Vic-Mamalateo-(Tax-Remedies).pdf

UPDATES ON TAX REMEDIES Atty. Vic C. Mamalateo Oct 2, 2013 PICPA, Hotel Intercon, Makati City

FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG, G.R. 173425, Jan 22, 2013 • BIR FILED MOTION FOR RECON – 1. Prior payment of tax is inherent in the nature and payment of the 8% transitional input tax – 2. RR 7-95 providing for 8% TIT based on value of improvements on real property is valid legislative rule – 3. For failure to clearly prove its entitlement to TIT credit, petitioner’s claim for refund must fail; a refund partakes of the nature of tax exemption, which must be construed strictly against the taxpayer

• SC RULING – SC deny with finality the MR filed by BIR. Basic issues have already been passed upon and no substantial argument has been adduced to warrant the reconsideration sought.

FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG, G.R. 173425, Jan 22, 2013 • •

BIR/Dissent: Sale by national government of lot to petitioner was not subject to any input tax. Otherwise stated, prior payment of taxes is a prerequisite before a taxpayer could avail of the TIT credit. SC: Prior payment of taxes is not necessary before a taxpayer could avail of the 8% TIT, based on the following: – Sec 105 of old Tax Code clearly provides that all that is required from a taxpayer is to file a beginning inventory with the BIR. – Since the law does not provide for prior payment of taxes, to require it now would be tantamount to judicial legislation. – A TIT is not a tax refund per se but a tax credit. Logically, prior payment of taxes is not required before a taxpayer could avail of TIT. Tax refund is not synonymous to tax credit. – This issue is not novel. In FBDC v. CIR (583 SCRA 168 [Apr 2009]), this Court had already ruled “If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have simply said that the tax base shall be the actual VAT paid. Instead, the law as framed contemplates a situation where a TIT is claimed, even if there was no actual payment of VAT. In such cases, the tax base used shall be the value of the beginning inventory of goods, materials and supplies.” – In CIR v. Central Luzon Drug Corp, this Court declared that prior payment of taxes is not required in order to avail of a tax credit. While a tax liability is essential to availment or use of a tax credit, prior tax payments are not.

FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG, G.R. 173425, Jan 22, 2013 • BIR/Dissent: Sec. 110 and 112, Tax Code do not allow any cash refund of input tax, only a tax credit, and even for zero-rated or EZR VAT-registered taxpayers, the Tax Code does not allow any cash refund or credit of TIT. • SC: This is inaccurate. – Sec. 112, Tax Code speaks of zero-rated or EZR sales. Transaction in this case is not ZR or EZR. – Careful reading of Sec 112 would show it allows either a refund or tax credit for input VAT on ZR or EZR sales. – Contrary to Dissent, Sec 112 does not prohibit cash refund or tax credit of TIT in case of ZR or EZR VAT-reg taxpayers who do not any output tax. The phrase “except TIT” was inserted in Sec 112 to distinguish creditable input tax from TIT credit. TIT may be availed of once by first-time VAT taxpayers. Creditable input taxes are input taxes of VAT taxpayers in the course of their trade or business, which should be applied within 2 years after the close of taxable quarter when sales were made.

FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG, G.R. 173425, Jan 22, 2013 – As regards Sec 110, while the law only provides for a tax credit, a taxpayer who erroneously or excessively pays his output tax is still entitled to recover the payments either as a tax credit or refund. In this case, since petitioner has available TIT, it filed a claim for refund. Thus, there is no reason for denying its claim for tax refund/credit. – The dispositive portion of our Sept 4, 2012 Decision, directed CIR to either refund or issue TCC. We did not outrightly direct the cash refund. – In the earlier Fort Bonifacio case, we directed CIR to either refund or issue TCC. This decision became final and executory and entry of judgment was made in due course.

FORT BONIFACIO DEV CORP v. CIR & RDO, TAGUIG, G.R. 173425, Jan 22, 2013

• BIR/Dissent: The refund, not being supported by any prior actual tax payment, is unconstitutional since public funds will be used to pay for the refund which is for the exclusive benefit of petitioner, a private entity. • SC: This is inaccurate. The grant of refund or issuance of TCC would not contravene Sec 4(2) of GAO (fund or property shall be sepnt or used solely for public purpose). It is precisely pursuant to Sec 105 of NIRC, which allows refund/tax credit.

PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6, 2013 • FACTS – Philacor is a domestic corporation engaged in retail financing. Buyer of appliance executes a promissory note in favor of the appliance dealer. Such promissory note is subsequently assigned by the appliance dealer to Philacor. – LA was issued and PAN was later on issued by BIR against Philacor. BIR assessed deficiency DST on all promissory notes purchased by Philacor. Philacor argued that the accredited appliance dealers were required by law to affix DST until the enactment of RA 7660, which took effect on Jan 15, 1994. – Philacor filed petition for review. CTA held Philacor liable for DST on two transactions – issuance of PN and the subsequent assignment in favor of Philacor. MR filed with CTA division, but denied. Appeal to CTA en banc made, and it ruled in favor of BIR. Philacor then filed appeal to SC.

PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6, 2013 • SC RULING – Philacor is not liable for DST on issuance of promissory notes. – Who are liable to DST? • Sec 173 names those who are primarily liable for DST and those who would be secondarily liable. The persons primarily liable are the person (1) making, (2) signing, (3) issuing, (4) accepting, or (5) transferring the taxable document. Should these parties be exempted from paying tax, the other party who is not exempt would then be liable. • Philacor did not make, sign, issue, accept or transfer the prom notes. The acts of making, signing, issuing and transferring are unambiguous. The buyers of appliances made, signed and issued the prom notes, while the appliance dealer transferred these notes to Philacor, which received or accepted them. “Acceptance” is, however, an act that is not even applicable to promissory notes, but only to bills of exchange. Its object to bind the drawee of a bill and make him an actual and bound party to the instrument.

PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6, 2013 – In a ruling adopted by BIR as early as 1955, acceptance has been given a narrow definition with respect to incoming foreign bills of exchange, not the common usage of the word “accepting” as in receiving. – This ruling further clarifies that a party to a taxable transaction who “accepts” any document in the ordinary meaning of the act does not become primarily liable for the tax. In this regard, Sec 173 assumes materiality as it determines liability should the parties who are primarily liable turn out to be exempted from paying tax; the other party to the transaction then becomes liable. – RR 9-2000 interprets the law more widely so that all parties to a transaction are primarily liable for the DST, and not only the person making, signing, issuing, accepting or transferring the same becomes liable as the law provides. But even under these terms, the liability of Philacor is not a foregone conclusion.

PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6, 2013 – It would seem that Philacor is the person who ultimately benefits from the issuance of the notes, if not the intended payee of these notes. However, these observations pertain to facts and implications that are found outside the terms of the documents and are contradictory to their outright terms. To consider these externalities would go against the doctrine that the liability for DST and the amount due are determined from the document itself – examined through its form and face – and cannot be affected by proof of facts outside it. – Sec 42 of Regulation No. 26 (Mar 26, 1924) uses the word “can” which is permissive, rather than the word “shall” which would make the liability of the persons named definite and unconditional. – We cannot interpret Sec 42 of Regulation 26 to mean that anyone who “uses” the document, regardless of whether such person is a party to the transaction, should be liable, as this reading would to beyond Sec 173 of the 1986 Tax Code – the law that the rule seeks to implement. Implementing rules and regulations cannot amend a law for they are intended to carry out, not supplant or modify, the law.

PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6, 2013 • Philacor is not liable for DST on assignment of promissory notes – As an assignee or transferee of the prom notes, Philacor is not liable as this transaction is not taxed under the law. – CIR argues that DST is levied on the exercise of privileges thru the execution of specific instruments or the privilege to enter into a transaction. Thus, DST should be imposed on every exercise of the privilege to enter into a transaction. There is nothing in Sec 180 of the 1986 Tax Code that supports this argument; the argument is even contradicted by the way the provisions on DST were drafted. – Philacor correctly pointed out that there are provisions in the 1997 Tax Code that specifically impose the DST on the transfer and/or assignment of documents evidencing particular transactions (Secs. 175, 176, 178, 198, 183-185, 194-195). We can safely conclude that where the law did not specify that such transfer and/or assignment is to be taxed, there would be no basis to recognize an imposition. The list does not include the assignment or transfer of evidence of indebtedness; rather, it is the renewal of these that is taxable.

PHILACOR CREDIT CORP v. CIR, G.R. 169899, Feb 6, 2013 – In BIR Ruling 139-97, Dec 29, 1997, CIR pronounced that the assignment of a loan that is not for a renewal or a continuance does not result in a liability for DST. – In RR 13-2004, Dec 23, 2004, DST on all debt instruments shall be imposed only on every original issue and the tax shall be based on the issue price thereof. Included in the enumeration of debt instruments is a promissory note. – The settled rule is that in case of doubt, tax laws must be construed strictly against the State and liberally in favor of the taxpayer. The reason is – taxes, as burdens which must be endured by the taxpayer, should not be presumed to go beyond what the law expressly and clearly declares.

