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Excerpts from recent tax cases

RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had RCBC truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment. RCBC's subsequent action effectively belies its insistence that the waivers are invalid. [Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, SC GR No. 170257, September 7, 2011] The liability of the withholding agent is independent from that of the taxpayer. The former cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government (i.e., accountable for its negligence in performing its duty to withhold the amount of tax due on the transaction). The liability for the tax, however, remains with the taxpayer because the gain was realized and received by him. [Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, SC GR No. 170257, September 7, 2011] Section 234 (a) of Republic Act No. 7160 states that properties owned by the Republic of the Philippines are exempt from real property tax "except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." The portions of the properties not leased to taxable entities are exempt from real estate (property) tax while the portions of the properties leased to taxable entities are subject to real estate (property) tax. The law imposes the liability to pay real estate (property) tax on the Republic of the Philippines for the portions of the properties leased to taxable entities. It is, of course, assumed that the Republic of the Philippines passes on the real estate (property) tax as part of the rent to the lessees. [City of Pasig, represented by the City Treasurer and the City Assessor vs. Republic of the Philippines, represented by Presidential Commission on Good Government, SC GR No. 185023, August 24, 2011] The portions of the real properties owned by the Republic of the Philippines and leased to taxable entities are not only subject to real estate (property) tax, they can also be sold at public auction to satisfy the tax delinquency. [City of Pasig, represented by the City Treasurer and the City Assessor vs. Republic of the Philippines, represented by Presidential Commission on Good Government, SC GR No. 185023, August 24, 2011] DST is imposed on certificates of deposit bearing interest, including Savings Account Plus. A certificate of deposit need not be in a specific form; thus, a passbook of an interestearning deposit account issued by a bank is a certificate of deposit drawing interest. [Prudential Bank vs. Commissioner of Internal Revenue, SC GR No. 180390, July 27, 2011] Republic Act No. 7432 had undergone two (2) amendments; first in 2003 by Republic Act No. 9257 and most recently in 2010 by Republic Act No. 9994. The 20% sales discount granted by establishments to qualified senior citizens is now treated as tax deduction and not as tax credit. [Mercury Drug Corporation vs. Commissioner of Internal Revenue, SC GR No. 164050, July 20, 2011] BUT where the case covers the taxable years 1993 and 1994, Republic Act No. 7432 applies. The cost of discount should be computed on the actual amount of the discount extended to senior citizens. Mercury Drug Corporation is entitled to a tax credit equivalent to the actual amounts of the 20% sales discount (as determined by the Court of Tax Appeals). [Mercury Drug Corporation vs. Commissioner of Internal Revenue, SC GR No. 164050, July 20, 2011] Fees paid by the public to tollway operators for use of the tollways are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership. [Renato V. Diaz and Aurora Ma. F. Timbol vs. The Secretary of Finance and The Commissioner of Internal Revenue, SC GR No. 193007, July 19, 2011] //ejts

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VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. It is assessed against the tollway operator's gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways. [Renato V. Diaz and Aurora Ma. F. Timbol vs. The Secretary of Finance and The Commissioner of Internal Revenue, SC GR No. 193007, July 19, 2011] The CIR's powers of distribution, apportionment or allocation of gross income and deductions under Section 43 of the 1993 NIRC and Section 179 of Revenue Regulations No. 2 does not include the power to impute "theoretical interests" to the controlled taxpayer's transactions. The term "gross income" is understood to mean all income from whatever source derived, including, but not limited to the following items: compensation for services, including fees, commissions, and similar items; gross income derived from business; gains derived from dealings in property; interest; rents; royalties; dividends; annuities; prizes and winnings; pensions; and partner's distributive share of the gross income of general professional partnership. There must be proof of the actual or, at the very least, probable receipt or realization by the controlled taxpayer of the item of gross income sought to be distributed, apportioned or allocated by the CIR. [Commissioner of Internal Revenue vs. Filinvest Development Corporation, SC GR No. 163653, July 19, 2011 and Commissioner of Internal Revenue vs. Filinvest Development Corporation, SC GR No. 167689, July 19, 2011] The term "control" is clearly defined as "ownership of stocks in a corporation possessing at least fifty-one percent of the total voting power of classes of stocks entitled to one vote" under Section 34 (c) (6) [c] of the 1993 Tax Code, the exchange of property for stocks between FDC FAI and FLI qualify as a tax-free transaction under paragraph 34 (c) (2) [now Section 40c2] of the same provision. [Commissioner of Internal Revenue vs. Filinvest Development Corporation, SC GR No. 163653, July 19, 2011 and Commissioner of Internal Revenue vs. Filinvest Development Corporation, SC GR No. 167689, July 19, 2011] The instructional letters as well as the journal and cash vouchers evidencing the advances FDC extended to its affiliates in 1996 and 1997 qualified as loan agreements upon which documentary stamp taxes may be imposed. [Commissioner of Internal Revenue vs. Filinvest Development Corporation, SC GR No. 163653, July 19, 2011 and Commissioner of Internal Revenue vs. Filinvest Development Corporation, SC GR No. 167689, July 19, 2011] No deficiency income tax can be assessed on the gain on the supposed dilution and/or increase in the value of FDC's shareholdings in FAC. A mere increase or appreciation in the value of said shares cannot be considered income for taxation purposes. [Commissioner of Internal Revenue vs. Filinvest Development Corporation, SC GR No. 163653, July 19, 2011 and Commissioner of Internal Revenue vs. Filinvest Development Corporation, SC GR No. 167689, July 19, 2011] Applying the irrevocability rule in Section 76, Mirant having opted to carry over its tax overpayment for the fiscal year ending July 30, 1999 and for the interim period ending December 31, 1999, it is now barred from applying for the refund of the said amount or for the issuance of a tax credit certificate therefor, and for the unutilized tax credits carried over from the fiscal year ended June 30, 1998. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. [Commissioner of Internal Revenue vs. Mirant (Philippines) Operations Corporation, SC GR No. 171742, June 15, 2011 and Mirant (Philippines) Operations Corporation (formerly: Southern Energy Asia-Pacific Operations (Phils.), Inc. vs. Commissioner of Internal Revenue, SC GR No. 176165, June 15, 2011] The local government unit entitled to collect real property taxes from Sta. Lucia must undoubtedly show that the subject properties are situated within its territorial jurisdiction; otherwise, it would be acting beyond the powers vested to it by law. Mere reliance therefore on the face of the TCTs will not suffice as they can only be conclusive evidence of the subject properties' locations if both the stated and described locations point to the

