos (₱10,000.00) or below, which are exempt from taxes and duties. (Section 423, CMTA) Q. (1) Define “returning resident” (2) What are the conditions for tax and duty exemption of the personal and household effects of “returning residents”? (3) Is there an additional tax and duty exemption granted to returning Overseas Filipino Workers (OFWs)? (1) “Returning residents” shall refer to nationals who have stayed in a foreign country for a period of at least six (6) months.

(2) Returning residents shall have tax and duty exemption on personal and household effects provided that: a. It shall not be in commercial quantities; b. It is not intended for barter, sale or for hire; and c. Limited to the FCA or FOB value of: i. Three hundred fifty thousand pesos (₱350,000.00) for those who have stayed in a foreign country for at least ten (10) years and have not availed of this privilege within ten (10) years prior to returning resident's arrival; ii. Two hundred fifty thousand pesos (₱250,000.00) for those who have stayed in a foreign country for a period of at least five (5) but not more than ten (10) years and have not availed of this privilege within five (5) years prior to returning resident's arrival; or iii. One hundred fifty thousand pesos (₱150,000.00) for those who have stayed in a foreign country for a period of less than five (5) years and have not availed of this privilege within six (6) months prior to returning resident's arrival. NOTE: Any amount in excess of the abovestated thresholds shall be subject to the corresponding duties and taxes. (3) Yes. Returning Overseas Filipino Workers (OPWs) shall have the privilege to bring in, tax and duty-free, home appliances and other durables, limited to one of every kind once in a given calendar year accompanying them on their return, or arriving within a reasonable time which, barring unforeseen and fortuitous events, in no case shall exceed sixty (60) days after every returning OFW's return upon presentation of their original passport at the port of entry. (Section 800, CMTA) NOTE: Any amount in excess of FCA value of one hundred fifty thousand pesos (₱150,000.00) for personal and household effects or of the number of duty-free appliances shall be subject to the corresponding taxes and duties Q. What are the conditions in order to avail of the tax and duty exemption on “balikbayan boxes”? Page 10 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

Residents of the Philippines, OFWs or other Filipinos while residing abroad or upon their return to the Philippines shall be allowed to bring in or send to their families or relatives in the Philippines balikbayan boxes which shall be exempt from applicable duties and taxes provided that: 1. The balikbayan boxes shall contain personal and household effects only and shall neither be in commercial quantities nor intended for barter, sale or for hire; 2. The FCA value of which shall not exceed one hundred fifty thousand pesos (₱150,000.00); and 3. That residents of the Philippines, OFWs or other Filipinos can only avail of this privilege up to three (3) times in a calendar year. (Section 800, CMTA) NOTE: Any amount in excess of the allowable non-dutiable value shall be subject to the applicable duties and taxes; Q. What is a “Goods Declaration”? All goods declaration for consumption shall be cleared through a formal entry process except for the following goods which shall be cleared through an informal entry process, namely: 1. Goods of a commercial nature with Free on Board (FOB) or Free Carrier At (FCA) value of less than fifty thousand pesos (₱50,000.00); and 2. Personal and household effects or goods, not in commercial quantity, imported in a passenger’s baggage or mail. (Section 402, CMTA).

The Goods declaration must be lodged within fifteen (15) days from the date of discharge of the last package from the vessel or aircraft. The period to file the goods declaration may, upon request, be extended on valid grounds for another fifteen (15) days. (Section 407, CMTA) Q. What is a “Provisional Goods Declaration”? If, at the time of importation, the importer does not have all the documents necessary to complete the Goods Declaration, the importer shall file a “Provisional Goods Declaration.”

The importer must likewise execute an undertaking to complete the information or to submit the supporting documents within 45 days from the filing of the provisional goods declaration. For valid reasons, the period may be extended for another 45 days. To release the goods tentatively, the importer must post a security or bond equivalent to the amount ascertained to be the duties and taxes due. (Section 403, CMTA) The duties and taxes initially assessed shall be deemed tentative pending final readjustment and submission of the additional information or documentation necessary to complete the provisional goods declaration. (Section 426, CMTA) Q. What is the prescriptive period for any action or claim questioning the propriety of the entry and settlement of duties pertaining to a particular shipment? In the absence of fraud and when the goods have been finally assessed and released, the assessment shall be conclusive upon all parties three (3) years from the date of final payment of duties and taxes, or upon the completion of the post clearance audit. (Section 430, CMTA) The Bureau of Customs may conduct a post-clearance audit within 3 years from the date of final payment of duties and taxes or customs clearance, as the case may be. (Section 1000, CMTA) BUT NOTE: In Pilipinas Shell Petroleum

Corporation v. Commissioner of Customs, G.R. No. 195876, December 5, 2016 and in Pilipinas Shell Petroleum Corporation v. Commissioner of Customs, G.R. No. 195876, June 19, 2017 the Supreme Court mentioned a 1-year prescriptive period. That is based on the former Section 1603 of the Tariff and Customs Code (even prior to its most recent amendment). Q. What is the prescriptive period for a claim for refund of customs duties? All claims and application for refund of duties and taxes shall be made in writing and filed with the Bureau within twelve (12) months from the date of payment of duties and taxes. (Section 913, CMTA)

