REPUBLIC ACT NO.

9503 - AMENDMENT TO THE Court of Tax Appeals LAW Salient Points of RA 9503 >The Court of Tax Appeals will now have three Divisions instead of two with each Division still being composed of three Justices. >For en banc sessions, five Justices shall constitute a quorum. For sessions of a Division, the quorum (two Justices) remains the same. >The affirmative vote of five members of the Court of Tax Appeals en banc shall be necessary to reverse a decision of a Division. However, only a simple majority of the Justices present necessary to promulgate a resolution or decision in all other cases, or two members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution in the Division level. (Note: Before RA No. 9503, there was no mention of the votes necessary to reverse a decision.)

REPUBLIC ACT NO. 10021 EXCHANGE OF INFORMATION BY THE BUREAU OF INTERNAL REVENUE ON INTERNATIONALLY-AGREED TAX STANDARDS Salient Points >The Commissioner can now inquire into bank deposits and other related information held by financial institutions when A specific taxpayer or taxpayers subject of a request for supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party. The information may be used by the BIR for tax assessment, verification, audit, and enforcement purposes. The exchange of information shall be done in a secure manner to ensure confidentiality. >The provision of information to a foreign tax authority requires that the requesting foreign tax authority has provided relevant information such as the identity of the taxpayer, the tax purpose, statement that the foreign authority has exhausted all means, etc. >If the subject of the request are income tax returns, the same shall be open to inspection upon the order of the President of the Philippines.

RAYTHEON PRODUCTION VS. CIR- Tax Compromise The determining factor is the NATURE of the basic claim from which the compromised amount was realized. FACTS: Raytheon (original company) was a pioneer manufacturer of rectifier tubes which are used in radio receiving sets (using alternating current instead of batteries). The Radio Corporation of America developed a competitive tube, with the same effect as the Raytheon tube. RCA owned many patents covering radio circuits. Beginning 1927, RCAs license agreements with radio set manufacturers included a clause which required the manufacturers to buy their tubes only from RCA. Soon, Raytheons sales gradually declined. Raytheon (new company that bought original company) brought an action against RCA for violating anti-trust laws, as well as for destruction of Raytheons profitable business and goodwill. Both parties finally agreed on a $410,000 settlement of the anti-trust case, with RCA acquiring patent license rights and sublicensing rights. Raytheon counted the $60,000 from the amount as income from patent licenses, while the remaining $350,000 were counted as damages, and therefore not subject to income tax. The income from patents was determined from the cost of the development of such patents, and the fact that few of them were being used and none were earning royalties. Thus, the value of patents and the goodwill was backed by evidence during trial.

ISSUE: Whether or not damages for loss of business good will are a nontaxable return of capital or income. HELD: No. They are not taxable in general. Damages for violation of the anti-trust acts are treated as ordinary income where they represent compensation for loss of profits. The test is not whether the action was one in tort or contract but rather the question to be asked is "In lieu of what were the damages awarded?" Where the suit is not to recover lost profits but is for recovery in injury to good will, the recovery represents a return of capital and, with certain limitations (necessity of proof/evidence), is not taxable. The suit by Raytheon was not one of recovering lost profits. From its allegations, Raytheons suit was for the destruction of its goodwill. The presentation of evidence of profits was merely used to establish the value of good will and the business, since such value is derived by a capitalization of profits. Therefore, a recovery on goodwill and business represents return of capital. The fact that the case ended in settlement is of no moment. The determining factor is the NATURE of the basic claim from which the compromised amount was realized. However, compensation for the loss of goodwill in excess of its cost is gross income. The law does not exempt compensatory damages just because they are a return of capital. The tax exemption applies only to the portion that recovers the cost basis of that capital; any excess damages serve to realize prior appreciation, and should be taxed as income. In addition, evidence must be produced to establish the value of the goodwill and business. In this case, Raytheon was not able to establish the value of its goodwill and business. It did not produce enough evidence to such effect. The amount of nontaxable capital cannot be ascertained. Since Raytheon could not establish the cost basis of its good will, its basis will be treated as zero. The Court concludes that the $350,000 of the $410,000 attributable to the suit is thus taxable income. Note: establishing goodwill can be done as in a situation where a company buys another company, and the buying company allots a certain amount in cost of purchase as goodwill.

