Yaokasin v Commissioner Digest

GR No. 84111, December 22, 1989

Facts: The Philippine Coast Guard seized 9000 sacks of refined sugar owned by petitioner
Yaokasin, which were then being unloaded from the M/V Tacloban, and turned them over to the
custody of the Bureau of Customs. On June 7, 1988, the District Collector of Customs ordered
the release of the cargo to the petitioner but this order was subsequently reversed on June 15,
1988. The reversal was by virtue of Customs Memorandum Order (CMO) 20-87 in
implementation of the Integrated Reorganization Plan under P.D. 1, which provides that in
protest and seizure cases where the decision is adverse to the government, the Commissioner
of Customs has the power of automatic review.
Petitioner objected to the enforcement of Sec. 12 of the Plan and CMO 20-87 contending that
these were not published in the Official Gazette. The Plan which was part of P.D. 1 was
however published in the Official Gazette.

Issue: W/n circular orders such as CMO 20-87 need to be published in the OG to take
effect

NO.
Article 2 of the Civil Code does not apply to circulars like CMO 20-87 which is an administrative
order of the Commissioner of Customs addressed to his subordinates, the custom collectors.
Said issuance requiring collectors of customs to comply strictly with Section 12 of he Plan, is
addressed only to particular persons or a class of persons (the customs collectors), hence no
general applicability. As held in Tanada v. Tuvera, It need not be published, on the assumption
that it has been circularized to all concerned.

Moreover, Commonwealth Act. 638 provides an enumeration of what shall be published in the
Official Gazette. It provides that besides legislative acts, resolutions of public nature of
Congress, executive, administrative orders and proclamations shall be published except when
these have no general applicability.


CIR vs. Villa
CIR vs. VILLA
22 SCRA 3
GR No. L-23988, January 2, 1968

"What may be the subject of a judicial review is the decision of the Commissioner on the protest
against assessment, not the assessment itself."

FACTS: The spouses Villa filed joint income tax returns for the years 1951 to 1956. The BIR
issued assessments for deficiency of income tax for the said years. Without contesting the said
assessments with the CIR, they filed a petition for review with the CTA. The CTA took
cognizance of the of the appeal and rendered favorable judgment to the spouses. The CIR
appealed to the SC questioning the jurisdiction of the CTA.

ISSUE: Is an appeal to the CTA proper in this case? Is the CTA vested with jurisdiction?

HELD: No. The rule is that where a taxpayer questions an assessment and asks the Collector to
reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the
assessment becomes a "disputed assessment" that the Collector must decide, and the taxpayer
can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the
disputed assessment. Since in the instant case the taxpayer appealed the assessment of the
Commissioner of Internal Revenue without previously contesting the same, the appeal was
premature and the Court of Tax Appeals had no jurisdiction to entertain said appeal. For, as
stated, the jurisdiction of the Tax Court is to review by appeal decisions of Internal Revenue on
disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take
cognizance only of such matters as are clearly within its jurisdiction.

Digested Cases in Taxation (on Assessment, Levy and Distraint, and Statute of
Limitations)
CIR vs. CA, Atlas Consolidated
242 SCRA 289
GR No. 104151 March 10, 1995

"Assessments are prima facie presumed correct and made in good faith. So that, in the absence
of proof of any irregularities in the performance of official duties, an assessment will not be
disturbed."

FACTS: The Commissioner of Internal Revenue served two notices and demand for payment of
the respective deficiency ad valorem and buiness taxes for taxable years 1975 and 1976
against the respondent Atlas Consolidated Mining and Development Corporation (ACMDC). The
latter protested both assessments but the same were denied, hence it filed two separate
petitions for review in the Court of Tax Appeals. The CTA rendered a consolidated decision
holding, inter alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and
silver for 1975 and 1976 thereby effectively sustaining the theory of ACMDC that in computing
the ad valorem tax on copper mineral, the refining and smelting charges should be deducted, in
addition to freight and insurance charges.
However, the tax court held ACMDC liable for the amount consisting of 25% surcharge for
late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite
extracted during certain periods, and for alleged deficiency manufacturer's sales tax and such
contractor's tax for leasing out of its personal properties. ACDMC elevated the matter to the
Supreme Court claiming that the leasing out was a mere isolated transaction, hence should not
be subjected to contractor's tax.