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same area. [Sta. Lucia Realty & Development, Inc. vs. City of Pasig, Municipality of Cainta, Province of Rizal (intervenor), SC GR No. 166838, June 15, 2011] The prosecution of crimes pertains to the executive department of the government whose principal power and responsibility is to insure that laws are faithfully executed. Corollary to this power is the right to prosecute violators. All criminal actions commenced by complaint or information are prosecuted under the direction and control of public prosecutors. In the prosecution of special laws, the exigencies of public service sometimes require the designation of special prosecutors from different government agencies to assist the public prosecutor. The designation does not, however, detract from the public prosecutor having control and supervision over the case . [Bureau of Customs vs. Peter Sherman, Michael Whelan, Teodoro B. Lingan, Atty. Ofelia B. Cajigal and the Court of Tax Appeals, SC GR No. 190487, April 13, 2011] A VAT-registered taxpayer is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated sales. Revenue Regulations 7-95 expressly states that "[A]ll purchases covered by invoices other than a VAT invoice shall not give rise to any input tax." Microsoft's invoice, lacking the word "zero-rated," is not a "VAT invoice," and thus cannot give rise to any input tax. The printing of the word "zero-rated" is required to be placed on VAT invoices or receipts covering zero-rated sales in order to be entitled to claim for tax credit or refund. [Microsoft Philippines, Inc. vs. Commissioner Of Internal Revenue, SC GR No. 180173, April 6, 2011] Since PL already opted to carry over its unutilized creditable withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the 1997 Tax Code. Thereby, it became barred from claiming the refund. Nonetheless, in view of its irrevocable choice, PL remained entitled to utilize that amount of P1,200,000.00 as tax credit in succeeding taxable years until fully exhausted. In this regard, prescription did not bar it from applying the amount as tax credit considering that there was no prescriptive period for the carrying over of the amount as tax credit in subsequent taxable years. [Commissioner of Internal Revenue vs. PL Management International Philippines, Inc. SC GR No. 160949, April 4, 2011] Agfha is entitled to recover the value of its lost shipment (that was in the custody of the Bureau of Customs) based on the acquisition cost at the time of payment. Under Republic Act No. 529, stipulations on the satisfaction of obligations in foreign currency are void. Payments of monetary obligations, subject to certain exceptions, shall be discharged in the currency which is the legal tender in the Philippines. But since R.A. No. 529 does not provide for the rate of exchange for the payment of foreign currency obligations incurred after its enactment, the Court held in a number of cases that the rate of exchange for the conversion in the peso equivalent should be the prevailing rate at the time of payment. [Commissioner of Customs vs. Agfha Incorporated, SC GR No. 187425, March 28, 2011] The increases in the sum assured brought about by the guaranteed continuity clause cannot be subject to documentary stamp tax rider Section 183 as an insurance made upon the lives of the insured. But since the text of the guaranteed continuity clause in the Money Plus Plan reflects the companys offer of the option to renew the policy after the expiration of its original term. The availment of the option in the guaranteed continuity clause will effectively renew the Money Plus Plan policy, which is subject to the imposition of documentary stamp tax under Section 183 as an insurance renewed upon the life of the insured. [Commissioner of Internal revenue vs. Manila Bankers Life Insurance Corporation, SC GR No. 169103, March 16, 2011] Pursuant to Republic Act No. 9337 (amending in part RA No. 8424), PAGCOR has been excluded from the enumeration of GOCCs that are exempt from paying corporate income tax. On the other hand, RA No. 9337 exempts PAGCOR from VAT pursuant to Section 7 (k) thereof, which reads: (k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except Presidential Decree No. 529. PAGCOR is exempt from the payment of VAT, because PAGCOR's charter, P.D. No. 1869, is a special law that grants petitioner exemption from taxes. [Philippine Amusement and Gaming Corporation (PAGCOR) vs. the Bureau of Internal Revenue, SC GR No. 172087, March 15, 2011]

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Since the mortgagors exercised their right of redemption before the expiration of the statutory one-year period, the mortgagee-bank is not liable to pay the capital gains tax due on the extrajudicial foreclosure sale. There was no actual transfer of title from the owners-mortgagors to the foreclosing bank. Hence, the inclusion of the said charge in the total redemption price was unwarranted. [Supreme Transliner, Inc. Moises C. Alvarez and Paulita S. Alvarez vs. BPI Family Savings Bank, Inc., SC GR No. 165617, February 23, 2011 and BPI Family Savings Bank, Inc. vs. Supreme Transliner, Inc. Moises C. Alvarez and Paulita S. Alvarez, SC GR No. 165837, February 23, 2011] NPC is an entity with a special charter and exempt from payment of all forms of taxes, including VAT. As such, services rendered by any VAT-registered person/entity, like Kepco, to NPC are effectively subject to zero percent (0%) rate. For the effective zero rating of such services, the VAT-registered taxpayer (i.e., Kepco) must comply with invoicing requirements: The word "zero-rated" imprinted on the invoice covering zerorated sales. Kepco's failure to substantiate its effectively zero-rated sales for the taxable year 1999 (wordings "zero-rated sales" were not imprinted on the VAT official receipts presented by Kepco), the claimed P10,527,202.54 input VAT cannot be refunded. [Kepco Philippines Corporation vs. Commissioner of Internal Revenue, SC GR No. 179961, January 31, 2011] Without the formal offer of evidence of the export documents, the purchase invoice/receipts submitted by Atlas as proof of its input taxes cannot be verified as being directly attributable to the goods so exported. Moreover, when claiming tax refund/credit, the VAT-registered taxpayer must be able to establish that it does have refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities information which are supposed to be reflected in the taxpayer's VAT returns. Thus, in addition, an application for tax refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the taxable quarter/s concerned. [Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, SC GR No. 159471, January 26, 2011] Under Section 135 of the Tax Code, petroleum products sold to international carriers of foreign registry on their use or consumption outside the Philippines are exempt from excise tax, provided that the petroleum products sold to such international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. [Exxonmobil Petroleum and Chemical Holdings, Inc. Philippine Branch vs. Commissioner of Internal Revenue, SC GR No. 180909, January 19, 2011] The proper party to question, or to seek a refund of, an indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if he shifts the burden thereof to another. As Exxon is not the party statutorily liable for payment of excise taxes, it is not the proper party to claim a refund of any taxes erroneously paid. [Exxonmobil Petroleum and Chemical Holdings, Inc. Philippine Branch vs. Commissioner of Internal Revenue, SC GR No. 180909, January 19, 2011] The CTA-En Banc found that from the evidence submitted, ATC has established its claim for refund or issuance of a tax credit certificate for unutilized creditable withholding taxes for the taxable year 2001 in the amount of P27,325,856.58. Proof of actual remittance by ATC is not needed in order to prove withholding and remittance of taxes to BIR. [Commissioner of Internal Revenue vs. Asian Transmission Coropration, SC GR No. 179617, January 19, 2011]

