IV. A.
ESTATE TAX authorize the executor or judicial administrator of the decedent's
1. Dizon v. CTA
Facts: Fernandez died. The estate tax return showed a tax liability of
zero. The tax return showed deductions for claims against the estate
which were in excess of the gross estate. However, the claims were
condoned by the creditors of the estate through compromise
agreements. The BIR issued a certification stating that the transfer
taxes have been paid. Subsequently, an estate tax assessment was
issued by the BIR.
Issue: Can the claims of the creditors be fully allowed as deductions
from the gross estate?
Ruling: Yes. There is no law which disregards the date-of-death
valuation principle and particularly provides that post-death
developments must be considered in determining the net value of
the estate. The claims existing at the time of death are significant to,
and should be made the basis of, the determination of allowable
deductions.
2. Marcos II vs CA
FACTS: Bongbong Marcos sought for the reversal of the ruling of the
Court of Appeals to grant CIR's petition to levy the properties of the
late Pres. Marcos to cover the payment of his tax delinquencies
during the period of his exile in the US. The Marcos family was
assessed by the BIR after it failed to file estate tax returns. However
the assessment were not protested administratively by Mrs. Marcos
and the heirs of the late president so that they became final and
unappealable after the period for filing of opposition has prescribed.
Marcos contends that the properties could not be levied to cover the
tax dues because they are still pending probate with the court, and
settlement of tax deficiencies could not be had, unless there is an
order by the probate court or until the probate proceedings are
terminated.
ISSUE: are summary tax remedies affected by the probate
proceedings?
RULING: No. The deficiency income tax assessments and estate tax
assessment are already final and unappealable -and-the subsequent
levy of real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the National
Internal Revenue Code. This summary tax remedy is distinct and
separate from the other tax remedies (such as Judicial Civil actions
and Criminal actions), and is not affected or precluded by the
pendency of any other tax remedies instituted by the government.
The approval of the court, sitting in probate, or as a settlement
tribunal over the deceased's estate is not a mandatory requirement
in the collection of estate taxes. On the contrary, under Section 87 of
the NIRC, it is the probate or settlement court which is bidden not to
estate to deliver any distributive share to any party interested in the
estate, unless it is shown a Certification by the Commissioner of
Internal Revenue that the estate taxes have been paid. This provision
disproves the petitioner's contention that it is the probate court
which approves the assessment and collection of the estate tax.
3. CIR vs Reyes
Facts: In 1993, Maria Tancino died leaving behind an estate worth
P32 million. In 1997, a tax audit was conducted on the estate.
Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was
passed. Eventually in 1998, the estate was issued a final assessment
notice demanding the estate to pay P14.9 million in taxes inclusive of
surcharge and interest; the estates liability was based on Section
229 of the [old] Tax Code. Azucena Reyes, one of the heirs, protested
the FAN. The Commissioner of Internal Revenue (CIR) nevertheless
issued a warrant of distraint and/or levy. Reyes again protested the
warrant but in March 1999, she offered a compromise and was
willing to pay P1 million in taxes. Her offer was denied. She
continued to work on another compromise but was eventually
denied. The case reached the Court of Tax Appeals where Reyes was
also denied. In the Court of Appeals, Reyes received a favorable
judgment.
Issue: Is the formal assessment notice is valid?
Ruling: No. The NIRC of 1997 was already in effect when the final
assessment notice was issued. Under Section 228 of the NIRC,
taxpayers shall be informed in writing of the law and the facts on
which the assessment is made: otherwise, the assessment shall be
void. In the case at bar, the final assessment notice merely stated the
amount of liability to be shouldered by the estate and the law upon
which such liability is based. However, the estate was not informed
in writing of the facts on which the assessment of estate taxes had
been made. The estate was merely informed of the findings of the
CIR. Section 228 of the NIRC being remedial in nature can be applied
retroactively even though the tax investigation was conducted prior
to the laws passage. Consequently, the invalid final assessment
notice cannot be a basis of a compromise, any proceeding
emanating from the invalid final assessment notice is void including
the issuance of the warrant of distraint and/or levy.
4. Estate of Juliana Diez vda De Gabriel v.CIR
Facts:
Juliana Gabriel entered into a contract of agency with the Philippine
Trust Company (PhilTrust) for the latter to manager her business
affairs. In April 1979, Gabriel died. Two days after her death,
PhilTrust filed the income tax return (ITR) of Gabriel. PhilTrust
however did not mention therein that Gabriel already died. PhilTrust
petitioned to be appointed as administrator of her estate but the
probate court assigned an heir instead. Meanwhile, the Bureau of
Internal Revenue (BIR) found that Gabriel has a tax deficiency in the
amount of P318k. Eventually in November 1982, a final assessment
notice (FAN) addressed to Gabriel was sent via registered mail to
PhilTrust. At this point, the BIR was still uninformed about Gabriels
death. PhilTrust did not answer the FAN and so a warrant of distraint
and levy was issued against the property of Gabriel. The
administrator of the estate protested the warrant on the ground that
there was an invalid service of assessment. The Commissioner of
Internal Revenue (CIR) maintained that there was a valid service
because a) PhilTrust was the agent of Gabriel, and b) the tax code (of
1977) does not require that the assessment be actually received by
the taxpayer; that all it requires is that the assessment be released,
mailed, and sent to the taxpayer at the address stated in the ITR
filed.
ISSUE: Whether or not there was a valid service?