PHILIPPINE BRITISH ASSURANCE COMPANY, INC. vs. BUREAU OF CUSTOMS- Customs Bonds FACTS: Philippine British Assurance Company was an insurance company which regularly issued customs bonds to its clients in favor of the BOC. The bonds secure the release of imported goods in order that the goods may be released without prior payment of duties and taxes. Under these bonds, Petitioner and its clients jointly bind themselves to pay BOC the value of the bonds in the event that the bonds expire without the imported goods being re-exported or the proper duties being paid. BOC then filed a collection case alleging that Petitioner had unliquidated customs bonds. The RTC decided in favor of BOC but the appeal filed with the Court of Appeals was dismissed as the CA claimed lack of jurisdiction and said that the appeal lies with the CTA as a case for collection of taxes. ISSUE: Did the CA, not the CTA, have jurisdiction over the appeal filed from the RTC? HELD: YES. An action to collect on a bond used to secure the payment of taxes is not a tax collection case but rather a simple case for enforcement of contractual liability. This was the same ruling in Mambulao Lumber where to satisfy its deficiency sales tax, the parties agreed for the taxpayer to pay in installments and as a security a bond was executed. Upon default, the government proceeded against the bond while the taxpayer argued that the 5year period to collect had set in. The Court ruled that the prescription rules under the Tax Code do not apply and instead those under the Civil Code apply.

RIZAL COMMERCIAL BANKING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE- Protest Tax Assessments FACTS: RCBC received the final assessment notice on July 5, 2001. It filed a protest on July 20, 2001. As the protest was not acted upon, it filed a Petition for Review with the Court of Tax Appeals (CTA) on April 30, 2002, or more than 30 days after the lapse of the 180-day period reckoned from the submission of complete documents. The CTA dismissed the Petition for lack of jurisdiction since the appeal was filed out of time. ISSUE: Has the action to protest the assessment judicially prescribed? HELD: YES. The assessment has become final. The jurisdiction of the CTA has been expanded to include not only decision but also inactions and both are jurisdictional such that failure to observe either is fatal. However, if there has been inaction, the taxpayer can choose between (1) file a Petition with the CTA within 30 days from the lapse of the 180-day period OR (2) await the final decision of the CIR and appeal such decision to the CTA within 30 days after receipt of the decision. These options are mutually exclusive and resort to one bars the application of the other. Thus, if petitioner belatedly filed an action based on inaction, it can not subsequently file another petition once the decision comes out.

CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC.- CTA, Double Taxation FACTS: Respondent paid the local business tax only as a manufacturers as it was expressly exempted from the business tax under a different section and which applied to businesses subject to excise, VAT or percentage tax under the Tax Code. The City of Manila subsequently amended the ordinance by deleting the provision exempting businesses under the latter section if they have already paid taxes under a different section in the ordinance. This amending ordinance was later declared by the Supreme Court null and void. Respondent then filed a protest on the ground of double taxation. RTC decided in favor of Respondent and the decision was received by Petitioner on April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time to File Petition for Review asking for a 15-day extension or until May 20, 2007 within which to file its Petition. A second Motion for Extension was filed on May 18, 2007, this time asking for a 10-day extension to file the Petition. Petitioner finally filed the Petition on May 30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to timely file the Petition. ISSUES: (1) Has Petitioners the right to appeal with the CTA lapsed? (2) Does the enforcement of the latter section of the tax ordinance constitute double taxation? HELD: (1) NO. Petitioner complied with the reglementary period for filing the petition. From April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for Review with the CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior to the lapse of the 30-day period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion for Extension of petitioners. Thus, when Petitioner filed their Petition via registered mail their Petition for Review on 30 May 2007, they were able to comply with the period for filing such a petition. (2) YES. There is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject matter the privilege of doing business

in the City of Manila; (2) for the same purpose to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on gross sales or receipts of the business.

FISHWEALTH CANNING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE- Court of Tax Appeals FACTS: Petitioner was assessed for income tax, Value Added Tax and withholding tax. After Court of Tax Appeals issued a Final Decision on Disputed Assessment, Petitioner filed a Letter of Reconsideration with the CIR instead of appealing the same to the Court of Tax Appeals within 30 days. The CIR then issued a Preliminary Collection Letter which prompted the Petitioner to file its Petition with the Court of Tax Appeals. CIR argued that the Petition with the Court of Tax Appeals was filed out of time. ISSUE: Did the filing of a Reconsideration toll the running of the 30-day period to appeal to the Court of Tax Appeals? HELD: NO. A Motion for Reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the Court of Tax Appeals.