Section 76 (i.e., once the option to carry-over excess income tax payments to the succeeding years has been made, it becomes irrevocable) should be applied following the general rule
on the prospective application of laws such that they operate to govern the conduct of corporate taxpayers the moment the 1997 Tax Code (RA No. 8424) took effect on January 1, 1998. At the time Belle Corporation filed its final adjustment return for 1997 on April 15, 1998, the deadline under Section 77 (B) of the 1997 Tax Code [formerly Section 70(b)], the 1997 Tax Code was already in force. Thus, Section 76 is controlling. [Belle Corporation vs. Commissioner of Internal Revenue, SC GR No. 181298, January 10, 2011] While Belle Corporation may no longer file a claim for refund, BC may apply the unutilized excess income tax payments as a tax credit to the succeeding taxable years until fully utilized. It properly carried over its 1997 excess income tax payments by applying

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portions thereof to its 1998 and 1999 Minimum Corporate Income Tax in the amounts of P25,596,210.00 and P14,185,874.00, respectively. [Belle Corporation vs. Commissioner of Internal Revenue, SC GR No. 181298, March 2, 2011 Resolution] The exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code. Under Section 133 (o), local government units have no power to tax instrumentalities of the national government like the Philippine Fisheries Development Authortiy (PFDA). Thus, PFDA is not liable to pay real property tax assessed by the Office of the City Treasurer of Lucena City on the Lucena Fishing Port Complex, except those portions which are leased to private persons or entities. The Lucena Fishing Port Complex is a property of public dominion (owned by the State or the Republic of the Philippines) intended for public use, and is therefore exempt from real property tax under Section 234 (a) of the Local Government Code. [Philippine Fisheries Development Authority vs. Central Board of Assessment Appeals, Local Board of Assessment Appeals of Lucena City, City of Lucena, Lucena City Assessor and Lucena City Treasurer, SC GR No. 178030, December 15, 2010] Section 228 of the Tax Code requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a Preliminary Assessment Notice (PAN). He must be informed of the facts and the law upon which the assessment is made. The sending of a PAN to taxpayer to inform him of the assessment made is but part of the "due process requirement in the issuance of a deficiency tax assessment," the absence of which renders nugatory any assessment made by the tax authorities. The use of the word "shall" describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star's right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void. [Commissioner of Internal Revenue vs. Metro Star Superama, Inc., SC GR No. 185371, December 8, 2010] To fit into the category listed under the Tariff Harmonized System Headings calling for a higher import duty rate of 7%, the imported articles must not lose its original character. In this case, however, the laboratory analysis of Marina's samples yielded a different result. 35 The report supported Marina's position that the subject importations are not yet ready for human consumption. Moreover, Marina's plant manager, Rebecca Maronilla, testified that the juice compounds could not be taken in their raw form because they are highly concentrated and must be mixed with other additives before they could be marketed as Sunquick juice products. If taken in their unprocessed form, the concentrates without the mixed additives would produce a sour taste. 36 In other words, the concentrates, to be consumable, must have to lose their original character. Thus, the lower 1% tariff import duty rate under Tariff Heading H.S. 2106.90 10 was correctly applied to the subject importations. [Commissioner of Customs vs. Marina Sales, Inc., SC GR No. 183868, November 22, 2010] A Letter of Authority (LOA) is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. There must be a grant of authority before any revenue officer can conduct an examination or assessment. Also, the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. [Commissioner of Internal Revenue vs. Sony Philippines, Inc., SC GR No. 178697, November 17, 2010] LOA 19734 covered "the period 1997 and unverified prior years." The CIR acting through its revenue officers went beyond the scope of their authority since the deficiency VAT assessment they arrived at was based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998. If CIR wanted or intended the investigation to include the year 1998, it should have done so by including it in the LOA or issuing another LOA. The coverage of LOA 19734, particularly the phrase "and unverified prior years," violated Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990: A Letter of Authority should cover a taxable period not exceeding one taxable year. [Commissioner of Internal Revenue vs. Sony Philippines, Inc., SC GR No. 178697, November 17, 2010]

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The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the Tax Code or related laws administered by the BIR. The fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, the validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to collect the validly assessed tax has prescribed. The issue of prescription of the BIR's right to collect taxes may be considered as covered by the term "other matters" over which the CTA has appellate jurisdiction [Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines, Inc., SC GR No. 169225, November 17, 2010] Two requisites must concur before the period to enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants such request. The mere filing of a protest letter which is not granted does not operate to suspend the running of the period to collect taxes. In this case, the records show that Hambrecht filed a request for reinvestigation on December 3, 1993, however, there is no indication that the BIR acted upon the protest. [Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines, Inc., SC GR No. 169225, November 17, 2010] While the CIR has the authority to prescribe real property values and divide the Philippines into zones, the same has to be done upon consultation with competent appraisers both from the public and private sectors. At the time of the sale, the properties were classified as residential, based on the 1995 Revised Zonal Value of Real Properties. The BIR cannot unilaterally change the zonal valuation of such properties to "commercial" without first conducting a re-evaluation of the zonal values as mandated under Section 6 (E) of the NIRC. The internal revenue taxes, such as CGT and DST, are assessed on the basis of valuation, the zonal valuation existing at the time of the sale. SC further went on to say that even assuming that the subject properties were used for commercial purposes, the same remains to be residential for zonal value purposes. The actual use is not considered for zonal valuation, but the predominant use of other classification of properties located in the zone. It shall be classified as residential. [Republic of the Philippines, represented by the CIR vs. Aquafresh Seafoods, Inc., SC GR No. 170389, October 20, 2010] A notice of assessment is a declaration of deficiency taxes issued to a taxpayer who fails to respond to a Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to be without merit. It shall inform the taxpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course. The formal letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and the notice of assessment shall be void. [Commissioner of Internal Revenue vs. Hon. Raul M. Gonzalez, Secretary of Justice, L.M. Camus Engineering Corporation, SC GR No. 177279, October 13, 2010] The formality of a control number in the assessment notice is not a requirement for its validity but rather the contents thereof which should inform the taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal letter of demand and the notice of assessment shall be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, which is a mandatory requirement under Section 228 of the NIRC. [Commissioner of Internal Revenue vs. Hon. Raul M. Gonzalez, Secretary of Justice, L.M. Camus Engineering Corporation, SC GR No. 177279, October 13, 2010] The substantial underdeclared income in the returns filed by LMCEC for 1997, 1998 and 1999 in amounts equivalent to more than 30% (the computation in the final assessment notice showed underdeclarations of almost 200%) constitutes prima facie evidence of fraudulent return under Section 248 (B) of the Tax Code. Based on the prima facie finding of the existence of fraud, petitioner issued LA No. 00009361 for the TFD to conduct a formal fraud investigation of LMCEC. [Commissioner of Internal Revenue vs. Hon. Raul M. Gonzalez, Secretary of Justice, L.M. Camus Engineering Corporation, SC GR No. 177279, October 13, 2010] Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven

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otherwise. A taxpayer's failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription of the Government's right to assess. [Commissioner of Internal Revenue vs. Hon. Raul M. Gonzalez, Secretary of Justice, L.M. Camus Engineering Corporation, SC GR No. 177279, October 13, 2010] Section 112 of the Tax Code is the pertinent provision for the refund/credit of input VAT, i.e., the two-year period should be reckoned from the close of the taxable quarter when the sales were made. Sections 204 (C) and 229 of the Tax Code are inapplicable as these provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes (excluding VAT). [Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc., SC GR No. 184823, October 6, 2010] If an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its GPB, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% of such income, as decided in South African Airways v. Commissioner of Internal Revenue. [United Airlines, Inc. vs. Commissioner of Internal Revenue, SC GR No. 178788, September 29, 2010] Where a BIR-approved trustee and tax-exempt employees trust plan sells a parcel of land, the income from the said property held as investment is exempt from the payment of income tax, and consequently from the payment of the creditable withholding tax. Thus, the trustee of the employees trust fund is entitled to claim the tax refund for erroneous withholding and remittance of taxes thereof. [Miguel J. Ossorio Pension Foundation, Incorporated vs. Court of Appeals and Commissioner of Internal Revenue, SC GR No. 162175, June 28, 2010] A waiver of the 3 year prescriptive period (a) executed without the notarized written authority of the employee to sign in behalf of the corporation; (b) with the failure to indicate the date of acceptance; and (c) the absence of an indication in the original copy of the waiver the fact of receipt by the taxpayer, is a defective waiver, thus, did not result to the extension of the period to assess/collect taxes by the Government. The assessments issued by the BIR beyond the 3 year period are void. [Commissioner of Internal Revenue vs. Kudos Metal Corporation, SC GR No. 178087, May 5, 2010] Section 222 (b) of the Tax Code provides that the period to assess and collect taxes may only be extended upon a written agreement between the Commissioner of Internal Revenue and the taxpayer executed before the expiration of the three-year period. Revenue Memorandum Order No. 20-90 issued on April 4, 1990 and Revenue Delegation Authority Order No. 05-01 issued on August 2, 2001 lay down the procedure for the proper execution of the waiver The waiver must be in the proper prescribed form. The phrase which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular 3 year period of prescription, should be filled up. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. The waiver should be duly notarized. The Commissioner or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. Both the date of execution by the taxpayer and date of acceptance by the BIR should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. The waiver must be executed in 3 copies, the original copy to be attached to the docket of the case, the 2nd copy for the taxpayer and the 3rd copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the

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agreement. [Commissioner of Internal Revenue vs. Kudos Metal Corporation, SC GR No. 178087, May 5, 2010] The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they originate. Thus, the doctrine of estoppel cannot be applied against the taxpayer in the case where the waiver of the 3 year prescriptive period to assess is defective considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. [Commissioner of Internal Revenue vs. Kudos Metal Corporation, SC GR No. 178087, May 5, 2010] An appeal must be perfected within the reglementary period provided by law; otherwise, the decision becomes final and executory. However, as in all cases, there are exceptions to the strict application of the rules for perfecting an appeal. In Mactan Cebu International Airport Authority vs. Mangubat and in Alfonso vs. Sps. Andres, the Supreme Court excused the late filing of the notices of appeal because at the time the said notices of appeal were filed, the applicable new rules had just been recently issued. SC took notice that judges and lawyers need time to familiarize themselves with recent rules. In this case, Republic Act No. 9282 (the law expanding the jurisdiction of the CTA) took effect on April 23, 2004, while petitioner TFS filed its Petition for Review on Certiorari with the Court of Appeals (not CTA) on August 24, 2004, or 4 months after the effectivity of the law. Although SC gave scant consideration to petitioners excuse of inadvertence or honest oversight of counsel, it overlooked the procedural lapse in the interest of substantial justice. Although a client is bound by the acts of his counsel, including the latters mistakes and negligence, a departure from this rule is warranted where such mistake or neglect would result in serious injustice to the client. Procedural rules may thus be relaxed for persuasive reasons to relieve a litigant of an injustice not commensurate with his failure to comply with the prescribed procedure. [TFS, Incorporated vs. Commissioner of Internal Revenue, SC GR No. 166829, April 19, 2010] A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites: The claim must be filed with the Commissioner of Internal Revenue within the 2 year period from the date of payment of the tax, pursuant to Section 229 of the Tax Code; It must be shown on the return that the income received was declared as part of the gross income pursuant to Section 10 of Revenue Regulations No. 6-85; and The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld pursuant to the same Regulations. The fact that the BIR failed to present any evidence or to refute the evidence presented by the taxpayer does not ipso facto entitle the taxpayer to a tax refund. It is not the duty of the government to disprove a taxpayers claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund rests on the taxpayer. And while the BIR has the power to make an examination of the returns and to assess the correct amount of tax, its failure to exercise such powers does not create a presumption in favor of the correctness of the returns. The taxpayer must still present substantial evidence to prove his claim for refund. [Commissioner of Internal Revenue vs. Far East Bank and Trust Company (now Bank of the Philippine Islands), SC GR No. 173854, March 15, 2010] No new issue in a case can be raised in a pleading which by due diligence could have been raised in previous pleadings. The first and fundamental concern of the rules of procedure is to secure a just determination of every action, where procedural rules are designed to facilitate the adjudication of cases. While in certain instances, the Court allows a relaxation in the application of the rules, it never intends to forge a weapon for erring litigants to violate the rules with impunity. The liberal interpretation and application of rules apply only in proper cases of demonstrable merit and under justifiable causes and circumstances. Thus, upon failure of the Commissioner of Internal Revenue to timely plead and prove before the Court of Tax Appeals the defenses/objections that the PEZA-registered taxpayer was VAT-exempt under the PEZA law and that its export sales were VAT-exempt transactions under the Tax Code, resulting to absence of the right