HELD: No. PhilTrust was no longer the agent of Gabriel when the FAN
was issued in 1982. The contract of agency ceased when Gabriel died
in 1979. Since the agency was extinguished, the estate of Gabriel
cannot be bound by the mistakes and omission of PhilTrust i.e.,
failure to notify BIR of Gabriels death and failure to file an answer
for the FAN issued.
Anent the second argument of the CIR, although there is really no
statutory requirement that the FAN should be actually received by
the taxpayer, the same should be sent to the taxpayer. In this case, it
was sent to PhilTrust. Also, although there is no specific requirement
that the taxpayer should receive the notice within the prescriptive
period (so long as the FAN was made within such period), due
process requires at the very least that such notice actually be
received. An assessment contains not only a computation of tax
liabilities, but also a demand for payment within a prescribed period.
It also signals the time when penalties and interests begin to accrue
against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on
and received by the taxpayer.
5. CIR vs. CA and Pajunar; Estate Tax
G.R. No. 123206 March 22, 2000
Facts:
Private respondent Josefina Pajonar was the guardian of the person
of decedent Pedro Pajonar. The
property of the decedent was put by the RTC- Dumaguete, under the
guardianship of the Philippine National Bank via special proceeding,
wherein 50, 000 was spent therein for payment of attorney's
fees. When the decedent died, instead of filing a estate tax return,
PNB advised Josefina to extra-judicially settle the estate of his
brother. The decedent's estate was extra-judicially settled and the
heirs paid an amount of 60, 753 for the notarization of the deed of
extra-judicial settlement of estate. The private paid the estate tax,
however, they were subsequently assessed of deficiency taxes
because the amount paid in the special proceeding [50, 000] and the
notarization fee [60, 753] cannot be claimed as a deduction to the
decedent's estate. Private respondent paid the said taxes under
protest. While the case is under review by the BIR, she filed a claim
for refund in the CTA which was granted.
I As a rule attorney's fees in order to be deductible from the gross
ssue: whether or not the notarial fee paid for the extrajudicial
settlement in the amount of P60,753 and the attorney's fees in the
guardianship proceedings in the amount of P50,000 may be allowed
as deductions from the gross estate of decedent in order to arrive at
the value of the net estate.
Held: Yes. As to the deductibility of the amount spent for
notarization of the deed of extra-judicial settlement of
estate- Explained the SC, administration expenses, as an allowable
deduction from the gross estate of the decedent for purposes of
arriving at the value of the net estate, have been construed by the
federal and state courts of the United States [which the law on
allowable deductions from gross estate was copied!] to include all
expenses "essential to the collection of the assets, payment of debts
or the distribution of the property to the persons entitled to it."
In other words, the expenses must be essential to the proper
settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible. This
distinction has been carried over to our jurisdiction. Thus, in Lorenzo
v.Posadas the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of
managing the decedent's real estate for the benefit of the
testamentary heir. In another case, the Court disallowed the
premiums paid on the bond filed by the administrator as an expense
of administration since the giving of a bond is in the nature of a
qualification for the office, and not necessary in the settlement of
the estate. Neither may attorney's fees incident to litigation incurred
by the heirs in asserting their respective rights be claimed as a
deduction from the gross estate.
In this case, it is clear that the extrajudicial settlement was for the
purpose of payment of taxes and the distribution of the estate to the
heirs. The execution of the extrajudicial settlement necessitated the
notarization of the same. It follows then that the notarial fee of
P60,753.00 was incurred primarily to settle the estate of the
deceased Pedro Pajonar. Said amount should then be considered an
administration expenses actually and necessarily incurred in the
collection of the assets of the estate, payment of debts and
distribution of the remainder among those entitled thereto. Thus,
the notarial fee of P60,753 incurred for the Extrajudicial Settlement
should be allowed as a deduction from the gross estate.
Deductible expenses of administration of the estate may include
executor's or administrator's fees, attorney's fees, court fees and
charges, appraiser's fees, clerk hire, costs of preserving and
distributing the estate and storing or maintaining it, brokerage fees
or commissions for selling or disposing of the estate, and the like.
Deductible attorney's fees are those incurred by the executor or
administrator in the settlement of the estate or in defending or
prosecuting claims against or due the estate.
As to the deductibility of attorney's fees in the Special proceedings-
estate must be essential to the collection of assets, payment of debts
or the distribution of the property to the persons entitled to it. The
services for which the fees are charged must relate to the proper
settlement of the estate. [34 Am. Jur. 2d 767.] In this case, the
guardianship proceeding was necessary for the distribution of the
property of the late Pedro Pajonar to his rightful heirs. It is
noteworthy to point that PNB was appointed the guardian over the
assets of the deceased. Necessarily the assets of the deceased
formed part of his gross estate. Accordingly, all expenses incurred in
relation to the estate of the deceased will be deductible for estate
tax purposes provided these are necessary and ordinary expenses
for administration of the settlement of the estate. Hence the
attorney's fees of 50, 000 is deductible from the gross estate of the
decedent.
B. DONORS TAX
6. Republic vs Guzman (2000)
FACTS: David Rey Guzman, a natural-born American citizen, is the
son of the spouses Simeon Guzman, a naturalized American citizen,
and Helen Meyers Guzman, an American citizen. In 1968 Simeon
died. Helen and David executed a Deed of Extrajudicial Settlement of
the Estate of Simeon Guzman dividing and adjudicating to
themselves all the property belonging to the estate of Simeon. The
document of extrajudicial settlement was registered in the Office of
the Register of Deeds. The taxes due thereon were paid through
their attorneys-in-fact, and the parcels of land were accordingly
registered in the name of Helen and David in undivided equal shares.