ISSUE: Is the claim of the private respondent, with respect to the contractor's tax, impressed
with merit?

HELD: No. It is being held that ACMDC was not a manufacturer subject to the percentage tax
imposed by Section 186 of the tax code. However such conclusion cannot be made with respect
to the contractor's tax being imposed on ACMDC. It cannot validly claim that the leasing out of
its personal properties was merely an isolated transaction. Its book of accounts shows that
several distinct payments were made for the use of its personal properties such as its plane,
motor boat and dump truck. The series of transactions engaged in by ACMDC for the lease of
its aforesaid properties could also be deduced from the fact that during the period there were
profits earned and reported therefor. The allegation of ACMDC that it did not realize any profit
from the leasing out of its said personal properties, since its income therefrom covered only the
costs of operation such as salaries and fuel, is not supported by any documentary or substantial
evidence.
Assessments are prima facie presumed correct and made in good faith. Contrary to the
theory of ACMDC, it is the taxpayer and not the BIR who has the duty of proving otherwise. It is
an elementary rule that in the absence of proof of any irregularities in the performance of official
duties, an assessment will not be disturbed. All presumptions are in favor of tax assessments.
Verily, failure to present proof of error in assessments will justify judicial affirmance of said
assessment.


CIR vs. VILLA
22 SCRA 3
GR No. L-23988, January 2, 1968
"What may be the subject of a judicial review is the decision of the Commissioner on the protest
against assessment, not the assessment itself."
FACTS: The spouses Villa filed joint income tax returns for the years 1951 to 1956. The BIR
issued assessments for deficiency of income tax for the said years. Without contesting the said
assessments with the CIR, they filed a petition for review with the CTA. The CTA took
cognizance of the appeal and rendered favorable judgment to the spouses. The CIR appealed
to the SC questioning the jurisdiction of the CTA.
ISSUE: Is an appeal to the CTA proper in this case? Is the CTA vested with jurisdiction?
HELD: No. The rule is that where a taxpayer questions an assessment and asks the Collector to
reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the
assessment becomes a "disputed assessment" that the Collector must decide, and the taxpayer
can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the
disputed assessment. Since in the instant case the taxpayer appealed the assessment of the
Commissioner of Internal Revenue without previously contesting the same, the appeal was
premature and the Court of Tax Appeals had no jurisdiction to entertain said appeal. For, as
stated, the jurisdiction of the Tax Court is to review by appeal decisions of Internal Revenue on
disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take
cognizance only of such matters as are clearly within its jurisdiction.

Meralco Securities v Savellano
Facts:
The late Juan G. Maniago (substituted in these proceedings by his wife and children) submitted
to petitioner Commissioner of Internal Revenue confidential denunciation against the Meralco
Securities Corporation for tax evasion for having paid income tax only on 25 % of the dividends
it received from the Manila Electric Co, thereby allegedly shortchanging the government of
income tax due from 75% of the said dividends.
Commissioner caused the investigation of the denunciation after which he found and held that
no deficiency corporate income tax was due from the Meralco Securities Corporation since
under the law then prevailing (in the case of dividends received by a domestic or foreign
resident corporation liable to corporate income tax only 25% shall be returnable for the
purposes of the tax. The Commissioner rejected Maniago's contention that the Meralco from
whom the dividends were received is not a domestic corporation liable to tax.
In a letter, the Commissioner denied Maniago's claim for informer's reward on a non-existent
deficiency. This action of the Commissioner was sustained by the Secretary of Finance.
Maniago filed a petition for mandamus to compel the Commissioner to impose the alleged
deficiency tax assessment on the Meralco Securities Corporation and to award to him the
corresponding informer's reward under the provisions of R.A. 2338.
The Commissioner filed a motion to dismiss, arguing that since in matters of issuance and non-
issuance of assessments, he is clothed under the National Internal Revenue Code and existing
rules and regulations with discretionary power in evaluating the facts of a case and since
mandamus win not lie to compel the performance of a discretionary power, he cannot be
compelled to impose the alleged tax deficiency assessment.
On the other hand, the Meralco Securities Corporation averred that since no taxes have actually
been recovered and/or collected, Maniago has no right to recover the reward prayed for
The respondent judge rendered a decision granting the writ prayed for and ordering the
Commissioner to assess and collect from the Meralco Securities Corporation the sum of
P51,840,612.00 as deficiency corporate income tax plus interests and surcharges due thereon
and to pay 25% to Maniago as informer's reward.