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to credit/refund the input VAT payments, the Commissioner is deemed to have passed up the opportunity to prove the supposed VAT-exemptions of the taxpayer and its export sales when it chose not to present any evidence at all during the trial before the CTA. [Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal Revenue, SC GR No. 157594, March 9, 2010] The enumeration of the sale or exchange of services subject to VAT is not exhaustive. Among those included in the enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not the same as the showing or exhibition of motion pictures or films. The intent of the legislature reveals that VAT does not cover persons already subject to amusement tax, including cinema/theater operators taxed under the Local Government Code of 1991 [because the VAT law was intended to replace the percentage tax on certain services]. To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors, who would be paying an additional 10% (now 12%) VAT on top of the 30% amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% (now 42%) tax. Such imposition would result in injustice. [Commissioner of Internal Revenue vs. SM Prime Holdings, Inc. and First Asia Realty Development Corporation, SC GR No. 183505, February 26, 2010] The proper party to question, or claim a refund or tax credit of an indirect tax is the statutory taxpayer, as it is the company on which the tax is imposed by law and which paid the same even if the burden thereof was shifted or passed on to another. Even if the statutory taxpayer shifted or passed on to Silkair the burden of the tax, the additional amount which it paid is not a tax but a part of the purchase price which it had to pay to obtain the goods. [Silkair (Singapore) Pte. Ltd. vs. Commissioner of Internal Revenue, SC GR No. 184398, February 25, 2010] The general rule is that, resident foreign corporations shall be liable for a 32% (now 30%) income tax on their income from within the Philippines, except for resident foreign corporations that are international carriers that derive income from carriage of persons, excess baggage, cargo and mail originating from the Philippines which shall be taxed at 2 1/2% of their Gross Philippine Billings. Otherwise stated, if an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% (now 30%) of such income. Thus, as an off-line international carrier selling passage documents through an independent sales agent in the Philippines, South African Airways is engaged in trade or business in the Philippines subject to the 32% (now 30%) income tax imposed by Section 28 (A)(1) of the Tax Code. [South African Airways vs. Commissioner of Internal Revenue, SC GR No. 180356, February 16, 2010] Taxes withheld on certain payments under the creditable withholding tax system are but intended to approximate the tax due from the payee. The withheld taxes remitted to the BIR are treated as deposits or advances on the actual tax liability of the taxpayer, subject to adjustment at the proper time when the actual tax liability can be fully and finally determined. Thus, even if the law does not expressly state that the taxpayers excess creditable VAT withheld is refundable, it may be the subject of a claim for refund as an erroneously collected tax under Sections 204 (C) and 229 of the Tax Code. Note: This ruling only refers to creditable VAT withheld pursuant to Section 114 prior to the amendment made by RA No. 9337, which now treats the tax withheld as final VAT, no longer under the creditable withholding tax system. [Commissioner of Internal Revenue vs. Ironcon Builders and Development Corporation, SC GR No. 180042, February 8, 2010] Where after a timely protest of a Preliminary Assessment Notice, the taxpayer received a Formal Letter of Demand with Assessment Notices, its proper recourse is to dispute the assessments by filing an administrative protest within 30 days from receipt thereof. However, if it appears from the Formal Letter of Demand that the Commissioner of Internal Revenue has already made a final decision on the matter and that the remedy of the taxpayer is to appeal the final decision within 30 days, the BIR is estopped from raising the rule of exhaustion of administrative remedies. Thus, the direct filing of a Petition for Review with the Court of Tax Appeals without first filing a protest on the Formal Letter of Demand and Assessment Notices will not result to the dismissal of the Petition for Review. [Allied Banking Corporation vs. Commissioner of Internal Revenue, SC GR No. 175097, February 5, 2010] The Formal Letter of Demand with Assessment Notices which was not administratively protested by the taxpayer can be considered a final decision of the Commissioner of Internal Revenue appealable to the Court of Tax Appeals because the words used, specifically the words final //ejts

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decision and appeal, taken together led the taxpayer to believe that the Formal Letter of Demand with Assessment Notices was in fact the final decision of the Commissioner on the letter-protest it filed and that the available remedy was to appeal the same to the CTA. [Allied Banking Corporation vs. Commissioner of Internal Revenue, SC GR No. 175097, February 5, 2010] An action instituted by the Bureau of Customs 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 a contractual liability. [Philippine British Assurance Company, Inc. vs. Republic of the Philippines, SC GR No. 185588, February 2, 2010] It is the legislatives intent to give cooperatives a preferential tax treatment, as provided for in Articles 61 (duly registered cooperatives which do not transact any business with non-members or the general public shall not be subject to any government taxes and fees imposed under the Tax Code and other tax laws) and 62 (cooperatives transacting business with both members and nonmembers shall not be subject to tax on their transactions to members) of Republic Act No. 6938, as amended by Republic Act No. 9520. The amendment in Article 61 of RA 9520 specifically provides that members of cooperatives are not subject to final taxes on their deposits. Thus, a credit cooperative duly registered with the Cooperative Development Authority (CDA) is not liable to pay the assessed deficiency withholding taxes on interest from the savings and time deposits of its members, as well as the delinquency interest of 20% per annum. [Dumaguete Cathedral Credit Cooperative (DCCCO) vs. Commissioner of Internal Revenue, SC GR No. 182722, January 22, 2010] For a person to be excluded from the coverage of the Voluntary Assessment Program (VAP) and its benefits, the verified information must not only be filed under Section 281 of the Tax Code, it must also be duly recorded in the Official Registry Book of the BIR before the date of availment under the VAP. Thus, the BIRs failure to effect compliance with the requirement of recording the verified information or investigation in its Official Registry Book means that the taxpayer, even if under investigation, can avail of the benefits of the VAP. Consequently, the taxpayer is relieved from any criminal or civil liability incident to the non-filing of a return. [Commissioner of Internal Revenue vs. Julieta Arieta, SC GR No. 164152, January 21, 2010] The three-month redemption period for juridical persons should be reckoned from the issuance of the Certificate of Sale after its approval by the executive judge. Only on this date does the deadline for payment of creditable withholding tax and documentary stamp tax on the extrajudicial foreclosure sale become due, not from the date of the auction sale. [Commissioner of Internal Revenue vs. United Coconut Planters Bank, SC GR No. 179063, October 23, 2009]

Section 185 of the Tax Code states that Documentary Stamp Tax (DST) is imposed on all
policies of insurance or obligations of the nature of indemnity for loss, damage, or liability. In short, 2 requisites must concur before the documentary stamp tax can apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance). [Philippine Health Care Providers, Inc. vs. Commissioner of Internal Revenue, SC GR No. 167330, September 18, 2009] Under Republic Act No. 7875 (or The National Health Insurance Act of 1995), an HMO is an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid premium. The payments do not vary with the extent, frequency or type of services provided. An HMO is not engaged in the business of insurance nor is it part of the insurance industry, therefore, it is not subject to DST. [Philippine Health Care Providers, Inc. vs. Commissioner of Internal Revenue, SC GR No. 167330, September 18, 2009] A certificate of deposit issued by a bank for a time deposit is subject to DST under Section 180 of the Tax Code. The Commissioner of Internal Revenue treated the UNISA of Metrobank like a time deposit, although a passbook is issued, rather than a certificate of deposit. Although the passbook issued by Metrobank for UNISA is not in the form of certificate nor is it labeled as such, it has a fixed maturity date and earns premium interest. Given the nature and substance of the passbook issued by Metrobank for UNISA, it is, for all intents and purposes, a certificate of deposit earning interest, which is subject to DST. Thus, Metrobank is tasked to remit the tax only as a collecting agent. //ejts