In 1981 Helen executed a Quitclaim Deed assigning, transferring and
conveying to her son David her undivided one-half interest on all the
parcels of land. Since the document appeared not to have been
registered, upon advice of Atty. Lolita G. Abela, Helen executed
another document, a Deed of Quitclaim, on 9 August 1989
confirming the earlier deed of quitclaim as well as modifying the
document to encompass all her other property in the Philippines. On
1989 David executed a Special Power of Attorney where he
acknowledged that he became the owner of the parcels of land
subject of the Deed of Quitclaim executed by Helen. On 1 February
1990 Atty. Lolita G. Abela, upon instruction of Helen, paid donor's
taxes to facilitate the registry of the parcels of land in the name of
David. The Government filed before the Regional Trial Court a
Petition for Escheat praying that one-half (1/2) of David's interest in
each of the subject parcels of land be forfeited in its favor
contending that David's ownership of the one-half (1/2) of the estate
of Simeon Guzman was defective.
ISSUE: Is the transfer of the subject parcels land to the ownership of
David a donation?
RULING: NO. There are three (3) essential elements of a donation:
(a) the reduction of the patrimony of the donor; (b) the increase in
the patrimony of the donee; and, (c) the intent to do an act of
liberality or animus donandi. When applied to a donation of an
immovable property, the law further requires that the donation be
made in a public document and that there should be an acceptance
thereof made in the same deed of donation or in a separate public
document. In cases where the acceptance is made in a separate
instrument, it is mandated that the donor should be notified thereof
in an authentic form, to be noted in both instruments. Not all the
elements of a donation of an immovable property are present in the
instant case. The transfer of the property by virtue of the Deed of
Quitclaim executed by Helen resulted in the reduction of her
patrimony as donor and the consequent increase in the patrimony of
David as donee. However, Helen's intention to perform an act of
liberality in favor of David was not sufficiently established. The
language of the deed of quitclaim is clear that Helen merely
contemplated a waiver of her rights, title and interest over the lands
in favor of David, and not a donation. The element of animus
donandi therefore was missing. Likewise, the two (2) deeds of
quitclaim executed by Helen may have been in the nature of a public
document but they lack the essential element of acceptance in the
proper form required by law to make the donation valid. Moreover,
it is mandated that if an acceptance is made in a separate public
writing the notice of the acceptance must be noted not only in the
document containing the acceptance but also in the deed of
donation. These requisites, definitely prescribed by law, have not
been complied with, and no proof of compliance appears in the
record.
7. ACCRA vs. CIR (DUNGOG)
FACTS: During the 1987 national elections, petitioners, who are
partners in the Angara, Abello, Concepcion, Regala and Cruz (ACCRA)
law firm, contributed P882,661.31 each to the campaign funds of
Senator Angara, then running for the Senate. In letters dated April
21, 1988, the BIR assessed each of the petitioners P263,032.66 for
their contributions. Petitioners questioned the assessment claiming
that political or electoral contributions are not considered gifts
under the NIRC, and that, therefore, they are not liable for donors
tax. The claim for exemption was denied by the Commissioner.
CTA - allowed the exemption
CA - ordered the petitioners to pay donors tax
ISSUE: WON political or electoral contributions are subject to doners
tax?
HELD: Yes. Section 91 of the National Internal Revenue Code (NIRC)
reads:
(A) There shall be levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the
property by gift, a tax, computed as provided in Section
92
(B) The tax shall apply whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or
intangible.
The NIRC does not define transfer of property by gift. However,
Article 18 of the Civil Code, states:
In matters which are governed by the Code of Commerce and special
laws, their deficiency shall be supplied by the provisions of this Code.
Thus, reference may be made to the definition of a donation in the
Civil Code. Article 725 of said Code defines donation as:
. . . an act of liberality whereby a person disposes gratuitously of a
thing or right in favor of another, who accepts it.
Donation has the following elements: (a) the reduction of the
patrimony of the donor; (b) the increase in the patrimony of the
donee; and, (c) the intent to do an act of liberality or animus
donandi.
The present case falls squarely within the definition of a
donation. Petitioners, the late Manuel G. Abello, Jose C. Concepcion,
Teodoro D. Regala and Avelino V. Cruz, each gave P882,661.31 to the
campaign funds of Senator Edgardo Angara, without any material
consideration. All three elements of a donation are present. The
patrimony of the four petitioners were reduced by P882,661.31
each. Senator Edgardo Angaras patrimony correspondingly increased
by P3,530,645.24[9]. There was intent to do an act of liberality
or animus donandi was present since each of the petitioners gave
their contributions without any consideration. Taken together with
the Civil Code definition of donation, Section 91 of the NIRC is clear
and unambiguous, thereby leaving no room for construction.
8. CIR vs. B.F. Goodrich, G.R. No. 104171. February 24, 1999
Facts: B.F. Goodrich was an American tire company operating here in
the Philippines. As a requirement for doing business here, the
Central Bank of the Philippines required it to develop a rubber
plantation. In effect, B.F. Goodrich bought parcels of land from the
Philippine government. (During that time it was still allowed for
foreign corporations to own parcels of land under the Parity
Amendment to the 1935 Constitution.) After a decade, the justice
secretary rendered an opinion that when the Parity Agreement
expires on 1974, the rights of Americans over public agricultural
lands would be lost, so it sold the land to Siltown Realty Philippines
for only P500,000 even though the value was beyond P2 million.