VAT REFUND OR TAX CREDIT • Tax reliefs of VAT taxpayers on their excess input taxes (EIT) attributable to zero-rated and effectively zerorated sales – Carry over the excess input tax to the next quarter, until excess is utilized – File a claim for refund – File a claim for tax credit, within two years after the close of taxable quarter where the sales were made, (NOT from the filing of the quarterly VAT return)

• For non-zero-rated sales, remedy available is only to carry over EIT to the next quarter(s), or to dissolve the corporation or cease operation of business subject to VAT within 2 years from date of dissolution or cessation of business – RMC 57-2013, Aug 29, 2013 (Unutilized excess input taxes may not be expensed after expiration of 2 years to file claim for refund or tax credit)

RMC 57-2013, Aug 23, 2013 • BIR RULING 123-2013, Mar 25, 2013 – Unutilized creditable input taxes attributable to zero-rated sales can only be recovered through the application for refund or tax credit. – Unapplied input taxes after the expiration of the two-year period prescriptive period may not be expensed outright. • Tax exemptions are strictly construed against the taxpayer. • Deductions are in the nature of tax exemptions.

VAT REFUND OR TAX CREDIT • Reckoning of two-year prescriptive period – From the date of the filing of the VAT return and payment of the tax. After all, VAT liability or refundability can only be determined upon the filing of the quarterly VAT return (Atlas Consolidated Mining & Dev Corp v. CIR, G.R. No. 141104, June 8, 2007). – From the close of the taxable quarter when the relevant sales were made pertaining to the input VAT, regardless of whether said tax was paid or not. The phrase “within two years” refers to the application for refund or TCC filed with the CIR, and not to filing of appeal to CTA. – Secs. 204© and 229, NIRC cannot apply in a claim for refund of excess input VAT on zero-rated sales, considering that it is not a case of erroneous payment or illegal collection of taxes (CIR v. Mirant Pagbilao Corp, G.R. No. 172129, Sept 12, 2008).

VAT REFUND OR TAX CREDIT • Reckoning of two-year prescriptive period – From the close of the taxable quarter when the sales were made. Sec.112(A) which states “within two years … apply for the issuance of a tax credit certificate or refund” refers to applications for tax refund/credit filed with the CIR and not to appeals made to the CTA. – Sec. 112(D), NIRC provides that CIR has 120 days from date of submission of complete documents within which to grant or deny the claim. In case of full or partial denial, or the failure of CIR to act on the application within the required period, taxpayer may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120 day period, appeal the decision or the unacted claim with the CTA.

VAT REFUND OR TAX CREDIT – In this case, administrative and judicial claims were simultaneously filed on Sept 30, 2004. Taxpayer should have waited for the decision of the CIR or the lapse of the 120-day period. Sec 112(A) applies to administrative claims, while Sec 112(D) applies to judicial claims. Thus, SC found the judicial claim with the CTA premature. – The 120-30 day period under Sec. 112(D) is crucial in filing an appeal to the CTA. Sec. 229 does not apply to refunds/credits of unutilized input VAT arising from zerorated sales. – In computing legal periods, the Administrative Code of 1987 prevails over the Civil Code (CIR v. Aichi Forging Co. of Asia, G.R. No. 184823, Oct 6, 2010).

CIR v. SAN ROQUE POWER CORP, TAGANITO MINING CORP, PHILEX MINING CORP , G.R. 187455, 196113 & 197156, Feb 12, 2013

• San Roque v. CIR (Feb 2013) • Mar 28, 2003 – San Roque filed amended administrative claim with BIR • Apr 10, 2003 – It filed petition for review with CTA (i.e., after 13 days) • SC RULING • 1. San Roque must comply with the 120-day waiting period. This is mandatory and jurisdictional. Failure to comply violates the doctrine of exhaustion of administrative remedies and renders the petition PREMATURE and without a cause of action; hence, the court cannot acquire jurisdiction.

CIR v. SAN ROQUE POWER CORP • 2. CTA charter: CTA can review on appeal decisions of CIR involving claims for refunds, or in case of inaction, which is deemed a denial. In this case, there is no CIR decision to be reviewed by the CTA. • 3. Art. 5, NCC: Acts executed against mandatory or prohibited laws shall be void, except when the law itself authorizes its validity. Here, there is no such law. • 4. A person committing a void act contrary to the mandatory provision of law cannot claim or acquire any right from his void act. This doctrine is repeated in Art. 2254, NCC.

