CIR V.

SOLIDBANK CORPORATION
Facts:
Solidbank filed its Quarterly Percentage Tax Returns reflecting gross receipts amounting to P1, 474,693.44. It alleged that
the total included P350, 807,875.15 representing gross receipts from passive income which was already subjected to
20%final withholding tax (FWT).
The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the 20% FWT should not form part of its taxable
gross receipts for purposes of computing the tax.
Solidbank, relying on the strength of this decision, filed with the BIR a letter-request for the refund or tax credit. It also filed
a petition for review with the CTA where it ordered the refund.
The CA ruling, however, stated that the 20% FWT did not form part of the taxable gross receipts because the FWT was not
actually received by the bank but was directly remitted to the government.
The Commissioner claims that although the FWT was not actually received by Solidbank, the fact that the amount
redounded to the banks benefit makes it part of the taxable gross receipts in computing the Gross Receipts Tax. Solidbank
says the CA ruling is correct.
Issue:
Whether or not the FWT forms part of the gross receipts tax.
Held:
Yes. In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed. The payor, a separate
entity, acts as no more than an agent of the government for the collection of tax in order to ensure its payment. This amount
that is used to settle the tax liability is sourced from the proceeds constitutive of the tax base.
These proceeds are either actual or constructive. Both parties agree that there is no actual receipt by the bank. What needs
to be determined is if there is constructive receipt. Since the payee is the real taxpayer, the rule on constructive receipt can
be rationalized.
The Court applied provisions of the Civil Code on actual and constructive possession. Article 531 of the Civil Code clearly
provides that the acquisition of the right of possession is through the proper acts and legal formalities established. The
withholding process is one such act. There may not be actual receipt of the income withheld; however, as provided for in
Article 532, possession by any person without any power shall be considered as acquired when ratified by the person in
whose name the act of possession is executed.
In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because
the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt.
The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected
to FWT are tantamount to delivery, receipt or remittance. Besides, Solidbank admits that its income is subjected to a tax
burden immediately upon receipt, although it claims that it derives no pecuniary benefit or advantage through the
withholding process.
There being constructive receipt, part of which is withheld, that income is included as part of the tax base on which the
gross receipts tax is imposed.

RCBC VS. COMMISSIONER OF INTERNAL REVENUE

Facts:
Rizal Commercial Banking Corporation (RCBC) is a private domestic commercial bank engaged in general banking
operations.
On 15 August 1996, RCBC received a Letter of Authority (LOA) covering all internal revenue taxes from 01 January 1994 to
31 December 1995.
RCBC executed a Waiver of the Defense of Prescription up to 31 December 2000.

CIR issued on 27 January 2000 a Formal Letter of Demand (FLD).

On 24 February 2000, RCBC filed a protest. On 20 November 2000, RCBC filed a petition for review before the CTA.
Following the reinvestigation requested, RCBC received another FLD on 06 December 2000 which drastically reduced the
amount previously assessed.
On the same date, RCBC paid all tax deficiencies except the assessments for deficiency Final Tax on FCDU Income and DST,
which remained to be subjects of its petition for review.
The CTA-1st Division upheld the assessment for the remaining deficiency taxes and ordered the RCBC to pay the amount.
RCBC elevated the case to the CTA En Banc but the petition was denied for lack of merit.
Issue:
Whether or not the petitioner, by paying the other tax assessments covered by the waiver, is rendered estopped from
questioning the validity of the said waivers.
Ratio: RCBC is estoppedfrom questioning the validity of the waivers.
RCBC averred that the waiver executed by it is invalid for failure to indicate acceptance of the CIR.
RCBC further argues that the principle of estoppel does not signify a clear intention on its part to give up its right to question
the validity of the waivers.
Estoppel is clearly applicable to the case. A party is precluded from denying his own acts, admissions, or representations to
the prejudice of the other party in order to prevent fraud and falsehood.
RCBCs partial payment of the revised assessments issued within the extended period impliedly admitted the validity of the
waivers.
Issue:
Whether or not the RCBC, as payee-bank, can be held liable for deficiency onshore tax, which is mandated by law to be
collected at source in the form of FWT.
Ratio: RCBC is liable for the payment of deficiency onshore tax on interest income derived from foreign currency loans,
pursuant to Sec 24(e)(3) of the Tax Code of 1993.
RCBC contended that because the onshore tax was collected in the form of a FWT, it was the borrower, constituted by law
as the withholding agent, that was primarily liable for the remittance of the said tax.
RCBC erred in citing RR 2-98 because the same governs collection at source on income paid only on or after January 1, 1998.
Hence, said regulations obviously does not apply in the case.
The liability of the withholding agent is independent from that of the petitioner. The former cannot be made liable for the
tax due because it is the petitioner who earned the income subject to withholding tax. The liability for the tax remains with
the petitioner because the gain was realized and received by him.