Issue:
Whether or not mandamus is proper in this case
Held:
No. It is furthermore a well-recognized rule that mandamus only lies to enforce the performance
of a ministerial act or duty and not to control the performance of a discretionary power. Purely
administrative and discretionary functions may not be interfered with by the courts. Discretion
means the power or right conferred upon the office by law of acting officially under certain
circumstances according to the dictates of his own judgment and conscience and not controlled
by the judgment or conscience of others. Mandamus may not be resorted to so as to interfere
with the manner in which the discretion shall be exercised or to influence or coerce a particular
determination
Moreover, since the office of the Commissioner of Internal Revenue is charged with the
administration of revenue laws, which is the primary responsibility of the executive branch of the
government, mandamus may not be against the Commissioner to compel him to impose a tax
assessment not found by him to be due or proper for that would be tantamount to a usurpation
of executive functions.
In the case, after the Commissioner who is specifically charged by law with the task of enforcing
and implementing the tax laws and the collection of taxes had after a mature and thorough
study rendered his decision or ruling that no tax is due or collectible, and his decision is
sustained by the Secretary, such decision or ruling is a valid exercise of discretion in the
performance of official duty and cannot be controlled much less reversed by mandamus.
No deficiency taxes may therefore be assessed and collected against the said corporation.
Since no taxes are to be collected, no informer's reward is due to private respondents as the
informer's heirs. Since no assessment, much less any collection, has been made in the instant
case, respondent judge's writ for the Commissioner to pay respondents 25% informer's reward
is gross error and without factual nor legal basis.
*Respondent judge has no jurisdiction to take cognizance of the case because the subject
matter thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the
Court of Tax Appeals.
*The determination of the correctness or incorrectness of a tax assessment to which the
taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the
Court of First Instance.
Notes:
Informer's reward is contingent upon the payment and collection of unpaid or deficiency taxes.
informer is entitled by way of reward only to a percentage of the taxes actually assessed and
collected.

MERALCO SAVELLANO
Taxation Courts Cannot Issue Mandamus to Compel CIR to Collect Taxes
In 1967, Juan Maniago informed the Commissioner of Internal Revenue (CIR) that MERALCO
Securities Corporation did not pay the proper taxes from 1962 to 1966. The CIR conducted an
investigation and it found out that MERALCO did actually pay the proper amount of tax due
within said period. The CIR then informed Maniago of its decision and also informed him that
since no deficiency tax was collected, Maniago is not entitled to the informers reward then
offered to individuals who report tax evaders.
Maniago then filed a petition for mandamus against the CIR. After hearing, Judge Victorino
Savellano granted Maniagos petition and ordered the CIR to collect the deficiency taxes and
further ordered the CIR to pay Maniagos informers reward.

ISSUE: Whether or not Judge Savellano is correct.

HELD: No. The power to assess or not to assess tax deficiency against a taxpayer is a
discretionary function vested in the CIR. As such, the CIR may not be compelled by mandamus.
Mandamus only lies to enforce the performance of a ministerial act or duty

and not to control the
performance of a discretionary power. Especially so in this case where the CIR found that no tax
deficiency is due. It should be noted further that regular courts have no jurisdiction over the subject
matter of this case. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the
Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions
of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code or other law or part of law administered
by the Bureau of Internal Revenue.




Francia Vs Marubeni
162 SCRA 753 Taxation Law General Principles Set-off of Taxes

Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977, a
portion of his land (125 square meter) was expropriated by the government for P4,116.00. The
expropriation was made to give way to the expansion of a nearby road.