Siltown realty then leased the land to B.F. Goodrich for 25 years,
renewable for another 25 years. The BIR assessed B.F. Goodrich for
deficiency income tax for the year 1974. It paid the deficiency. BIR
then examined Siltown and it found out about the sale of the land.
The BIR then assessed B.F. Goodrich for deficiency donors tax on
October 10, 1980. Another assessment was made on March 16,
1981 increasing the deficiency donors tax due.
Issue: May the BIR still assess a taxpayer even after the latter has
already paid the tax due, on the ground that the previous
assessment was based on a false return?
Ruling: No. Under Section 331 of the NIRC internal revenue taxes
shall be assessed within five years from the filing of the return.
Under Section 332: Exceptions as to period of limitation of
assessment and collection of taxes. -- (a) In the case of a false or
fraudulent return with intent to evade a tax or of a failure to file a
return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time
within ten years after the discovery of the falsity, fraud, or omission.
In this case, since it involves income in 1974, the return is to be filed
on April 15, 1975 which was made by B.F. Goodrich. So it did not fail
to file a return. The assessments on 1980 and 1981 were also clearly
beyond the 5 year limit. The BIR then argued that they filed a
fraudulent return with intent to evade tax when they sold the
property for a price lower than its declared market value. However, it
is not proof of falsity because it could have been done for a bona
fide business purpose, like in this case when it had to sell for less
since the Parity agreement was soon to expire. The agreement that
B.F. Goodrich would be able to lease the lot could also be part of the
compensation.
Definition of donors taxa tax on the privilege of transmitting ones
property or property rights to another or others without adequate
and full valuable consideration.
It is different from capital gains tax which is a tax on the gain from
the sale of the taxpayers property forming part of capital assets.
V. EXCISE TAXES
1. CHEVRON VS. CIR (R-U, Glenna)
Facts:
Chevron sold and delivered petroleum products to Clark
Development Corporation (CDC) in the period from August 2007 to
December 2007. Chevron did not pass on to CDC the excise taxes
paid on the importation of petroleum products sold to CDC in
taxable year 2007; hence, on 2009, it filed an administrative claim for
tax refund or issuance of tax credit certificate. Considering that
responded CIR did not act on the administrative claim for tax refund
or tax credit, Chevron elevated its claim to the CTA by petition for
review. The CTA First Division denied Chevrons judicial claim for tax
refund or tax credit.
Chevron appealed to the CTA En Banc, which affirmed the ruling of
the CTA First Division, stating that there was nothing in Sec. 135(c) of
the NIRC that explicitly exempted Chevron as the seller of the
imported petroleum products from the payment of the excise taxes;
and holding that because it did not fall under any of the categories
exempted from paying excise tax, Chevron was not entitled to the
tax refund or tax credit.
In addition, CTA En Banc noted that Considering that an excise tax is
in the nature of an indirect tax where the tax burden can be shifted,
Sec.135(c) of the NIRC, as amended, should be construed as
prohibiting the shifting of the burden of the excise tax to tax-exempt
entities who buys petroleum products from the manufacturer/seller
by incorporating the excise tax component as an added cost in the
price fixed by the manufacturer or seller.
Also, based on jurisprudence, the Supreme Court held that the
exemption from excise tax payment on petroleum based products
under Sec.135(a) of the NIRC as amended, is conferred on
international carriers who purchased the same for their use or
consumption outside the Philippines. The oil companies which sold
petroleum products to international carriers are not entitled to a
refund of excise taxes previously paid on the petroleum sold. Thus,
Chevron is not entitled.
Hence, Chevron filed the MR.
Issue: Whether or not Chevron was entitled to the tax refund or the
tax credit for the excise taxes paid on the importation of petroleum
products that it had sold to the CDC in 2007.
Ruling:
Yes. Chevron was entitled to the refund or credit of the excise taxes
paid on the importation of petroleum products that are sold to CDC.
Doctrine:
Excise tax on petroleum products is essentially a tax on property, the
direct liability for which pertains to the statutory taxpapeyer (i.e.,
manufacturer, producer or importer). Any excise tax paid by the
statutory taxpayer on petroleum products sold to any of the entities
or agencies named in Sec. 15 of the NIRC exempt from excise tax is
deemed illegal or erroneous, and should be credited or refunded to
the payor pursuant to Sec. 204 of the NIRC. This is because the
exemption granted under Sec. 135 of the NIRC must be construed in
favor of the property itself, that is, the petroleum products.
2. CIR vs. PILIPINAS SHELL PETROLEUM CORPORATION
G.R. No. 188497
February 19, 2014
FACTS: Pilipinas Shell Petroleum Corporation assails the Courts
ruling denying its claim for tax refund or credit for the excise taxes it
paid for petroleum products sold to international carriers of foreign
registry for their use or consumption outside the Philippines.
Respondent claims that it is entitled to a tax refund because those
petroleum products it sold to international carriers are not subject to
excise tax as provided for in Section 135 (a), hence the excise taxes it
were erroneously collected.