PHILEX MINING CORP v. CIR • PHILEX MINING v. CIR (2013) • Oct 21, 2005 – Philex filed original VAT return for Q3 2005 • Mar 20, 2006 – It filed administrative claim with BIR • Oct 17, 2007 – It filed petition for review with CTA • SC RULING • 1. Philex timely filed its administrative claim. Even if the 2-year prescriptive period is computed from the date of payment of the output tax under Sec 229, it filed its claim on time.

PHILEX MINING CORP v. CIR • 2. CIR had until July 17, 2006, the last day of the 120-day period, to decide Philex’s claim • 3. Since CIR did not act on the claim on or before July 17, 2006, Philex had until Aug 17, 2006, the last day of the 30-day period, to file its judicial claim. • 4. However, Philex filed its judicial claim only on Oct 17, 2007, or 426 days after the last day of filing; hence, the case is dismissed for LATE FILING.

FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 & 175543, Feb 25, 2013 • FACTS – In 1992, RA 7227 was enacted that created BCDA. On Feb 3, 1995, BCDA established Fort Bonifacio Dev Corp, as a wholly-owned government corporation. – On Feb 7, 1995, RP transferred by land grant (thru Special Patent 3596) a 214-hectare land in Fort Bonifacio to FBDC, which in turn executed a prom note for P71.2 B in favor of government. RP assigned PN to BCDA, which assigned it back to FBDC as full payment of subscriptions to FBDC’s authorized capital stock. – On Feb 8, 1995, RP executed a Deed of Absolute Sale with Quitclaim in favor of FBDC covering the 214 has for P71.2 B. – On Feb 19, 1995, Reg of Deeds issued Original Cert of Title. – On Feb 24, 1995, Congress enacted RA 7917, declaring exempt from all forms of taxes the proceeds of government sale of Fort Boni land. – Subsequently, BCDA sold at public bidding 55% of its shares in FBDC to private investors.

FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 & 175543, Feb 25, 2013 – On Sept 15, 1998, CIR issued LA for FBDC’s 1995 tax audit. – On Dec 10, 1999, CIR issued FAN for def DST based on RP’s sale to FBDC of Fort Boni land. – FBDC protested the FAN. On Jan 6, 2000, FBDC wrote a letter to CIR, invoking RA 7917. – Since CIR did not act on protest, FBDC filed petition for review after the lapse of 180-day period. – On Mar 5, 2003, CTA rendered decision denying FBDC’s petition and affirming DST assessment. Special patent was treated as separate and distinct from Deed of Absolute Sale. Special patent was exempt, but Deed of Sale was not.

FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 & 175543, Feb 25, 2013 – FBDC filed petition for review with CA, which affirmed CTA decision, including 20% def. interest. – FBDC filed appeal to SC. On Dec 17, 2004, FBDC filed manifestation and motion informing the court that the disputed assessment had already been paid thru SARO issued by DBM to BCDA for P1.189 B, which includes DST. – CIR commented that payment was illegal, since it breached the scope of tax exemption provided in RA 7917, and since BCDA paid the tax for the benefit of FBDC, a private corporation.

FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 & 175543, Feb 25, 2013 • SC RULING – The two documents – Special Patent and Deed of Absolute Sale – covered the Republic’s conveyance to FBDC of the same Fort Boni land for the same price that FBDC paid but once. It is one transaction, twice documented. – On Feb 7, 1995, the Republic, thru the President, issued Special Patent to FBDC pursuant to RA 7227. That legislative act removed the public character of the Fort Boni land and allowed the President to cede ownership to FBDC, then a wholly-owned govt corp under BCDA. The Republic could not just spend or use the money it received from the sale without authority from Congress. In this case, the basis for appropriation is found also in RA 7227, which earmarked the proceeds of sale of the land for use in capitalizing the BCDA. – The Republic sold the land to FBDC and the latter paid it with a prom note. When the Republic in turn assigned the note to BCDA, not only did it comply with its obligation under the above provision to capitalize BCDA from the proceeds of sale and also enabled the latter to fully pay for its subscription to FBDC’s capital stock. Thus, to tax the proceeds of sale would be to tax an appropriation made by law, a power that CIR does not have.