It also appears that Francia failed to pay his real estate taxes since 1963 amounting to P2,400.00.
So in December 1977, the remaining 203 square meters of his land was sold at a public auction
(after due notice was given him). The highest bidder was a certain Ho Fernandez who paid the
purchase price of P2,400.00 (which was lesser than the price of the portion of his land that was
expropriated).
Later, Francia filed a complaint to annul the auction sale on the ground that the selling price was
grossly inadequate. He further argued that his land should have never been auctioned because
the P2,400.00 he owed the government in taxes should have been set-off by the debt the
government owed him (legal compensation). He alleged that he was not paid by the government
for the expropriated portion of his land because though he knew that the payment therefor was
deposited in the Philippine National Bank, he never withdrew it.

ISSUE: Whether or not the tax owed by Francia should be set-off by the debt owed him by the
government.

HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the contention. By
legal compensation, obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). This is not applicable in taxes.
There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. The collection of a tax cannot await
the results of a lawsuit against the government.
The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly,
in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they a proper
subject of recoupment since they do not arise out of the contract or transaction sued on.
Further, the government already Francia. All he has to do was to withdraw the money. Had he
done that, he could have paid his tax obligations even before the auction sale or could have
exercised his right to redeem which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not
tenable. The Supreme Court said: alleged gross inadequacy of price is not material when the law
gives the owner the right to redeem as when a sale is made at public auction, upon the theory
that the lesser the price, the easier it is for the owner to effect redemption. If mere inadequacy of
price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would
be greatly embarrassed, if not rendered altogether impracticable. Where land is sold for taxes,
the inadequacy of the price given is not a valid objection to the sale. This rule arises from
necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the
property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are
grossly out of proportion to the value of the land.


CIR vs. MARUBENI
Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985
deficiency income, branch profit remittance and contractors taxes from Marubeni Corp after
finding the latter to have properly availed of the tax amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in general import and export trading, financing and
construction, is duly registered in the Philippines with Manila branch office. CIR examined the
Manila branchs books of accounts for fiscal year ending March 1985, and found that
respondent had undeclared income from contracts with NDC and Philphos for construction of a
wharf/port complex and ammonia storage complex respectively.
On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency
taxes. CIR claims that the income respondent derived were income from Philippine sources,
hence subject to internal revenue taxes. On Sept 1986, respondent filed 2 petitions for review
with CTA: the first, questioned the deficiency income, branch profit remittance and contractors
tax assessments and second questioned the deficiency commercial brokers assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that
taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni filed its tax
amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and donors taxes under
Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the period of availment to Dec
15, 1986 and stated those who already availed amnesty under EO 41 should file an amended
return to avail of the new benefits. Marubeni filed a supplemental tax amnesty return on Dec 15,
1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the
deficiency taxes. CA affirmed on appeal.
Issue:
W/N Marubeni is exempted from paying tax
Held:
Yes.
1. On date of effectivity CIR claims Marubeni is disqualified from the tax amnesty because it
falls under the exception in Sec 4b of EO 41: Sec. 4. Exceptions.The following taxpayers
may not avail themselves of the amnesty herein granted: xxx b) Those with income tax cases
already filed in Court as of the effectivity hereof;
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986, a
case had already been filed and was pending before the CTA and Marubeni therefore fell under
the exception. However, the point of reference is the date of effectivity of EO 41 and that the
filing of income tax cases must have been made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with
CTA on Sept 26, 1986. When EO 41 became effective, the case had not yet been filed.
Marubeni does not fall in the exception and is thus, not disqualified from availing of the amnesty
under EO 41 for taxes on income and branch profit remittance.
The difficulty herein is with respect to the contractors tax assessment (business tax) and
respondents availment of the amnesty under EO 64, which expanded EO 41s coverage. When
EO 64 took effect on Nov 17, 1986, it did not provide for exceptions to the coverage of the
amnesty for business, estate and donors taxes. Instead, Section 8 said EO provided that:
Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or
inconsistent with this amendatory Executive Order shall remain in full force and effect.
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively. It may not be
given a retroactive effect unless it is so provided expressly or by necessary implication and no
vested right or obligations of contract are thereby impaired.
2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for the
deficiency tax because the income from the projects came from the Offshore Portion as
opposed to Onshore Portion. It claims all materials and equipment in the contract under the
Offshore Portion were manufactured and completed in Japan, not in the Philippines, and are
therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government corporations NDC and
Philphos. In the contracts, the prices were broken down into a Japanese Yen Portion (I and II)
and Philippine Pesos Portion and financed either by OECF or by suppliers credit. The
Japanese Yen Portion I corresponds to the Foreign Offshore Portion, while Japanese Yen
Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.
Marubeni has already paid the Onshore Portion, a fact that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the supply of both materials
and services to the client, they are contracts for a piece of work and are indivisible. The situs of
the two projects is in the Philippines, and the materials provided and services rendered were all
done and completed within the territorial jurisdiction of the Philippines. Accordingly,
respondents entire receipts from the contracts, including its receipts from the Offshore Portion,
constitute income from Philippine sources. The total gross receipts covering both labor and
materials should be subjected to contractors tax (a tax on the exercise of a privilege of selling
services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in
the Philippines because some of them were completed in Japan (and in fact subcontracted) in
accordance with the provisions of the contracts. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under Japanese Yen Portion I
were made and completed in Japan. These services were rendered outside Philippines taxing
jurisdiction and are therefore not subject to contractors tax. Petition denied.