It argues that a plain reading of Section 135 of the NIRC reveals that
it is the petroleum products sold to international carriers which are
exempt from excise tax, and that since the excise tax exemption is
attached to the petroleum products themselves, the manufacturer
or producer is under no duty to pay the excise tax thereon. It points
out that excise tax being an indirect tax, Section 135 in relation to
Section 148 should be interpreted as referring to a tax exemption
from the point of production and removal from the place of
production considering that it is only at that point that an excise tax
is imposed. The situation is unlike the value-added tax (VAT) which is
imposed at every point of turnover from production to wholesale,
to retail and to end-consumer. Respondent thus concludes that
exemption could only refer to the imposition of the tax on the
statutory seller, in this case the respondent. This is because when a
tax paid by the statutory seller is passed on to the buyer it is no
longer in the nature of a tax but an added cost to the purchase price
of the product sold.
Respondent also contends that the Courts ruling that Section 135
only prohibits local petroleum manufacturers like respondent from
shifting the burden of excise tax to international carriers has adverse
economic impact as it severely curtails the domestic oil
industry. Requiring local petroleum manufacturers to absorb the tax
burden in the sale of its products to international carriers is contrary
to the States policy of "protecting gasoline dealers and distributors
from unfair and onerous trade conditions," and places them at a
competitive disadvantage.
Lastly, respondent asserts that the imposition by the Philippine
Government of excise tax on petroleum products sold to
international carriers is in violation of the Chicago Convention on
International Aviation and other international agreements.
ISSUE: Is Shell entitled to a tax refund of the allegedly erroneously
paid excise tax for petroleum products?
RULING: We maintain that Section 135 (a), in fulfillment of
international agreement and practice to exempt aviation fuel from
excise tax and other impositions, prohibits the passing of the excise
tax to international carriers who buys petroleum products from local
manufacturers/sellers such as respondent. However, we agree that
there is a need to reexamine the effect of denying the domestic
manufacturers/sellers claim for refund of the excise taxes they
already paid on petroleum products sold to international carriers,
and its serious implications on our Governments commitment to the
goals and objectives of the Chicago Convention.
The Chicago Convention, which established the legal framework for
international civil aviation, did not deal comprehensively with tax
matters. Article 24 (a) of the Convention simply provides that fuel
and lubricating oils on board an aircraft of a Contracting State, on
arrival in the territory of another Contracting State and retained on
board on leaving the territory of that State, shall be exempt from
customs duty, inspection fees or similar national or local duties and
charges. Subsequently, the exemption of airlines from national taxes
and customs duties on spare parts and fuel has become a standard
element of bilateral air service agreements (ASAs) between
individual countries.
The importance of exemption from aviation fuel tax was
underscored in the following observation made by a British author in
a paper assessing the debate on using tax to control aviation
emissions and the obstacles to introducing excise duty on aviation
fuel, thus:
Without any international agreement on taxing fuel, it is highly likely
that moves to impose duty on international flights, either at a
domestic or European level, would encourage 'tankering': carriers
filling their aircraft as full as possible whenever they landed outside
the EU to avoid paying tax. Clearly this would be entirely
counterproductive. Aircraft would be travelling further than
necessary to fill up in low-tax jurisdictions; in addition they would be
burning up more fuel when carrying the extra weight of a full fuel
tank.
With the prospect of declining sales of aviation jet fuel sales to
international carriers on account of major domestic oil companies'
unwillingness to shoulder the burden of excise tax, or of petroleum
products being sold to said carriers by local manufacturers or sellers
at still high prices , the practice of "tankering" would not be
discouraged. This scenario does not augur well for the Philippines'
growing economy and the booming tourism industry. Worse, our
Government would be risking retaliatory action under several
bilateral agreements with various countries. Evidently, construction
of the tax exemption provision in question should give primary
consideration to its broad implications on our commitment under
international agreements.
We therefore hold that respondent, as the statutory taxpayer who is
directly liable to pay the excise tax on its petroleum products, is
entitled to a refund or credit of the excise taxes it paid for petroleum
products sold to international carriers, the latter having been
granted exemption from the payment of said excise tax under Sec.
135 (a) of the NIRC.
3. CIR vs. PILIPINAS SHELL PETROLEUM CORPORATION
G.R. No. 188497
February 19, 2014
FACTS: Pilipinas Shell Petroleum Corporation assails the Courts
ruling denying its claim for tax refund or credit for the excise taxes it
paid for petroleum products sold to international carriers of foreign
registry for their use or consumption outside the Philippines.
Respondent claims that it is entitled to a tax refund because those
petroleum products it sold to international carriers are not subject to
excise tax as provided for in Section 135 (a), hence the excise taxes it
were erroneously collected.
It argues that a plain reading of Section 135 of the NIRC reveals that
it is the petroleum products sold to international carriers which are
exempt from excise tax, and that since the excise tax exemption is
attached to the petroleum products themselves, the manufacturer
or producer is under no duty to pay the excise tax thereon. It points
out that excise tax being an indirect tax, Section 135 in relation to
Section 148 should be interpreted as referring to a tax exemption
from the point of production and removal from the place of
production considering that it is only at that point that an excise tax
is imposed. The situation is unlike the value-added tax (VAT) which is
imposed at every point of turnover from production to wholesale,
to retail and to end-consumer. Respondent thus concludes that
exemption could only refer to the imposition of the tax on the
statutory seller, in this case the respondent. This is because when a
tax paid by the statutory seller is passed on to the buyer it is no
longer in the nature of a tax but an added cost to the purchase price
of the product sold.