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[Metropolitan Bank and Trust Co. vs. Commissioner of Internal Revenue, SC GR No. 178797, August 4, 2009] The taxation of Philippine Air Lines (PAL), during the lifetime of its franchise, shall be governed by 2 fundamental rules, particularly: PAL shall pay the Government, whichever is lower of the (a) basic corporate income tax [based on its annual net taxable income, computed in accordance with the Tax Code] or (b) franchise tax [2% of the gross revenues derived from all sources, whether transport or non-transport operations, except with respect to international air-transport service where the franchise tax shall only be imposed on the gross passenger, mail, and freight revenues from PALs outgoing flights] ; and The tax paid by PAL, under either of these alternatives, shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges, except only real property tax. [Commissioner of Internal Revenue vs. Philippine Airlines, Inc., SC GR No. 180066, July 7, 2009] In case PAL reports no net taxable income for the period, resulting in zero basic corporate income tax [which would necessarily be lower than any franchise tax due from PAL for the same period], PAL cannot be subjected to the minimum corporate income tax (MCIT). The basic corporate income tax refers to the general rate of 35% (now 30%) on its annual net taxable income as stipulated under Section 27 (A) of the Tax Code. There is nothing in Section 13 (a) of Presidential Decree No. 1590 to indicate that PAL is subject to the entire Title II of the Tax Code, entitled Tax on Income. In comparison, the 2% MCIT under Section 27 (E) of the same Code shall be based on the gross income. [Commissioner of Internal Revenue vs. Philippine Airlines, Inc., SC GR No. 180066, July 7, 2009] Even if the basic corporate income tax and the MCIT are both income taxes under Section 27 of the Tax Code, and one is paid in place of the other, the two are distinct and separate taxes. That, under general circumstances, the MCIT is paid in place of the basic corporate income tax, when the former is higher than the latter, does not mean that these two income taxes are one and the same. The said taxes are merely paid in the alternative, giving the Government the opportunity to collect the higher amount between the two. Not being covered by Section 13(a) of Presidential Decree No. 1590, which makes PAL liable only for basic corporate income tax, then MCIT is included in all other taxes from which PAL is exempted. [Commissioner of Internal Revenue vs. Philippine Airlines, Inc., SC GR No. 180066, July 7, 2009] DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. It is an excise tax because it is imposed on the transaction rather than on the document. DST is also levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments . [Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc., SC GR No. 172045-46, June 16, 2009] The person making a deposit on stock subscription does not have the standing of a stockholder and he is not entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. Hence, he is not liable for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that creates rights and obligations between him (the subscriber) and the corporation. [Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc., SC GR No. 172045-46, June 16, 2009] 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. The BIR 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. [Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc., SC GR No. 172045-46, June 16, 2009] Taxes are the lifeblood of the government, and it is of public interest that the collection of which should not be restrained. The applicants for the Writ of Preliminary Injunction //ejts

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showed no clear and unmistakable right that was material and substantial as would warrant the issuance of the Writ. Neither were the applicants able to demonstrate the urgency and necessity of the Writ. The burden that the applicants businesses would sustain because of the imposition of the sin tax on their tobacco and alcohol products cannot possibly be greater than the heavy government revenue losses that would result from the non-collection of taxes. In addition, the improper issuance of the Writ of Preliminary Injunction was aggravated by the inadequate injunctive bond. [Republic of the Philippines, et. al. vs. Judge Ramon S. Caguio] When fraudulent tax returns are involved, a proceeding in court after the collection of such tax may be begun without assessment. An assessment of a deficiency tax is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the governments failure to discover the error and promptly to assess has no connections with the commission of the crime. [Lucas G. Adamson, et. al. vs. CA, et. al., SC GR Nos. 120935 and 124557, May 21, 2009] There is no specific definition or form of an assessment provided in the Tax Code and the Revenue Regulations. However, it defines the specific functions and effects of an assessment. An assessment informs the taxpayer that he or she has tax liabilities. It contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The same must be sent to and received by a taxpayer. Note however, that not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments. [Lucas G. Adamson, et. al. vs. CA, et. al., SC GR Nos. 120935 and 124557, May 21, 2009] A Joint Affidavit, executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals. The purpose of the Joint Affidavit is merely to support and substantiate the Criminal Complaint for tax evasion. [Lucas G. Adamson, et. al. vs. CA, et. al., SC GR Nos. 120935 and 124557, May 21, 2009] The recommendation letter of the BIR to the Secretary of Justice cannot be considered a formal assessment. The said letter was not addressed to the taxpayers, there was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein, and that the letter was never mailed or sent to the taxpayers by the Commissioner. The recommendation letter served merely as the prima facie basis for filing criminal informations that the taxpayers had violated. [Lucas G. Adamson, et. al. vs. CA, et. al., SC GR Nos. 120935 and 124557, May 21, 2009] The law imposes documentary stamp tax (DST) on documents issued in respect of the specified transactions, such as pledge, and not only on papers evidencing indebtedness. Therefore, a pawn ticket, being issued in respect of a pledge transaction, is subject to DST. [H. Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue, SC GR No. 171138, April 7, 2009] Pawnshops, while engaged in the business of lending money, they are not included in the term lending investors for the purpose of imposing the 5% percentage tax. [Agencia Exquisite of Bohol, Inc. vs. Commissioner of Internal Revenue, SC GR Nos. 150141, 157359 and 158644, February 12, 2009] Importation takes place when merchandise is brought into the customs territory of the Philippines with the intention of unloading the same at port, except for transit cargoes which are entered for immediate exportation. For an entry for immediate exportation to be allowed, the following must concur: (a) there is a clear intent to export the article as shown in the bill of lading, invoice, cargo manifest or other satisfactory evidence; (b) the Collector of Customs must designate the vessel or aircraft wherein the articles are laden as a constructive warehouse to facilitate the direct transfer of the articles to the exporting vessel or aircraft; (c) the imported articles are directly transferred from the vessel or aircraft designated as a constructive warehouse to the exporting vessel or aircraft; and (d) an irrevocable domestic letter of credit, bank guaranty or bond in an amount equal to the ascertained duties, taxes and other charges is submitted to the Collector (unless it appears in the bill of lading, invoice, manifest or satisfactory evidence that the articles are destined for transshipment) . If the requisites are not present, there //ejts