Marubeni vs. CIR
Post under case digests, Taxation at Friday, March 02, 2012 Posted by Schizophrenic Mind
Facts: Petitioner Marubeni s a foreign corporation duly organized under the existing laws of
Japan and duly licensed to engage in business under Philippine laws.
Marubeni of Japan has equity investments in Atlantic Gulf & Pacific Co. of Manila.
AG&P declared and directly remitted the cash dividends to Marubenis head office in Tokyo net
of the final dividend tax and withholding profit remittance tax.
Thereafter, Marubeni, through SGV, sought a ruling from the BIR on whether or not the
dividends it received from AG&P are effectively connected with its business in the Philippines as
to be considered branch profits subject to profit remittance tax.
The Acting Commissioner ruled that the dividends received by Marubeni are not income from
the business activity in which it is engaged. Thus, the dividend if remitted abroad are not
considered branch profits subject to profit remittance tax.
Pursuant to such ruling, petitioner filed a claim for refund for the profit tax remittance
erroneously paid on the dividends remitted by AG& P.
Respondent Commissioner denied the claim. It ruled that since Marubeni is a non resident
corporation not engaged in trade or business in the Philippines it shall be subject to tax on
income earned from Philippine sources at the rate of 35% of its gross income.
On the other hand, Marubeni contends that, following the principal-agent relationship theory,
Marubeni Japan is a resident foreign corporation subject only to final tax on dividends received
from a domestic corporation.
Issue: Whether or not Marubeni Japan is a resident foreign corporation.
Held: No. The general rule is a foreign corporation is the same juridical entity as its branch office
in the Philippines . The rule is based on the premise that the business of the foreign corporation
is conducted through its branch office, following the principal-agent relationship theory. It is
understood that the branch becomes its agent.
However, when the foreign corporation transacts business in the Philippines independently of its
branch, the principal-agent relationship is set aside. The transaction becomes one of the foreign
corporation, not of the branch. Consequently, the taxpayer is the foreign corporation, not the
branch or the resident foreign corporation.
Thus, the alleged overpaid taxes were incurred for the remittance of dividend income to the
head office in Japan which is considered as a separate and distinct income taxpayer from the
branch in the Philippines.