Respondent also contends that the Courts ruling that Section 135
only prohibits local petroleum manufacturers like respondent from
shifting the burden of excise tax to international carriers has adverse
economic impact as it severely curtails the domestic oil
industry. Requiring local petroleum manufacturers to absorb the tax
burden in the sale of its products to international carriers is contrary
to the States policy of "protecting gasoline dealers and distributors
from unfair and onerous trade conditions," and places them at a
competitive disadvantage.
Lastly, respondent asserts that the imposition by the Philippine
Government of excise tax on petroleum products sold to
international carriers is in violation of the Chicago Convention on
International Aviation and other international agreements.
ISSUE: Is Shell entitled to a tax refund of the allegedly erroneously
paid excise tax for petroleum products?
RULING: We maintain that Section 135 (a), in fulfillment of
international agreement and practice to exempt aviation fuel from
excise tax and other impositions, prohibits the passing of the excise
tax to international carriers who buys petroleum products from local
manufacturers/sellers such as respondent. However, we agree that
there is a need to reexamine the effect of denying the domestic
manufacturers/sellers claim for refund of the excise taxes they
already paid on petroleum products sold to international carriers,
and its serious implications on our Governments commitment to the
goals and objectives of the Chicago Convention.
The Chicago Convention, which established the legal framework for
international civil aviation, did not deal comprehensively with tax
matters. Article 24 (a) of the Convention simply provides that fuel
and lubricating oils on board an aircraft of a Contracting State, on
arrival in the territory of another Contracting State and retained on
board on leaving the territory of that State, shall be exempt from
customs duty, inspection fees or similar national or local duties and
charges. Subsequently, the exemption of airlines from national taxes
and customs duties on spare parts and fuel has become a standard
element of bilateral air service agreements (ASAs) between
individual countries.
The importance of exemption from aviation fuel tax was
underscored in the following observation made by a British author in
a paper assessing the debate on using tax to control aviation
emissions and the obstacles to introducing excise duty on aviation
fuel, thus:
Without any international agreement on taxing fuel, it is highly likely
that moves to impose duty on international flights, either at a
domestic or European level, would encourage 'tankering': carriers
filling their aircraft as full as possible whenever they landed outside
the EU to avoid paying tax. Clearly this would be entirely
counterproductive. Aircraft would be travelling further than
necessary to fill up in low-tax jurisdictions; in addition they would be
burning up more fuel when carrying the extra weight of a full fuel
tank.
With the prospect of declining sales of aviation jet fuel sales to
international carriers on account of major domestic oil companies'
unwillingness to shoulder the burden of excise tax, or of petroleum
products being sold to said carriers by local manufacturers or sellers
at still high prices , the practice of "tankering" would not be
discouraged. This scenario does not augur well for the Philippines'
growing economy and the booming tourism industry. Worse, our
Government would be risking retaliatory action under several
bilateral agreements with various countries. Evidently, construction
of the tax exemption provision in question should give primary
consideration to its broad implications on our commitment under
international agreements.
We therefore hold that respondent, as the statutory taxpayer who is
directly liable to pay the excise tax on its petroleum products, is
entitled to a refund or credit of the excise taxes it paid for petroleum
products sold to international carriers, the latter having been
granted exemption from the payment of said excise tax under Sec.
135 (a) of the NIRC.
4. Commissioner of Internal Revenue vs. San Miguel Corporation
G.R. No. 184428, November 23, 2011
Facts: Respondent San Miguel Corporation, a domestic corporation
engaged in the manufacture and sale of fermented liquor, produces
as one of its products Red Horse beer which is sold in 500-ml. and
1 liter bottle variants. On Jan. 1, 1998, Rep. Act. No. 8424 or the Tax
Reform Act of 1997 took effect. It reproduced, as Section 143
thereof, the provisions of Section 140 of the old NIRC as amended by
R.A. No. 8240 which became effective on Jan. 1, 1997. Part of the
Section 143 of the Tax Reform Act of 1997 reads:
The excise tax from any brand of fermented liquor within the next
three (3) years from the effectivity of R.A. No. 8240 shall not be
lower than the tax which was due from each brand on October 1,
1996.
The rates of the excise tax on fermented liquor under paragraphs (a),
(b), and (c) hereof shall be increased by 12% on Jan. 1, 2000.
Thereafter on Dec. 16, 1999, the Sec. of Finance issued revenue
Regulations No. 17-99 increasing the applicable tax rates on
fermented liquor by 12%. This increase, however, was qualified by
the last paragraph of Sec. 1 of the Revenue Regulations No. 17-99,
which reads:
Provided, however, that the new specific tax rate for any existing
brand of cigars, cigarettes packed by machine, distilled spirits, wines
and fermented liquors shall not be lower than the excise tax that is
actually being paid prior to Jan. 1, 2000.
For the period of June 1, 2004 to Dec. 31, 2004, respondent was
assessed and paid excise tax amounting to P 2,286,488,861.58.
Respondent, however, later contended that the said qualification in
the last paragraph of Section 1 of the Revenue Regulation No. 17-99
has no basis in the plain wording of Section 143 and filed before the
BIR a claim for the period of May 22, 2004 to Dec. 31, 2004. Later,
said amount was reduced to P 58,213,294.92 because of
prescription.