Page 11 of 14 NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

BUT NOTE: The filing of claims for refund of national internal revenue taxes shall be governed by the provisions provided under the NIRC of 1997 as amended. Q. Define “misdeclaration,” “misclassification” and “undervaluation” in the Goods Declaration. They are defined as follows: Misdeclaration

Wrong declaration of quantity, quality, description, weight, or measurement of the goods Misclassification Insufficient or wrong description of the goods or use of wrong tariff heading Undervaluation There is undervaluation when: (a) the declared value fails to disclose in frill the price actually paid or payable or any dutiable adjustment to the price actually paid or payable; or (b) when an incorrect valuation method is used or the valuation rules are not properly observed. (Section 1400, CMTA)

2. When the discrepancy in duty and tax to be paid between what is legally determined and what is declared is more than ten percent (10%) 3. When the discrepancy in duty and tax to be paid between what is legally determined and what is declared is more than thirty percent (30%) 4. When the misdeclaration, misclassification or undervaluation is intentional or fraudulent, such as when a false or altered document is submitted or when false statements or information are knowingly made

Q. What are the rules in case of misdeclaration, misclassification or undervaluation in the Goods Declaration? The rules are as follows: 1. When the No surcharge imposed discrepancy in duty is less than ten percent (10%), or when the declared tariff heading is rejected in a formal customs dispute settlement process involving difficult or highly technical question of tariff classification, or when the tariff classification declaration relied on an official government ruling.

250% surcharge of the duty and tax due is imposed

The discrepancy shall constitute a prima facie evidence of fraud.

500% of the duty and tax due and that the goods shall be subject to seizure regardless of the amount of the discrepancy without prejudice to the application of fines or penalties against the importer and other person or persons who willfully participated in the fraudulent act. (Section 1400, CMTA)

Q. What are the grounds in order for imported goods to be deemed abandoned? Imported goods are deemed abandoned under the following circumstances: 1. When the owner, importer, or consignee of the imported goods expressly signifies in writing to the District Collector the intention to abandon the same; or 2. When the owner, importer, consignee, or interested party after due notice, falls to file the goods declaration 15 days from notice of discharge of the last package from the vessel or aircraft (extendible for another 15 days on valid grounds); or 3. Having filed such goods declaration, the owner, importer, consignee or interested party after due notice, fails to pay the assessed duties, taxes and other charges thereon, or, if the regulated goods failed to secure the necessary Page 12 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

goods declaration or export declaration, clearances, licenses, and any other requirements, prior to importation, within fifteen (15) days from the date of final assessment; or 4. Having paid the assessed duties, taxes and other charges, the owner, importer or consignee or interested party after due notice, fails to claim the goods within thirty (30) days from payment; or 5. When the owner or importer fails to claim goods in customs bonded warehouses within the prescribed period. (Section 1129, CMTA)

JUDICIAL REMEDIES Q. Does the Secretary of Justice have jurisdiction to review disputed assessments involving government owned and controlled corporations? The Secretary of Justice does not have jurisdiction to review disputed assessments. The prevailing rule is that it is the CTA that has the exclusive appellate jurisdiction to review, among others, the decisions of the Commissioner of Internal Revenue in cases involving disputed assessments. (Commissioner of

Internal Revenue v. Secretary of Justice and Philippine Amusement and Gaming Corporation, G.R. No. 177387, November 9, 2016)

Q. Does the CTA have exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other administrative issuances of the CIR? Yes. The CTA has exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other administrative issuances of the Commissioner of Internal Revenue. The CTA has not only jurisdiction to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund, but also jurisdiction to take cognizance of cases directly challenging the constitutionality or validity of a tax law or regulation or administrative issuance (revenue orders, revenue memorandum circulars, rulings). The law intends the CTA to have exclusive jurisdiction to resolve all tax problems. Petitions for writs of

certiorari against the acts and omissions of the said quasi-judicial agencies should, thus, be filed before the CTA. Except for local tax cases, actions directly challenging the constitutionality or validity of a tax law or regulation or administrative issuance may be filed directly before the CTA. With respect to administrative issuances (revenue orders, revenue memorandum circulars, or rulings), these are issued by the Commissioner under its power to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws. Tax rulings, on the other hand, are official positions of the Bureau on inquiries of taxpayers who request clarification on certain provisions of the National Internal Revenue Code, other tax laws, or their implementing regulations. Hence, the determination of the validity of these issuances clearly falls within the exclusive appellate jurisdiction of the CTA, subject to prior review by the Secretary of Finance. (Banco de Oro v. Republic, G.R. No. 198756, August 16, 2016) Q. Can a taxpayer directly question a tax ruling with the Supreme Court? No. Rulings of the CIR (including Revenue Memorandum Circulars) are appealable to the Court of Tax Appeals, and not to any other courts. If a remedy in the administrative machinery can still be resorted to, then such remedy must first be exhausted before the court’s power of judicial review can be sought. In questioning the validity of a Revenue Memorandum Circular, taxpayers should not resort directly to the Supreme Court. Taxpayers should comply with the doctrine of administrative remedies and the rule on hierarchy of courts. (Bloomberry Resorts and