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is importation. [Commissioner of Customs vs. CTA, Las Islas Filipinas Food Corporation and Pat-Pro Overseas Co., Ltd. SC GR Nos. 171516-1, February 13, 2009] Seized articles may not be released under bond if there is prima facie evidence of fraud in their importation. Since fraud is a state of mind, its presence can only be determined by examining the attendant circumstances. In this case, although it was insisted that the shipment was sent to the Philippines only for temporary storage and warehousing (as transit cargoes), the bill of lading clearly denominated the Philippines as the port of discharge. Moreover, the shipment was unloaded from the carrying vessel for the purpose of storing the same in a warehouse. The conflicting statements and actuations proved bad faith, if not, outright fraud. [Commissioner of Customs vs. CTA, Las Islas Filipinas Food Corporation and Pat-Pro Overseas Co., Ltd. SC GR Nos. 171516-17, February 13, 2009] A notice of assessment is a declaration of deficiency taxes issued to a taxpayer who fails to respond to a Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to be without merit. The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and the notice of assessment shall be void. [Commissioner of Internal Revenue vs. Enron Subic Power Corporation, SC GR No. 166387, January 19, 2009] Where the BIR merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and compromise penalty due thereon (itemizing the deductions disallowed), without providing the taxpayer with the written bases of the law and facts on which the subject assessment is based, the same is void. [Commissioner of Internal Revenue vs. Enron Subic Power Corporation, SC GR No. 166387, January 19, 2009] The advice of tax deficiency given by the BIR to an employee of the taxpayer, as well as the preliminary 5-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the BIRs duties in correctly assessing a taxpayer. Just because the BIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, does not necessarily mean that the taxpayer was informed of the law and the facts on which the deficiency tax assessment was made. [Commissioner of Internal Revenue vs. Enron Subic Power Corporation, SC GR No. 166387, January 19, 2009] The CTA is a highly specialized body that reviews tax cases. Its findings of fact are binding on the Supreme Court unless such findings are not supported by substantial evidence. [Commissioner of Internal Revenue vs. United International Pictures, AB, SC GR No. 169565, January 21, 2009] Special/Super Savings Deposit Account (SSDA) is a certificate of deposit drawing interest subject to DST even if it is evidenced by a passbook and non-negotiable in character. [Philippine Banking Corporation (now: Global Business Bank, Inc.) vs. Commissioner of Internal Revenue, SC GR No. 170574, January 30, 2009]

Under the Build-Operate-Transfer Agreement between NAPOCOR (a GOCC enjoying

exemption) and BPPC (a private corporation), BPPC is the owner-manager-operator of the project and is the actual user of its machineries and equipment. BPPCs ownership and use of the machineries and equipment are actual, direct, and immediate, while NAPOCORs is contingent. Thus, at this stage of the BOT Agreement, it is not sufficient to support NAPOCORs claim for real property tax exemption under the Local Government Code. The Supreme Court has rejected NAPOCORs claim that the BOT Agreement is a mere financing agreement where BPPC is the financier and NAPOCOR is the actual user of the properties. [National Power Corporation vs. Central Board of Assessment Appeals, Local Board of Assessment Appeals of La Union, Provincial Treasurer, La Union and Municipal Assessor of Bauang, La Union, SC GR No. 171470, January 30, 2009] In administrative proceedings, such as those before the Bureau of Customs, technical rules of procedure and evidence are not strictly applied and administrative due process cannot be fully equated with due process in its strict judicial sense. The essence of due process is simply an opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain one's side or an opportunity to seek reconsideration of the

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action or ruling complained of. [El Greco Ship Manning and Management Corporation vs. Commissioner of Customs, SC GR No. 177188, December 4, 2008] The penalty of forfeiture is imposed on any vessel engaged in smuggling, provided that the following conditions are present: (1) The vessel is used unlawfully in the importation or exportation of articles into or from the Philippines; (2) The articles are imported to or exported from any Philippine port or place, except a port of entry; or (3) If the vessel has a capacity of less than 30 tons and is used in the importation of articles into any Philippine port or place other than a port of the Sulu Sea, where importation in such vessel may be authorized by the Commissioner, with the approval of the department head. [El Greco Ship Manning and Management Corporation vs. Commissioner of Customs, SC GR No. 177188, December 4, 2008] There is no question that M/V Neptune Breeze, then known as M/V Criston, was carrying 35,000 bags of imported rice without the necessary papers showing that they were entered lawfully through a Philippine port after the payment of appropriate taxes and duties thereon. This gives rise to the presumption that such importation was illegal. Consequently, the rice subject of the importation, as well as the vessel M/V Neptune Breeze used in importation are subject to forfeiture. The burden is on El Greco, as the owner of M/V Neptune Breeze, to show that its conveyance of the rice was actually legal. Unfortunately, its claim that the cargo was not of foreign origin but was merely loaded at North Harbor, Manila, was belied by the following evidence - the Incoming Journal of the Philippine Coast Guard, Certification issued by the Department of Transportation and Communications (DOTC) Port State Control Center of Manila, and the letter dated 4 October 2001 issued by the Sub-Port of North Harbor Collector Edward de la Cuesta, confirming that there was no such loading of rice or calling of vessel occurring at North Harbor, Manila. It is, therefore, uncontroverted that the 35,000 bags of imported rice were smuggled into the Philippines using M/V Neptune Breeze. [El Greco Ship Manning and Management Corporation vs. Commissioner of Customs, SC GR No. 177188, December 4, 2008] An excise tax is an indirect tax where the tax burden can be shifted to the consumer but the tax liability remains with the manufacturer or producer. The excise taxes are collected from manufacturers or producers before removal of the domestic products from the place of production. Although excise taxes can be considered as taxes on production, they are really taxes on property as they are imposed on certain specified goods. [Silkair (Singapore) Pte. Ltd. vs. Commissioner of Internal Revenue, SC GR Nos. 171383 and 172379, November 14, 2008] The proper party to question, or 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 thereof to another. Thus, even if Petron Corporation passed on to Silkair the burden of the excise tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser. [Silkair (Singapore) Pte. Ltd. vs. Commissioner of Internal Revenue, SC GR Nos. 171383 and 172379, November 14, 2008] Section 112(A) of the Tax Code, as amended, provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned 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. Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. Given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. As it is, MPCs (Mirant Pagbilao Corporation) claim for refund or tax credit filed on December 10, 1999 had already prescribed. [Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc., SC GR No. 172129, September 12, 2008] MPC cannot avail of the provisions of either Sec. 204(C) or 229 of the Tax Code, as amended, which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor. Notably, the said provisions also set a two-year prescriptive period, but (a) reckoned from the date of payment of the tax or penalty for the filing of a claim of refund or tax credit; and (b) applies to instances