FORT BONIFACIO DEV CORP v. CIR, G.R. 164155 & 175543, Feb 25, 2013 – The Special Patent absolutely and irrevocably grant and convey legal title over the land to FBDC. In effect, the Republic admitted that the Deed of Sale was only a formality, not a vehicle for conveying ownership. – DST is by nature, an excise tax since it is levied on the exercise by persons of privileges conferred by law. These privileges may cover the creation, modification or termination of contractual relationships by executing specific documents. The sale of Fort Boni land was not a privilege but an obligation imposed by law which was to sell lands in order to fulfill a public purpose. – Sec 8 of RA 7227 exempted the proceeds of sale of land from all forms of taxes, including DST. Moreover, the payment of DST would have resulted in diminishing the proceeds of sale that the Republic turned over to BCDA to capitalize it. – When DST was paid thru SARO, the government acknowledges that it made the private investors was exempt from all forms of taxes as the law provides. Indeed, government warranted in the Deed of Absolute Sale that “there are no taxes due and owing in respect of subject property or transfer thereof in favor of the buyer.”

MINDANAO II GEOTHERMAL PARTNERSHIP v. CIR, G.R. 193301 & 194637, Mar 11, 2013

• Sale of Nissan Patrol is said to be an isolated transaction. – CIR v. Magsaysay, decided in 1986, involved sale of vessels of NDC to Magsaysay Lines; sale was involuntary and made pursuant to government’s policy of privatization.

• However, it does not follow that an isolated transaction cannot be an incidental transaction for VAT purposes. A reading of Sec 105 of the 1997 Tax Code would show that a transaction “in the course of trade or business” includes “transactions incidental thereto.”

FIRST LEPANTO TAISHO INSURANCE CORP v. CIR, G.R. 197117, Apr 10, 2013 • A director whose duties are confined to attendance at and participation in meetings of the Board of Directors is considered an employee under Sec 5, RR 12-86. • Non-inclusion of the names of some of petitioner’s directors in the company’s Alpha List does not ipso facto create a presumption that they are not employees of the corporation, because the imposition of WT on compensation hinges upon the nature of work performed by such individuals in the company. RR 2-98 cannot be applied to this case as the latter is a later regulation, while the accounting books examined for the year 1997.

PDIC v. BIR, G.R. 172892, Jun 13, 2013 • ISSUE: – Whether or not Sec 52(C ) of the Tax Code (which requires that the corporation under liquidation has to secure a tax clearance from the BIR before the project of distribution of the assets can be approved by the liquidation court) applies to banks ordered/placed under liquidation by the Monetary Board

• SC RULING – Sec 52(C ) of the Tax Code is not applicable to banks ordered under liquidation by the MB, and a tax clearance is not a prerequisite to the approval of the project of distribution of the assets of a bank under liquidation by the PDIC.

DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R. 188550, Aug 19, 2013 • FACTS – Petitioner withheld and remitted to BIR in Oct 2003 the amount of P67 M, representing 15% BPRT on its RBU net income remitted to DB Germany for 2002 and prior years. – Believing it overpaid the BPRT, petitioner filed with LTAID in 2005 an administrative claim for refund/tax credit in amount of P22 M. Also, it requested ITAD a confirmation of entitlement to 10% preferential tax rate under the RP-Germany Tax Treaty. – Alleging inaction, petitioner filed petition with CTA. – After trial, CTA Division found petitioner paid P67 M as 15% BPRT for 2002 and prior years. However, claim was denied on ground that application for treaty relief was not filed with ITAD prior to payment of its BPRT, or prior to its availment of preferential rate under the treaty. The court held petitioner violated the 15-day period mandated under RMO 1-2000, citing CTA Division decision in Mirant (Phil) Operations Corp v. CIR. – CTA en banc affirmed ruling of CTA Division.

DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R. 188550, Aug 19, 2013 • SC RULING – Sec 28(A)(5), NIRC imposes 15% BPRT, but by virtue of tax treaty, we are bound to extend to a branch in the Phil the benefit of 10% BPRT. – A minute resolution is not a binding precedent – Tax treaty v. RMO 1-2000 • Our Constitution provides for adherence to the general principles of international law as part of the law of the land. The principle pacta sunt servanda demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. More importantly, treaties have the force and effect of law in this jurisdiction.

DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R. 188550, Aug 19, 2013 – A state that has contracted valid international obligations is bound to make in its legislations those modifications that may be necessary to ensure the fulfillment of the obligations undertaken. Thus, laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany does not provide for any pre-requisite for the availment of the benefits under said agreement. – There is nothing in RMO 1-2000 which would indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. – At most, the application for a tax treaty relief from BIR should merely operate to confirm the entitlement of the taxpayer to the relief.

DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R. 188550, Aug 19, 2013 – The obligation to comply with a tax treaty must take precedence over the objective of RMO 1-2000. • Non-compliance with tax treaties has negative implications on international relations and unduly discourages foreign investors. • While the consequences sought to be prevented under RMO 1-2000 involve an administrative procedure, these may be remedied thru other system management processes, like imposition of fine or penalty.

– We cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance, requiring prior application for tax treaty relief.

DEUTSCHE BANK AG MANILA BRANCH v. CIR, G.R. 188550, Aug 19, 2013 • Prior application v. claim for refund – The underlying principle of prior application with the BIR becomes moot in refund cases, where the very basis of claim is erroneous or there is excessive payment arising from non-availment of a tax treaty relief. Here, petitioner should not be faulted for not complying with RMO prior to the transaction. It could not have applied for a tax treaty relief within the period prescribed, or 15 days prior to the payment of its BPRT, precisely because it erroneously paid the BPRT not on the basis of the preferential tax rate under the treaty, but on the regular rate prescribed by the Tax Code. Hence, prior application requirement becomes illogical.

• Petitioner is entitled to a refund.

CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 & 192576, Sept 11, 2013 • FACTS – Prior to Jan 1, 1997, FTC cigarette brands were subject to ad valorem tax under Sec 142, 1977 Tax Code. – On Jan 1, 1997, RA 8240 became effective. This law shifts to specific tax system in imposing excise taxes on cigarette brands under Sec 145, 1997 Tax Code. – On Dec 16, 1999, RR 17-99 was issued, to implement a 12% increase of excise tax on cigarettes packed by machines by Jan 1, 2000. RR 17-99 provides that the new specific tax rate for any existing brand packed by machine shall not be lower than the excise tax that is actually being paid prior to Jan 1, 2000. – FTC paid excise taxes on all its cigarettes removed from the place of production, but subsequently filed claims for refund for the period from Jan 1, 2000 to Dec 31, 2001. – FTC filed petition for review in view of inaction by BIR.

CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 & 192576, Sept 11, 2013 – On Oct 21, 2002, CTA Division ordered CIR to refund erroneously paid excise taxes of P35.651 M (for Jan 2000) and P644.735 M (for Feb 2000 – Dec 2001). – CIR filed motion for recon, which was granted. – Then, FTC filed another petition questioning validity of RR 17-99, praying for refund of overpaid excise tax of P355.385 M for Jan 2002 to Dec 2002. – CTA Division reversed earlier Resolution and ordered CIR to refund P35.651 M and P644.735 M for 2000-2001. – In its decision in CTA Case 6612 on Dec 4, 2003, CTA Division declared RR 17-99 invalid and contrary to Sec 145 of NIRC. The court ordered refund of P355.385 M to FTC.

CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 & 192576, Sept 11, 2013 – CIR filed MR, but this was denied on Mar 17, 2004. – On Dec 10, 2003, CIR filed a petition for review with CA questioning the CTA Resolution issued in CTA Cases 6365 and 6383. – On Apr 28, 2004, CIR filed another petition with CTA questioning CTA decision in CTA Case 6612. – In consolidated CA decision dated Sept 28, 2004, CA denied CIR’s petitions and affirmed FTC’s refund claims. – MR filed with CA by CIR, but this was denied. – On May 4, 2005, CIR filed petition for review on certiorari with SC. Supplemental petition was filed. – On July 21, 2008, SC affirmed the findings of CA and granted refund.

CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 & 192576, Sept 11, 2013 • SC RULING – The state of things under the premises ought not to remain uncorrected. And the BIR cannot plausibly raise a valid objection for such approach. BIR knew where it was coming from when it appealed, first before the CA and then to this Court, the award of refund to FTC and the rationale underpinning the award. BIR cannot plausibly, in good faith, seek refuge on the basis of slip on the formulation of the fallo of a decision to evade a duty. – On the other hand, FTC has discharged its burden of establishing its entitlement to the refund. The favorable rulings of the tax court, appellate court and finally, this court, say as much.

CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 & 192576, Sept 11, 2013 – In the interest of justice and orderly proceedings, this Court should make the corresponding clarification on the fallo of its July 21, 2008 decision in GR Nos. 162274-75. It is an established rule that when the dispositive portion of a judgment, which has meanwhile become final and executory, contains a clerical error or an ambiguity arising from an inadvertent omission, such error or ambiguity may be clarified by reference to the body of the decision itself. – After scrutiny of the body of the decision, the Court finds it necessary to render a judgment nunc pro tunc and address an error in the fallo of said decision. The object of the judgment nunc pro tunc is not the rendering of a new judgment and the ascertainment of new rights, but is one placing in proper form on the record, that has been previously rendered, to make it speak the truth.

CIR v. FORTUNE TOBACCO CORP, G.R. 167274-75 & 192576, Sept 11, 2013 – Sec 145 states that during the transition period (i.e., within the next 3 years from the effectivity of the Tax Code), the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on 1 Oct 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed by machine. By adding the above qualification, RR 17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the 3year transition period and the specific tax under paragraph C, as increased by 12% -- a situation not supported by the plain wording of Sec. 145 of the Code. – This is not the first time that BIR officials had ventured in the area of unauthorized administrative legislation. In CIR v. Reyes, respondent was not informed in writing of the law and the facts on which the assessment of estate taxes was made. She was merely notified of the findings. The court held in case of discrepancy between the law as amended and the implementing regulation based on the old law, the former necessarily prevails. The law must still be followed, even though the existing regulation at that time provided for a different procedure.

FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 121236, Sept 5, 2013 • CIR issued RMC 65-2012 dated Oct 31, 2012 which imposes income tax and VAT on association dues, membership fees and other charges of condominium corporations, which are non-stock, non-profit corporations. • Petitioner averred the operative mandate of RMC is unjust, oppressive and confiscatory. – It is unjust, because it directly and actually burdens the unit owners with income tax and VAT on their own money pooled together and spent exclusively for the purpose of maintaining and preserving the building and its premises which they themselves own and possess. – To tax the collected association dues, membership fees and other assessments is to diminish and impair the legitimate exercise of the owners’ right to possess and enjoy one’s own property. – It is oppressive and confiscatory, because it directly and actually exacts upon the unit owners, comprising the condominium corporation, with the duty to shell out additional sums of money to pay for income tax and VAT, when in truth, petitioner is already in dire financial strait and hard up in its every day corporate existence. – It would violate the due process clause.

FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 121236, Sept 5, 2013 •

Petitioner thru the Makati Commercial Estate Asso, Inc. has sent letter dated Dec 5, 2012 to BIR, requesting for deferment of the implementation, and another letter dated Dec 19, 2012 for the attention of RDO, South Makati, announcing continuing judicial consignation of income tax and VAT purportedly due under the questioned RMC. It also alleged that petitioner has not committed any act to breach RMC 65-2012, since any or all amounts of taxes due are placed in custodia legis by way of continuing judicial consignation.

•

BIR thru the OSG commented that declaratory relief is no longer proper since the RMC already took effect on Oct 31, 2012. BIR Litigation Division alleged the petition lacks proper or insufficient verification, and the petition should be dismissed applying the doctrine of primary jurisdiction. Courts cannot and will not determine a controversy on a question within the jurisdiction of the administrative tribunal prior to the resolution of that question by said administrative tribunal. Clearly, petitioner has not exhausted all administrative remedies prior to its resort to this Court. The income tax and VAT should be remitted directly to the BIR; the collection of the taxes should not be unduly delayed or hampered by incidental matters. BIR said the RMC is already a clarificatory issuance of pertinent laws under the NIRC and was issued to clarify the taxability of association dues and fees

FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 121236, Sept 5, 2013 • The association dues and fees are collected by the condo corp as compensation for beneficial service rendered to its members. “Beneficial services” means any service, including the operation, management, and maintenance of common areas/community facilities, provided by a condo corp for the benefit of its members. Under RA 4726 (Condo Act), the act of management of the project constitutes beneficial service. • The State can never be in estoppel, and this is particularly true in matters involving taxation.

FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 121236, Sept 5, 2013 • In its Reply, petitioner argued respondent’s interpretation of the consequence of judicial consignation is absolutely erroneous. The act of judicial consignation is akin to the payment of the tax under protest (DBM v. Manila’s Finest Retirees Asso, 2007; Matalin Coconut Co v. Mun Council of Malabang, Lanao del Sur). Judicial consignation neither extinguishes the obligation nor automatically releases the obligor. It simply means putting the controverted amount in custodia legis – subject to the disposition by the Court upon determination of the rights and duties of the petitioner under the special civil action. Petitioner has not registered as a VAT entity, which is indicative that there is no injury yet sustained on the part of respondent. The non-registration and non-availment of the output tax-input tax, coupled with the judicial consignation, show that petitioner has not submitted any act of obeisance and has not sustained any real injury at all.

FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 121236, Sept 5, 2013 • The requirements of an action for declaratory relief are: – There must be a justiciable controversy; – The controversy must be between persons whose interests are adverse; – The party seeking declaratory relief must have a legal interest in the controversy; and – The issue involved must be ripe for judicial determination.

• Guided by the above parameters, the Court declared that declaratory relief is the proper remedy and the Court has jurisdiction to take cognizance of the same. • Petitioner raised the validity and constitutionality of the RMC, which matter is ripe for judicial determination and is within the power of judicial review.

FIRST e-BANK TOWER CONDO CORP v. BIR, SCA 121236, Sept 5, 2013 •

•

•

•

Petitioner has not committed any willful breach of the RMC. Petitioner is not assailing any assessment, because there is yet no tax assessment made. In previous years, petitioner has not been subjected to payment of the tax on the dues and fees. Petitioner seeks relief from the court to determine whether the RMC is validly issued or not. The RMC was effective on Oct 31, 2012, but petitioner adopted the calendar year; hence, its income tax return for the year is still due on April 15, 2013. Thus, at the time of filing the petition on Dec 26, 2012, petitioner is not yet obligated to pay and file its income tax return and VAT return and breach has not yet set in. The assailed RMC not merely interpreted or clarified the existing BIR ruling, but in fact legislated or introduced new legislation under the mantle of its quasilegislative authority. The RMC failed to show what particular law it clarified; it shows it merely departed from the several rulings of the BIR exempting from income such assessments/charges because these amounts were held in trust to be used solely for administrative purposes. The RMC changed and departed from the long standing ruling of the BIR and what is worse, it was made immediately effective. In so doing, the passage contravenes the constitutional mandate of due process of law. Without the notice and publication, there would be no basis to punish its citizen.

AGRINURTURE, INC v. CIR, CTA Case 8345, May 29, 2013

• FACTS – Based on the LN, CIR issued FAN on Dec 30, 2010 for 2007 deficiency income tax and VAT, which was predicated solely on alleged undeclared purchase transaction. – Taxpayer protested the assessment by failing to state the specific facts and law upon which it is based (i.e., the details of the discrepancy in the SLS submitted by suppliers were not itemized), and since no action was taken BIR on the protest within the 180 day period, petitioner filed petition on Sept 16, 2011.

AGRINURTURE, INC v. CIR, CTA Case 8345, May 29, 2013 • CTA RULING – Petitioner was informed of the factual and legal bases of the assessment and was given opportunity to contest the same. There is no reason for this Court to sustain petitioner’s allegation that assessment was void for failure to state the assessment’s factual basis inasmuch as it was based on examination by respondent of petitioner’s tax returns and the TPI Relief per SLS submitted by petitioner’s suppliers. – Basic is the rule that assessments are presumed correct and made in good faith. It is presumed, however, that such assessment was based on sufficient evidence. This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer: the presumption of administrative regularity; the likelihood that taxpayer will have access to relevant information; and the desirability of bolstering the recordkeeping requirements of the NIRC.

AGRINURTURE, INC v. CIR, CTA Case 8345, May 29, 2013 • The prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly without foundation; i.e., it is arbitrary and capricious. Where the BIR has come out with a “naked assessment,” the determination of the tax is without rational basis; hence, the determination by this Court must rest on all the evidence introduced and its ultimate determination must find support in credible evidence. • In the imposition of income tax, it must be clear that there was an income, and such income was received by the taxpayer, not when there is an under-declaration of purchases. Here, the BIR presumed that the alleged undeclared purchase is an unaccounted expense, which supposed translated into income.

AGRINURTURE, INC v. CIR, CTA Case 8345, May 29, 2013 • A taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein. • With respect to VAT, VAT can be imposed only when it is shown that the taxpayer received an amount of money or its equivalent from a taxable sale of goods or services, and not when there are underdeclared purchases. • An assessment must be based on actual fact. The presumption of correctness of assessment, being a mere presumption, cannot be made to rest on another presumption (i.e., the under-declared purchases would automatically result in undeclared income or additional taxable sales, which would in turn increase petitioner’s income tax and VAT liabilities.

END OF PRESENTATION

Atty. Vic C. Mamalateo Mobile No.: 0939-9209175; 0917-5280445 Email: [email protected] [email protected] Direct Line: 372-9224