3. Meralco Securities Corporation vs. Savellano
GR No. L-36181 October 23, 1982
Facts: On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his
wife and children) submitted to petitioner Commissioner of Internal Revenue confidential
denunciation against the Meralco Securities Corporation for tax evasion for having paid income
tax only on 25 % of the dividends it received from the Manila Electric Co. for the years 1962-
1966, thereby allegedly shortchanging the government of income tax due from 75% of the said
dividends.
Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after
which he found and held that no deficiency corporate income tax was due from the Meralco
Securities Corporation on the dividends it received from the Manila Electric Co. and accordingly
denied Maniago's claim for informer's reward on a non-existent deficiency.
On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended
petition for mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case
No. 80830, against the Commissioner of Internal Revenue and the Meralco Securities
Corporation to compel the Commissioner to impose the alleged deficiency tax assessment on
the Meralco Securities Corporation and to award to him the corresponding informer's reward
under the provisions of R.A. 2338. Respondent judge granted the said petition and thereafter,
denied the motions for reconsideration filed by all the parties.
Issues: (1) Whether or not respondent judge has jurisdiction over the subject matter of the case;
(2) Whether or not respondent heirs of Maniago are entitled to informers reward.
Held: (1) Respondent judge has no jurisdiction to take cognizance of the case because the
subject matter thereof clearly falls within the scope of cases now exclusively within the
jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16,
1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal,
among others, decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other law
or part of law administered by the Bureau of Internal Revenue. The law transferred to the Court
of Tax Appeals jurisdiction over all cases involving said assessments previously cognizable by
courts of first instance, and even those already pending in said courts. The question of whether
or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly
comes within the purview of the words "disputed assessments" or of "other matters arising
under the National Internal Revenue Code . . . .In the case of Blaquera vs. Rodriguez, et al, this
Court ruled that "the determination of the correctness or incorrectness of a tax assessment to
which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and
not of the Court of First Instance, for under the provisions of Section 7 of Republic Act No. 1125,
the Court of Tax Appeals has exclusive appellate jurisdiction to review, on appeal, any decision
of the Collector of Internal Revenue in cases involving disputed assessments and other matters
arising under the National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue."
(2) Considering then that respondent judge may not order by mandamus the Commissioner to
issue the assessment against Meralco Securities Corporation when no such assessment has
been found to be due, no deficiency taxes may therefore be assessed and collected against the
said corporation. Since no taxes are to be collected, no informer's reward is due to private
respondents as the informer's heirs. Informer's reward is contingent upon the payment and
collection of unpaid or deficiency taxes. An informer is entitled by way of reward only to a
percentage of the taxes actually assessed and collected. Since no assessment, much less any
collection, has been made in the instant case, respondent judge's writ for the Commissioner to
pay respondents 25% informer's reward is gross error and without factual nor legal basis.
Petitions granted and the questioned decision of respondent judge and order reversed and set
aside.

CIR vs. CA, CTA and FORTUNE TOBACCO CORP.
G.R. No. 119761; August 29, 1996
Facts: Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of
different brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR
classified them as foreign brands since they were listed in the World Tobacco Directory as
belonging to foreign companies. However, Fortun changed the names of 'Hope' to 'Hope Luxury'
and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand
category.
A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654
was enacted 55% for locally manufactured foreign brand while 45% for locally manufactured
brands. 2 days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93
("RMC 37-93"), was issued by the BIR saying since there is no showing who the real owner/s
are of Champion, Hope and More, it follows that the same shall be considered locally
manufactured foreign brand for purposes of determining the ad valorem tax - 55%. BIR sent via
telefax a copy of RMC 37-93 to Fortune Tobacco addressed to no one in particular. Then
Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. CIR assessed
Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.
Fortune Tobacco filed a petition for review with the CTA. 8 CTA upheld the position of Fortune.
CA affirmed.

Issue: WON it was necessary for BIR to follow the legal requirements when it issued its RMC
Held. YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative
powers which publication, filing, and prior hearing.
When an administrative rule is merely interpretative in nature, its applicability needs nothing
further than its bare issuance for it gives no real consequence more than what the law itself has
already prescribed. BUT when, upon the other hand, the administrative rule goes beyond
merely providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially increases the burden of those governed, the agency
must accord, at least to those directly affected, a chance to be heard, before that new issuance
is given the force and effect of law.
RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended,
but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium
More" and "Champion" within the classification of locally manufactured cigarettes bearing
foreign brands and to thereby have them covered by RA 7654 which subjects mentioned brands
to 55% the BIR not simply interpreted the law; verily, it legislated under its quasi-legislative
authority. The due observance of the requirements of notice, of hearing, and of publication
should not have been then ignored.