COMMISSIONER OF INTERNAL REVENUE vs. METRO STAR SUPERAMA, INC.- Pre-Assessment Notice FACT: Metro Star Superama was audited for taxable year 1999 and received a Preliminary 15-day Letter on November 15, 2001. On April 11, 2002, it received a Formal Letter of Demand dated April 3, 2002. Denying that it received a PreAssessment Notice and thus not accorded due process, Metro Star Superama filed a Petition with the CTA. ISSUE: Was the Petitioner accorded the required due process? HELD: NO. Since the Petitioner denied receipt of the Pre-Assessment Notice, the burden of proving the same shifts to the BIR. To raise the presumption of receipt, it must be shown that (a) the letter was properly addressed with postage prepaid and (b) that it was mailed. If receipt is denied, the BIR must then show actual receipt through presentation of the registry receipt or, if the same cannot be located, at least a certification from the Bureau of Posts. The Court likewise added that the issuance of a Pre-Assessment Notice is a mandatory requirement save only on specified instances. The old rule laid down in CIR vs. Menguito that only the FAN is mandatory no longer applies since the same was ruled upon based on the old provision.

COMMISSIONER OF INTERNAL REVENUE VS. AQUAFRESH SEAFOODS, INC. - Fair Market Value FACTS: Aquafresh Seafoods sold two parcels of located at Barrio Banica in Roxas City and paid the corresponding CGT and DST due on the sale. However, the BIR assessed Aquafresh Seafoods based on its conclusion that the lots were classified as commercial and not residential as claimed by the taxpayer. Aquafresh Seafoods defense was that there was already a pre-defined zonal value for the said lots and thus the BIR could not reclassify the same to be commercial lots.

ISSUE: Is the requirement (under Section 6 of the Tax Code) of consultation with competent appraisers both from the public and private sectors in determining fair market value applicable in this case? HELD: YES. The BIRs position that the requirement of consultation with appraisers is mandatory only when formulating or making changes in the schedule of zonal values is wrong. The Court held that the BIRs act of classifying the subject properties involved a re-classification and revision of the prescribed zonal values. It was likewise added that the application of the rule of assigning zonal values based on the predominant use of property only applies when the property is located in an area or zone where the properties are not yet classified and their zonal values are not yet determined. If a determination has already been made, the BIR has no discretion as regards its classification and/or valuation.

COMMISSIONER OF INTERNAL REVENUE vs. AICHI FORGING COMPANY OF ASIA, INC.- Tax Refund FACTS: On September 30, 2004, Aichi Forging filed a claim for refund/credit of input VAT attributable to its zero-rated sales for the period July 1, 2002 to September 30, 2002 with the CIR through the DOF One-Stop Shop. On the same day, Aichi Forging filed a Petition for Review with the CTA for the same action. The BIR disputed the claim and alleged that the same was filed beyond the two-year period given that 2004 was a leap year and thus the claim should have been filed on September 29, 2004. The CIR also raised issues related to the reckoning of the 2-year period and the simultaneous filing of the administrative and judicial claims. ISSUES: (1) Was the Petitioners administrative claim filed out of time? (2) Was the filing of the judicial claim premature? HELD: (1) NO. The right to claim the refund must be reckoned from the close of the taxable quarter when the sales were made in this case September 30, 2004. The Court added that the rules under Sections 204 (C) and 229 as crossreferred to Section 114 do not apply as they only cover erroneous payments or illegal collections of taxes which is not the case for refund of unutilized input VAT. Thus, the claim was filed on time even if 2004 was a leap year since the sanctioned method of counting is the number of months. (2) YES. Section 112 mandates that the taxpayer filing the refund must either wait for the decision of the CIR or the lapse of the 120-day period provided therein before filing its judicial claim. Failure to observe this rule is fatal to a claim. Thus, Section 112 (A) was interpreted to refer only to claims filed with the CIR and not appeals to the CTA given that the word used is application. Finally, the Court said that applying the 2-year period even to judicial claims would render nugatory Section 112 (D) which already provides for a specific period to appeal to the CTA --i.e., (a) within 30 days after a decision within the 120-day period and (b) upon expiry of the 120-day without a decision.

COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION- Waiver of the Statute of Limitations FACTS: CIR assessed Kudos Metal Corporation for taxable year 1998. A Waiver of the Statute of Limitations was executed on December 2001. The CTA issued a Resolution canceling the assessment notices issued against Petitioner for having been issued beyond the prescriptive period as the waiver purportedly failed to (a) have the valid officer execute the same (i.e., only the Assistant Commissioner signed it and not the CIR); (b) the date of acceptance was not indicated; (c) the fact of receipt by the taxpayer was not indicated in the original copy.

ISSUE: Has the CIRs right to assess prescribed? HELD: YES. The requirements for a valid waiver as laid down in RMO 20-90 and RDAO No. 5-01 are mandatory to give effect to Section 222 of the Tax Code. Specifically, the flaws in the waiver executed by Kudos Metal were as follows: (a) there was no notarized written authority in favor of the signatory for the company; (b) there is no stated date of acceptance by the Commissioner or his representative; and (c) the fact of the receipt of the copy was not indicated in the original waivers. Neither can it be said that by merely executing the waiver the taxpayer is already estopped from disputing an action by the CIR beyond the statutory 3-year period since the exception under the Suyoc case (i.e., when the delays were due to taxpayers acts) does not apply. Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry date; (iii) signed by authorized officer of taxpayer and BIR; (iv) notarized; (v) fact of receipt must be indicated in the copies

COMMISSIONER OF INTERNAL REVENUE vs. ENRON SUBIC POWER CORPORATION - Disputed Assessment FACTS: The BIR assessed Enron which countered by filing a Petition for Review with the CTA stating that the assessment disregarded the provisions of the Tax Code and of RR No. 12-99, when the assessment failed to provide the legal and factual bases of the assessment. The CTA and CA ruled that the assessment notice must not only refer to the supporting revenue laws or regulations for the assessment but must also justify their applicability to the factual milieu of the assessment. ISSUE: Is the disputed assessment valid? HELD: NO. The assessment is not valid. Although the revenue examiners discussed their findings with Respondents representative during the pre-assessment stage, the same, together with the Preliminary Five-Day Letter and Petitioners Annex G, were not sufficient to comply with the procedural requirement of due process. The Tax Code provides that a taxpayer shall be informed (and not merely notified as was the requirement before) in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. The use of the word shall indicates the mandatory nature of the requirement.

LUCAS ADAMSON vs. COURT OF APPEALS- Deficiency Tax Assessment FACTS: A deficiency tax assessment was issued against Petitioners relating to their payment of capital gains tax and VAT on their sale of shares of stock and parcels of land. Subsequent to the preliminary conference, the CIR filed with the Department of Justice her Affidavit of Complaint against Petitioners. The Court of Appeals ultimately ruled that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a fraudulent return with intent to evade the tax.

ISSUES: (1) Did the CIR issue an assessment? (2) Must a criminal prosecution for tax evasion be preceded by a deficiency tax assessment? (3) Does the CTA have jurisdiction on the case? HELD: (1) NO. The recommendation letter of the Commissioner cannot be considered a formal assessment as (a) it was not addressed to the taxpayers; (b) there was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein; (c) the letter was never mailed or sent to the taxpayers by the Commissioner. It was only an affidavit of the computation of the alleged liabilities and thus merely served as prima facie basis for filing criminal informations. (2) YES. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment considering that upon investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the transactions. The Tax Code is clear that the remedies may proceed simultaneously. (3) NO. While the laws governing the CTA have expanded the jurisdiction of the Court, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision of the Commissioner, or in cases of inaction within the prescribed period. Since in the cases at bar, the Commissioner has not issued an assessment of the tax liability of the Petitioners, the CTA has no jurisdiction.

COMMISSIONER OF INTERNAL REVENUE vs. FIRST EXPRESS PAWNSHOP COMPANY, INC. - Tax Assessment Protest FACTS: CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When CIR did not act on the protest during the 180-day period, respondent filed a petition before the CTA. ISSUE: Has Respondents right to dispute the assessment in the CTA prescribed? HELD: NO. The assessment against Respondent has not become final and unappealable. It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when respondent submitted its protest, respondent attached all the documents it felt were necessary to support its claim. Further, CIR cannot insist on the submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription. The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise started to run on that same date.