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC. VS. ROMULO ET AL.
Facts:
Petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA), an association of real estate developers and
builders in the Philippines, questioned the validity of Section 27(E) of the Tax Code which imposes the minimum corporate
income tax (MCIT) on corporations. Under the Tax Code, a corporation can become subject to the MCIT at the rate of 2%
of gross income, beginning on the 4thtaxable year immediately following the year in which it commenced its business
operations, when such MCIT is greater than the normal corporate income tax. If the regular income tax is higher than the
MCIT, the corporation does not pay the MCIT.CREBA argued, among others, that the use of gross income as MCIT base
amounts to a confiscation of capital because gross income, unlike net income, is not realized gain. CREBA also sought to
invalidate the provisions of RR No. 2-98, as amended, otherwise known as the Consolidated Withholding Tax Regulations,
which prescribe the rules and procedures for the collection of CWT on sales of real properties classified as ordinary assets,
on the grounds that these regulations:

Use gross selling price (GSP) or fair market value(FMV) as basis for determining the income tax on the sale of real
estate classified as ordinary assets, instead of the entitys net taxable income as provided for under the Tax Code;
Mandate the collection of income tax on a per transaction basis, contrary to the Tax Code provision which imposes
income tax on net income at the end of the taxable period;
Go against the due process clause because the government collects income tax even when the net income has not
yet been determined; gain is never assured by mere receipt of the selling price; and
Contravene the equal protection clause because the CWT is being charged upon real estate enterprises, but not
on other business enterprises, more particularly, those in the manufacturing sector, which do business similar to
that of a real estate enterprise.

Issues:
(1) Is the imposition of MCIT constitutional?
(2) (2) Is the imposition of CWT on income from sales of real properties classified as ordinary assets constitutional?
Held:
1) Yes. The imposition of the MCIT is constitutional. An income tax is arbitrary and confiscatory if it taxes capital, because it
is income, and not capital, which is subject to income tax. However, MCIT is imposed on gross income which is computed
by deducting from gross sales the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other
direct expenses from gross sales. Clearly, the capital is not being taxed. Various safeguards were incorporated into the law
imposing MCIT.
Firstly, recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital expenditures,
the MCIT is imposed only on the 4th taxable year immediately following the year in which the corporation commenced its
operations. Secondly, the law allows the carry-forward of any excess of the MCIT paid over the normal income tax which
shall be credited against the normal income tax for the three immediately succeeding years. Thirdly, since certain businesses
may be incurring genuine repeated losses, the law authorizes the Secretary of Finance to suspend the imposition of MCIT
if a corporation suffers losses due to prolonged labor dispute, force majeure and legitimate business reverses.
(2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax base for sales of real property classified as ordinary
assets remains as the entitys net taxable income as provided in the Tax Code, i.e., gross income less allowable costs and
deductions. The seller shall file its income tax return and credit the taxes withheld by the withholding agent-buyer against
its tax due. If the tax due is greater than the tax withheld, then the taxpayer shall pay the difference. If, on the other hand,
the tax due is less than the tax withheld, the taxpayer will be entitled to a refund or tax credit. The use of the GSP or FMV
as basis to determine the CWT is for purposes of practicality and convenience. The knowledge of the withholding agentbuyer is limited to the particular transaction in which he is a party. Hence, his basis can only be the GSP or FMV which
figures are reasonably known to him. Also, the collection of income tax via the CWT on a per transaction basis, i.e., upon
consummation of the sale, is not contrary to the Tax Code which calls for the payment of the net income at the end of the
taxable period. The taxes withheld are in the nature of advance tax payments by a taxpayer in order to cancel its possible
future tax obligation. They are instalments on the annual tax which may be due at the end of the taxable year. The
withholding agent-buyers act of collecting the tax at the time of the transaction, by withholding the tax due from the
income payable, is the very essence of the withholding tax method of tax collection. On the alleged violation of the equal
protection clause, the taxing power has the authority to make reasonable classifications for purposes of taxation.
Inequalities which result from singling out a particular class for taxation, or exemption, infringe no constitutional limitation.
The real estate industry is, by itself, a class and can be validly treated differently from other business enterprises. What
distinguishes the real estate business from other manufacturing enterprises, for purposes of the imposition of the CWT, is
not their production processes but the prices of their goods sold and the number of transactions involved. The income from
the sale of a real property is bigger and its frequency of transaction limited, making it less cumbersome for the parties to
comply with the withholding tax scheme. On the other hand, each manufacturing enterprise may have tens of thousands
of transactions with several thousand customers every month involving both minimal and substantial amounts.