COMMISSIONER OF INTERNAL REVENUE V. PROCTER AND GAMBLE PHILIPPINE
MANUFACTURING CORPORATION (204 SCRA 377)- Tax on Dividends

NON-RESIDENT FOREIGN CORPORATION- DIVIDENDS
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend
remittances to non-resident corporate stockholders of a Philippine corporation. This rate goes
down to 15% ONLY IF the country of domicile of the foreign stockholder corporation shall
allow such foreign corporation a tax credit for taxes deemed paid in the Philippines, applicable
against the tax payable to the domiciliary country by the foreign stockholder corporation.
However, such tax credit for taxes deemed paid in the Philippines MUST, as a minimum,
reach an amount equivalent to 20 percentage points
FACTS:
Procter and Gamble Philippines declared dividends payable to its parent company and sole
stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend
withholding tax to the BIR which amounted to Php 8.3M It subsequently filed a claim with the
Commissioner of Internal Revenue for a refund or tax credit, claiming that pursuant to Section
24(b)(1) of the National Internal Revenue Code, as amended by Presidential Decree No. 369,
the applicable rate of withholding tax on the dividends remitted was only 15%.
MAIN ISSUE:
Whether or not P&G Philippines is entitled to the refund or tax credit.
HELD:
YES. P&G Philippines is entitled.
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend
remittances to non-resident corporate stockholders of a Philippine corporation. This rate goes
down to 15% ONLY IF he country of domicile of the foreign stockholder corporation shall
allow such foreign corporation a tax credit for taxes deemed paid in the Philippines, applicable
against the tax payable to the domiciliary country by the foreign stockholder corporation.
However, such tax credit for taxes deemed paid in the Philippines MUST, as a minimum,
reach an amount equivalent to 20 percentage points which represents the difference between
the regular 35% dividend tax rate and the reduced 15% tax rate. Thus, the test is if USA shall
allow P&G USA a tax credit for taxes deemed paid in the Philippines applicable against the
US taxes of P&G USA, and such tax credit must reach at least 20 percentage points.
Requirements were met.
NOTES: Breakdown:
a) Deemed paid requirement: US Internal Revenue Code, Sec 902: a domestic corporation
(owning 10% of remitting foreign corporation) shall be deemed to have paid a proportionate
extent of taxes paid by such foreign corporation upon its remittance of dividends to domestic
corporation.
b) 20 percentage points requirement: (computation is as follows)
P29.75 is the tax credit allowed by Sec 902 of US Tax Code for Phil corporate income tax
deemed paid by the parent company. Since P29.75 is much higher than P13, Sec 902 US Tax
Code complies with the requirements of sec 24 NIRC. (I did not understand why these were
divided and multiplied. Point is, requirements were met)
Reason behind the law:
Since the US Congress desires to avoid or reduce double taxation of the same income stream,
it allows a tax credit of both (i) the Philippine dividend tax actually withheld, and (ii) the tax credit
for the Philippine corporate income tax actually paid by P&G Philippines but deemed paid by
P&G USA.
Moreover, under the Philippines-United States Convention With Respect to Taxes on Income,
the Philippines, by treaty commitment, reduced the regular rate of dividend tax to a maximum of
20% of he gross amount of dividends paid to US parent corporations, and established a treaty
obligation on the part of the United States that it shall allow to a US parent corporation
receiving dividends from its Philippine subsidiary a [tax] credit for the appropriate amount of
taxes paid or accrued to the Philippines by the Philippine [subsidiary].
Note:
The NIRC does not require that the US tax law deem the parent corporation to have paid the 20
percentage points of dividend tax waived by the Philippines. It only requires that the US shall
allow P&G-USA a deemed paid tax credit in an amount equivalent to the 20 percentage
points waived by the Philippines. Section 24(b)(1) does not create a tax exemption nor does it
provide a tax credit; it is a provision which specifies when a particular (reduced) tax rate is
legally applicable.
Section 24(b)(1) of the NIRC seeks to promote the in-flow of foreign equity investment in the
Philippines by reducing the tax cost of earning profits here and thereby increasing the net
dividends remittable to the investor. The foreign investor, however, would not benefit from the
reduction of the Philippine dividend tax rate unless its home country gives it some relief from
double taxation by allowing the investor additional tax credits which would be applicable against
the tax payable to such home country. Accordingly Section 24(b)(1) of the NIRC requires the
home or domiciliary country to give the investor corporation a deemed paid tax credit at least
equal in amount to the 20 percentage points of dividend tax foregone by the Philippines, in the
assumption that a positive incentive effect would thereby be felt by the investor.