Hotels v. Bureau of Internal Revenue, G.R. No. 212530, August 10, 2016)

Interpretative rulings of the Bureau of Internal Revenue are reviewable by the Secretary of Finance. However, in one case, the Supreme Court has held that because of special circumstances - namely: the question involved is purely legal; the urgency of judicial intervention given impending maturity of the PEACe Bonds; and the futility of an appeal to the Secretary of Finance as the latter appeared to have adopted the challenged Bureau of Internal Revenue rulings - there was no need to exhaust all administrative remedies before seeking judicial relief directly with the Supreme Page 13 of 14

NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

QUESTIONS AND ANSWERS ON SIGNIFICANT SUPREME COURT JURISPRUDENCE AND BIR ISSUANCES FOR THE 2017 BAR (WITH SALIENT PROVISIONS OF THE CMTA) PIERRE MARTIN D. REYES

Court. (Banco de Oro v. Republic, G.R. No. 198756, August 16, 2016) Q. The National Power Corporation (NPC) received a notice of franchise tax delinquency from the Provincial Government of Bataan. NPC argued that it was exempt from the local franchise tax. Eventually, the Provincial Government issued Warrants of Levy on 14 properties owned by NPC in Limay, Bataan. The same were likewise sold via public auction where the Provincial Government was the winning bidder. NPC filed a Petition for declaration of nullity of foreclosure sale with prayer for preliminary mandatory injunction with the Regional Trial Court (RTC). The RTC dismissed the same. NPC appealed to the Court of Appeals (CA). The Provincial Government of Bataan moved to dismiss the same for lack of jurisdiction of the CA over the subject matter as the suit was essentially a local tax case questioning the validity of the imposition of the local franchise tax. Is the Provincial Government of Bataan correct? Yes. The Court of Tax Appeals is vested with the exclusive appellate jurisdiction over, among others, appeals from the "decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction." The case a quo is a local tax case that is within the exclusive appellate jurisdiction of the Court of Tax Appeals. Parenthetically, the case arose from the dispute between Napocor and the Provincial Government of Bataan over the purported franchise tax delinquency of Napocor. Although the complaint filed with the trial court is a “Petition for declaration of nullity of foreclosure sale with prayer for preliminary mandatory injunction,” the petition essentially assails the correctness of the local franchise tax assessments by the Provincial Government of Bataan. (Napocor v.

Provincial Government of Bataan, G.R. No. 180654, March 6, 2017)

Q. Does the CTA En Banc have jurisdiction to take cognizance of a petition for annulment of judgment to annul and set aside a final decision of a CTA division ?

no instance in which the en banc may reverse, annul or void a final decision of a division. The Revised Rules of the CTA provide for no instance of an annulment of judgment at all. The Rules of Court are silent as to whether a collegial court sitting en banc may annul a final judgment of its own division.The silence of the Rules may be attributed to the need to preserve the principles that there can be no hierarchy within a collegial court between its divisions and the en banc, and that a court's judgment, once final, is immutable. Further, a direct petition for annulment of a judgment of the CTA to the Supreme Court, meanwhile, is likewise unavailing, for the same reason that there is no identical remedy with the High Court to annul a final and executory judgment of the Court of Appeals. The proper remedy of the taxpayer is to file a petition for certiorari under Rule 65, which can be filed as an original action with the Supreme Court and not before the CTA En Banc. (Commissioner of Internal Revenue

v. Kepco Ilijan Corporation, G.R. No. 199422, June 21, 2016) Q. May the requirement of a bond for the CTA to suspend the collection of tax be dispensed with?

Yes. The requirement of the bond as a condition precedent to suspension of collection applies only in cases where the processes by which the collection ought to be made by means thereof are carried out in consonance with the law, not when the processes are in plain violation of the law that they have to be suspended for jeopardizing the interests of the taxpayer. The CTA should conduct a preliminary hearing to ascertain and rule whether the bond may be dispensed or reduced. The CTA should consider other factors recognized by law towards suspending the collection of the assessment, like whether or not the assessment would jeopardize the interest of the taxpayer, or whether the means adopted by the CIR in determining the liability of the taxpayer was legal and valid. (Tridharma Marketing Corporation v. Court of

Tax Appeals and Commissioner of Internal Revenue, G.R. No. 215950, June 20, 2016) ***Nothing else follows***

No. The Revised Rules of the CTA and even the Rules of Court which apply suppletorily thereto provide for Page 14 of 14 NOTICE This material supplements the author’s 2013 Bar Reviewer, 2014 Bar Supplement, 2015 Bar Supplement, and Tax Audit Primer. No portion of this work may be copied or reproduced without the written permission of the author. Possessors may reproduce and distribute this supplement provided the name of the author remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.