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of erroneous payment or illegal collection of internal revenue taxes. [Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.), SC GR No. 172129, September 12, 2008] A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites the latter to an informal conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. In this case, a formal assessment notice was received by him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis thereof, he filed a protest with the BIR and eventually a petition with the CTA. [Commissioner of Internal Revenue vs. Dominador Menguito, SC GR No. 167560, September 17, 2008] The stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer, applies only to formal assessments prescribed under Section 228 of the Tax Code, as amended, but not to post-reporting notices or pre-assessment notices. The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that formal assessment notices must be served on and received by the taxpayer. In this case , there is no doubt that BIR failed to prove that it served on the taxpayer a post-reporting notice and a pre-assessment notice. Exhibit 11 of the BIR is a mere photocopy of a July 28, 1997 letter it sent to the taxpayer, informing of the initial outcome of the investigation into his sales, and the release of a preliminary assessment upon completion of the investigation, with notice for the latter to file any objection within five days from receipt of the letter. Exhibit 13 of the BIR is also a mere photocopy of an August 11, 1997 Preliminary Ten (10) Day Letter to the taxpayer, informing him that he had been found to be liable for deficiency income and percentage tax and inviting him to submit a written objection to the proposed assessment within 10 days from receipt of notice. But nowhere on the face of said documents can be found evidence that these were sent to and received by the taxpayer. Nor is there separate evidence, such as a registry receipt of the notices or a certification from the Bureau of Posts, that BIR actually mailed said notices. [Commissioner of Internal Revenue vs. Dominador Menguito, SC GR No. 167560, September 17, 2008] Sections 1301 and 1801 of the Tariff and Customs Code imported articles must be entered in the customhouse within a non-extendible period of 30 days from the date of discharge of the last package from a vessel, otherwise, the importer shall be deemed to have renounced all his interests and property rights to the importation and the same shall be considered impliedly abandoned in favor of the government. The operative act that constitutes entry of the imported articles at the port of entry is the filing and acceptance of the specified entry form together with the other documents required by law and regulations. The specified entry form refers to the import entry and internal revenue declarations (IEIRDs). Thus, the 30-day period requires not only the filing of import entry declarations (IEDs) but also the IEIRDs. The IED serves as basis for the payment of advance duties on importations whereas the IEIRD evidences the final payment of duties and taxes. In this case, both the IED and IEIRD should have been filed within 30 days from the date of discharge of the last package from the vessel or aircraft. From the moment that the non-extendible 30-day period lapsed, the abandoned shipments were deemed the property of the government. Thus, when Chevron withdrew the oil shipments for consumption, it appropriated for itself properties which already belonged to the government, becoming liable for the total dutiable value of the shipments of imported crude oil. [Chevron Philippines, Inc. vs. Commissioner of the Bureau of Customs, SC GR No. 178759, August 11, 2008] Implied abandonment occurs when the owner, importer, consignee, interested party or his authorized broker/representative, after due notice, fails to file an entry within a nonextendible period of 30 days from the date of discharge of last package from the carrying vessel or aircraft. Due notice shall be by means of posting of a notice to file entry at the Bulletin Board 7 days prior to the lapse of the 30 days period by the Entry Processing Division listing the consignees who/which have not filed the required import entries as of the date of the posting of the notice and notifying them of the arrival of their shipment, the name of the carrying vessel/aircraft, Voy. No. Reg. No. and the respective B/L No./AWB No. The purpose of posting an urgent notice to file entry pursuant to Section

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B.2.1 of CMO 15-94 is only to notify the importer of the arrival of its shipment and the details of said shipment. In this case, notice to Chevron was unnecessary because it was fully aware that its shipments had in fact arrived in the Port of Batangas. The oil shipments were discharged from the carriers docked in its private pier or wharf, into its shore tanks. From then on, Chevron had actual physical possession of its oil importations. It was incumbent upon it to know its obligation to file the IEIRD within the 30-day period. Since it already had knowledge of such, notice was superfluous. Besides, the entries had already been filed, albeit belatedly. It would be oppressive to the government to demand a literal implementation of this notice requirement. [Chevron Philippines, Inc. vs. Commissioner of the Bureau of Customs, SC GR No. 178759, August 11, 2008] Fraud, in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another. In this case, fraud was established. Evidence showed that Chevron bided its time to file the IEIRD so as to avail of a lower rate of duty. There was a calculated and preconceived course of action adopted purposely to evade the payment of the correct customs duties then prevailing. This was done in collusion with the former District Collector, who allowed the acceptance of the late IEIRDs and the collection of duties using the 3% (instead of the applicable 10% rate) declared rate. A clear indication of Chevrons deliberate intention to defraud the government was its non-disclosure of discrepancies on the duties declared in the IEDs (10%) and IEIRDs (3%) covering the shipment. Thus, due to the presence of fraud, the prescriptive period of the finality of liquidation under Section 1603 was inapplicable. [Chevron Philippines, Inc. vs. Commissioner of the Bureau of Customs, SC GR No. 178759, August 11, 2008] The rule-making power of the Secretary of Finance must be confined to details for regulating the mode or proceedings to carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace matters not covered by the statute. [Commissioner of Internal Revenue vs. Fortune Tobacco Corporation, Supreme Court (Second Division), G.R. No. 167274-75, July 21, 2008] Section 10 of Revenue Regulations No. 6-85 provides for the requisites for a claim for refund: (a) that the claim for refund was filed within the 2-year period as prescribed by the Tax Code, as amended; (b) that the income upon which the taxes were withheld were included in the return of the recipient; and (c) that the fact of withholding is established by a copy of a statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. In this case, (a) PERF filed its administrative and judicial claims for refund on November 3, 1999 and December 3, 1999, respectively, which are within the two-year prescriptive period under Section 230 (now 229) of the Tax Code, as amended; (b) PERF presented certificates of creditable withholding tax at source reflecting creditable withholding taxes in the amount of P4,153,604.18 withheld from PERFs rental income of P83,072,076.81; and (c) PERF submitted in evidence the Monthly Remittance Returns of its withholding agents to prove the fact of remittance of said taxes to the BIR. [Commissioner of Internal Revenue vs. PERF Realty Corporation, SC GR No. 163345, July 4, 2008] Section 76 of the Tax Code, as amended, offers two options: (1) filing for tax refund and (2) availing of tax credit. The two options are alternative and the choice of one precludes the other. In Philam Asset Management, Inc. v. Commissioner of Internal Revenue , the Supreme Court ruled that failure to indicate a choice will not bar a valid request for a refund, should this option be chosen by the taxpayer later on. The requirement is only for the purpose of easing tax administration particularly the self-assessment and collection aspects. In this case, PERF did not mark the refund box in its 1997 Final Adjustment Return. Neither did it perform any act indicating that it chose tax credit. In fact, in its 1998 Income Tax Return, PERF left blank the portion Less: Tax Credit/ Payments. This action, coupled with the filing of a claim for refund, indicates that PERF opted to claim a refund. Under these circumstances, PERF is entitled to a refund of its 1997 excess tax credits. [Commissioner of Internal Revenue vs. PERF Realty Corporation, SC GR No. 163345, July 4, 2008]

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Section 133(h) of the Local Government Code prohibits local government units from imposing any kind of tax, fee, or charge on petroleum products. [Petron Corporation vs. Mayor Tobias M. Tiangco, et. al., Supreme Court (Second Division) G.R. No. 158881, April 16, 2008]

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