On September 26, 2007, the CTA Second Division granted the
petition and ordered petitioner to refund P 58,213,294.92 to
respondent or to issue in the latters favor a Tax Credit Certificate for
the said amount for the erroneously paid excise taxes. The CTA held
that Revenue Regulations No. 17-99 modified or altered the
mandate of Section 143 of the Tax Reform Act of 1997. The CTA En
banc affirmed the Decision. Hence, this petition.
Issue: WON Section 1 of the Revenue Regulations No. 17-99 is an
invalid administrative interpretation of Section 143 of the Tax Reform
Act of 1997
Ruling: YES. Section 143 of the tax reform Act of 1997 is clear and
unambiguous. It provides for two periods: the first is the 3-year
transition period beginning Jan. 1, 1997, the date when R.A. No.
8240 took effect, until Dec. 31, 1999; and the second period
thereafter. During the 3-year transition period, Section 143 provides
that the excise tax from any brand of fermented liquorshall not be
lower than the tax which was due from each brand on Oct. 1,1996.
After the transitory period, Sec. 143 provides that the excise tax rate
shall be the figures provided under paragraphs (a), (b), and (c) of Sec.
143 but increased by 12%, without regard to whether the revenue
collection starting Jan. 1, 2000 may turn out to be lower than that
collected prior to said date. Revenue Regulation No. 17-99, however,
created a new tax rate when it added in the last paragraph of Section
1 thereof, the qualification that the tax due after the 12% increase
becomes effective shall not be lower than the tax actually paid prior
to Jan. 1, 2000.
It bears reiterating that tax burdens are not to be imposed, nor
presumed to be imposed beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris against
the government. In case of discrepancy between the basic law and a
rule or regulation issued to implement said law, the basic law
prevails as said rule or regulation cannot go beyond the terms and
provisions of the basic law.
As there is nothing in Section 143 of the tax Reform Act of 1997
which clothes the BIR with the power or authority to rule that the
new specific tax rate should not be lower than the excise tax that is
actually being paid prior to Jan. 1, 2000, such interpretation is clearly
an invalid exercise of the power of the Sec. of Finance to interpret
tax laws and to promulgate rules and regulations necessary for the
effective enforcement of the Tax Reform Act of 1997.
5. Diageo Philippines, Inc. vs CIR 183553 NOV. 12, 2012
Facts:
Diageo Philippines, Inc. (Diageo) is a domestic corporation
engaged in the business of importing, exporting, manufacturing,
marketing, distributing, buying and selling, by wholesale, all kinds of
beverages and liquors and in dealing in any material, article, or thing
required in connection with or incidental to its principal business. It
is registered with the Bureau of Internal Revenue (BIR) as an excise
tax taxpayer.
For the period November 1, 2003 to December 31, 2004,
Diageo purchased raw alcohol from its supplier for use in the
manufacture of its beverage and liquor products. The supplier
imported the raw alcohol and paid the related excise taxes thereon
before the same were sold to the petitioner. Subsequently, Diageo
exported its locally manufactured liquor products to Japan, Taiwan,
Turkey and Thailand and received the corresponding foreign
currency proceeds of such export sales. Within two (2) years from
the time the supplier paid the subject excise taxes, Diageo filed with
the BIR Large Taxpayers Audit and Investigation Division II
applications for tax refund/issuance of tax credit certificates
corresponding to the excise taxes which its supplier paid but passed
on to it as part of the purchase price of the subject raw alcohol
invoking Section 130(D) of the Tax Code.
However, due to the failure of the Commissioner of
Internal Revenue (CIR) to act upon Diageos claims, the latter was
constrained to timely file a petition for review before the CTA. The
CIR filed its Answer assailing Diageos lack of legal personality to
institute the claim for refund because it was not the one that paid
the alleged excise taxes but its supplier.
Issue:
Whether Diageo has the legal personality to file a claim for
refund or tax credit for the excise taxes paid by its supplier on the
raw alcohol it purchased and used in the manufacture of its exported
goods.
Ruling:
The petition is without merit. Excise taxes partake of the
nature of indirect taxes. Diageo bases its claim for refund on Section
130 of the Tax Code. A reading of the foregoing provision, however,
reveals that contrary to the position of Diageo, the right to claim a
refund or be credited with the excise taxes belongs to its supplier.
The phrase any excise tax paid thereon shall be credited or
refunded requires that the claimant be the same person who paid
the excise tax. Excise taxes imposed under Title VI of the Tax Code
are taxes on property24 which are imposed on goods manufactured
or produced in the Philippines for domestic sales or consumption or
for any other disposition and to things imported. Though excise
taxes are paid by the manufacturer or producer before removal of
domestic products from the place of production or by the owner or
importer before the release of imported articles from the customs
house, the same partake of the nature of indirect taxes when it is
passed on to the subsequent purchaser.
Accordingly, when the excise taxes paid by the supplier
were passed on to Diageo, what was shifted is not the tax per se but
an additional cost of the goods sold. Thus, the supplier remains the
statutory taxpayer even if Diageo, the purchaser, actually shoulders
the burden of tax. The statutory taxpayer is the proper party to claim
refund of indirect taxes. As defined in Section 22(N) of the Tax Code,
a taxpayer means any person subject to tax. He is, therefore, the
person legally liable to file a return and pay the tax as provided for in
Section 130(A). As such, he is the person entitled to claim a refund.