CIR v. YMCA
GR No. 124043, October 14, 1998
298 SCRA 83

FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which conducts various
programs beneficial to the public pursuant to its religious, educational and charitable objectives-
-leases out a portion of its premises to small shop owners, like restaurants and canteen
operators, deriving substantial income for such. Seeing this, the commissioner of internal
revenue (CIR) issued an assessment to private respondent for deficiency income tax, deficiency
expanded withholding taxes on rentals and professional fees and deficiency withholding tax on
wages. YMCA opposed arguing that its rental income is not subject to tax, mainly because of
the provisions of Section 27 of NIRC which provides that civic league or organizations not
organized for profit but operate exclusively for promotion of social welfare and those organized
exclusively for pleasure, recreation and other non-profitble businesses shall not be taxed.

ISSUE: Is the contention of YMCA tenable?

HELD: No. Because taxes are the lifeblood of the nation, the Court has always applied the
doctrine of strict in interpretation in construing tax exemptions. Furthermore, a claim of statutory
exemption from taxation should be manifest and unmistakable from the language of the law on
which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in
a language too clear to be mistaken.

PHILEX MINING CORP. v. CIR
GR No. 125704, August 28, 1998
294 SCRA 687
FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the
Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability
for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest
from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex
protested the demand for payment of the tax liabilities stating that it has pending claims for VAT
input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus
interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities.
ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the
petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are
the lifeblood of the government and so should be collected without unnecessary hindrance.
Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection
system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground
that it has a pending tax claim for refund or credit against the government which has not yet
been granted.Taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other. There is a material
distinction between a tax and debt. Debts are due to the Government in its corporate capacity,
while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting
of taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.

Philex Mining Corporation vs. CIR [G.R. No. 148187 (April 16, 2008)]

Facts:
Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former
to manage the latters mining claim know as the Sto. Mine. The parties agreement was
denominated as Power of Attorney. The mine suffered continuing losses over the years, which
resulted in petitioners withdrawal as manager of the mine. The parties executed a Compromise
Dation in Payment, wherein the debt of Baguio amounted to Php. 112,136,000.00. Petitioner
deducted said amount from its gross income in its annual tax income return as loss on the
settlement of receivables from Baguio Gold against reserves and allowances. BIR disallowed
the amount as deduction for bad debt. Petitioner claims that it entered a contract of agency
evidenced by the power of attorney executed by them and the advances made by petitioners
is in the nature of a loan and thus can be deducted from its gross income. Court of Tax Appeals
(CTA) rejected the claim and held that it is a partnership rather than an agency. CA affirmed
CTA

Issue: Whether or not it is an agency.

Held: No. The lower courts correctly held that the Power of Attorney (PA) is the instrument
material that is material in determining the true nature of the business relationship between
petitioner and Baguio. An examination of the said PA reveals that a partnership or joint venture
was indeed intended by the parties. While a corporation like the petitioner cannot generally
enter into a contract of partnership unless authorized by law or its charter, it has been held that
it may enter into a joint venture, which is akin to a particular partnership. The PA indicates that
the parties had intended to create a PAT and establish a common fund for the purpose. They
also had a joint interest in the profits of the business as shown by the 50-50 sharing of income
of the mine.
Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or
withdrawn by the principal due to an interest of a third party that depends upon it or the mutual
interest of both principal and agent. In this case the non-revocation or non-withdrawal under the
PA applies to the advances made by the petitioner who is the agent and not the principal under
the contract. Thus, it cannot be inferred from the stipulation that it is an agency.