COMMISSIONER OF INTERNAL REVENUE vs. HAMBRECHT & QUIST PHILIPPINES, INC.- Tax Assessment and Protest FACTS: The assessment against Hambrecht & Quist had become final and unappelable since there was a failure to protest the same within the 30-day period provided by law. However, the CTA held that the BIR failed to collect within the prescribed time and thus ordered the cancellation of the assessment notice. The CIR disputed the jurisdiction of the CTA arguing that since the assessment had become final and unappealable, the taxpayer can no longer dispute the correctness of the assessment even before the CTA. ISSUE: Can the CTA still take cognizance of an assessment case which has become final and unappealable for failure of the taxpayer to protest within the 30-day protest period? HELD: YES. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The CTA law clearly bestows jurisdiction to the CTA even on other matters arising under the National Internal Revenue Code. Thus, the issue of whether the right of the CIR to collect has prescribed, collection being one of the duties of the BIR, is considered covered by the term other matters. The fact that assessment has become final for failure to protest only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, this issue is entirely distinct from the issue of whether the right to collect has in fact prescribed. The Court ruled that the right to collect has indeed prescribed since there was no proof that the request for reinvestigation was in fact granted/acted upon by the CIR. Thus, the period to collect was never suspended.

ALLIED BANKING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE- Formal Letter of Demand on Tax Assessment FACTS: Allied Banking Corporation received a PAN from the BIR which it timely disputed. In response, the BIR issued a Formal Letter of Demand with Assessment Notices. Instead of protesting the FAN, the petitioner filed a Petition for Review with the CTA. The CTA dismissed the Petition stating that it is neither the assessment nor the formal demand letter itself that is appealable before it but instead it should be the decision of the CIR on the disputed assessment ISSUES: Can the Formal Letter of Demand be construed as the final decision of the CIR appealable to the CTA under Republic Act 9282? HELD: YES. This is considered an exception to the general rule on exhaustion of administrative remedies since the CIR is considered estopped from claiming the same principle applies in its case. The tenor of the demand letter is clear that the CIR had already made a final decision and that the remedy of the Petitioner was to appeal the same within 30 days of receipt. This can be gleaned from the use of the terms final decision and appeal which were deemed unequivocal language pointing to the finality of the decision. While the Court cited the rules relative to (a) protesting the FAN and not the PAN and (b) counting the 30 day period to appeal to the CTA from receipt of the decision of the CIR and not issuance of the assessment, this particular case was deemed a clear exception in view of the CIRs own actions.

RIZAL COMMERCIAL BANKING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE- Waiver of the Statute of Limitations ISSUE: Whether a taxpayer, by paying the other tax assessments covered by a Waiver of the Statute of Limitations, is consider estopped from questioning the validity of the said waiver (on the basis that the CIR did not sign it) with respect to the other covered but unsettled assessments? HELD: YES. RCBC is considered estopped through its partial payment of the revised assessments within the extended period provided in the said waivers. Thus, it had impliedly admitted the validity of the said waivers. Had it believed that the waiver was invalid and that the period to assess had effectively prescribed, RCBC could have refused to make any payment based on any assessment against it.

EXXONMOBIL PETROLEUM AND CHEMICAL HOLDINGS, INC. PHILIPPINE BRANCH VS. COMMISSIONER OF INTERNAL REVENUE FACTS: Exxonmobil was a US corporation engaged in selling petroleum products to domestic and international carriers. It purchased petroleum products from local suppliers (Caltex and Petron), the excise taxes on which were remitted by the said suppliers but the amount of which were, however, passed-on to Exxonmobil. It then filed a claim for refund of excise taxes paid on its purchase of petroleum products from its suppliers. ISSUE: Is Exxonmobil entitled to file the claim for the refund of the excise taxes passed-on by Caltex and Petron? HELD: NO. The proper party to seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden to another. Although the burden of an indirect tax can be shifted to the purchaser, the amount added or shifted becomes part of the price. Thus, the purchaser does not really pay the tax per se but only the price of the commodity. Indirect taxes were defined as those that are demanded, in the first instance, from, or are paid by, one person to someone else. When the seller passes on the tax to the buyer he in effect shifts only the tax burden and not the liability to pay for it.