Pursuant to the foregoing, the person entitled to claim a
tax refund is the statutory taxpayer or the person liable for or subject
to tax. In the present case, it is not disputed that the supplier of
Diageo imported the subject raw alcohol, hence, it was the one
directly liable and obligated to file a return and pay the excise taxes
under the Tax Code before the goods or products are removed from
the customs house. It is, therefore, the statutory taxpayer as
contemplated by law and remains to be so, even if it shifts the
burden of tax to Diageo. Consequently, the right to claim a refund, if
legally allowed, belongs to it and cannot be transferred to another, in
this case Diageo, without any clear provision of law allowing the
same.
VI. BEST EVIDENCE OBTAINABLE
1. Mindanao Bus v. CIR
Facts: An agent of the CIR examined the books of accounts of
Mindanao Bus and found out that the freight tickets used did not
contain the required documentary stamp tax. The agent took 500
booklets of tickets with him and counted the freight receipts
contained therein. HE counted 1305 tickets and made an assessment
based thereon.
Issue: Was the assessment properly made in view of the fact that the
freight tickets were not actually counted?
Ruling: Yes. The agent of the BIR found it impossible to count one by
one the freight tickets because they were so numerous and most of
them were either torn or destroyed. The procedure followed by the
agent cannot be impugned because an actual count of the freight
tickets is practically impossible. The average method is the only way
by which the agent could determine the number of booklets used.
2. CIR vs Hantex Mamugay, GR 136975, March 31, 2005
Best Evidence Obtainable Rule
Facts: Hantex is a Philippine corp engaged in importation of
synthetic resin and other materials for manufacture and sale of
plastic products. It is required to file and Import Entry and Internal
Revenue Declaration/Consumption Entry. Hantex was reported by an
informer to have misdeclare imported synthetic resin amounting to
P115,599,018 but instead declare only P45,538,694.57. It received a
subpoena to present its books of account but failed to do so. BIR
cannot find any original copies of the documents of Hantexs
imported products thus it relied on certified copies of Hantexs Profit
and Loss Statement for 1987 and 1988 on SEC and machine copies
of the Consumption Entries submitted by the informer as well as
testimonies from witnesses.
CTA ruled against Hantex and ordered it to pay. However, CA
overturned and ruled in favor of Hantex stating that the income and
sales tax deficiency assessments made the BIR were unlawful and
baseless since the copies of the Import Entries relied upon in
computing deficiency tax were not duly authenticated by the officer
in charged if its custody nor verified under oath by the BIR
investigators. It further ruled that under the Rules of Court in the
matter of admissibility of public documents, substantive rules of
evidence should not be disregarded.
It also ruled that the certifications made by the two Customs
Collection Chiefs under the guise of supporting the respondents
alleged tax deficiency assessments invoking the best evidence
obtainable rule under the Tax Code should not be permitted to
supplant the best evidence rule under Section 7, Rule 130 of the
Rules of Court.
Issue: Does the assessment made by the CIR for deficiency income
and sales tax is based on competent and sufficient evidence?
Ruling: No. Section 16 of the NIRC of 1977, as amended, provides
that the Commissioner of Internal Revenue has the power to make
assessments and prescribe additional requirements for tax
administration and enforcement. Among such powers are those
provided in paragraph (b), which provides that
Failure to submit required returns, statements, reports and other
documents. When a report required by law as a basis for the
assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by law or regulation or when there
is reason to believe that any such report is false, incomplete or
erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable.
In case a person fails to file a required return or other document at
the time prescribed by law, or willfully or otherwise files a false or
fraudulent return or other document, the Commissioner shall make
or amend the return from his own knowledge and from such
information as he can obtain through testimony or otherwise, which
shall be prima facie correct and sufficient for all legal purposes.
This provision applies when the Commissioner of Internal Revenue
undertakes to perform her administrative duty of assessing the
proper tax against a taxpayer, to make a return in case of a taxpayers
failure to file one, or to amend a return already filed in the BIR. The
best evidence envisaged in Section 16 of the 1977 NIRC, as
amended, includes the corporate and accounting records of the
taxpayer who is the subject of the assessment process, the
accounting records of other taxpayers engaged in the same line of
business, including their gross profit and net profit sales. Such
evidence also includes data,record, paper, document or any evidence
gathered by internal revenue officers from other taxpayers who had
personal transactions or from whom the subject taxpayer received
any income; and record, data, document and information secured
from government offices or agencies, such as the SEC, the Central
Bank of the Philippines, the Bureau of Customs, and the Tariff and
Customs Commission.
However, even though the best evidence obtainable under Section
16 of the 1977 NIRC allows hearsay evidence, it does not include
mere photocopies of records/documents. The petitioner, in making
a preliminary and final tax deficiency assessment against a taxpayer,
cannot anchor the said assessment on mere machine copies of
records/documents. Mere photocopies of the Consumption Entries
have no probative weight if offered as proof of the contents thereof.
The reason for this is that such copies are mere scraps of paper and
are of no probative value as basis for any deficiency income or
business taxes against a taxpayer.
Note: The court has two options in the disposition of the case:
1) Deny the petition without prejudice to CIRs issuance of a new
assessment based on credible evidence
2) Remand the case to the CTA for further proceedings to enable
CIR to adduce in evidence certified true copes or duplicate original
copies of the documents and to give Hantex also the right to adduce
controverting evidence.
Court chose option 2.
3.Sy Po vs CTA
FACTS: Petitioner Sy Po is the widow of Po Bien Sing, the owner of
Silver Cup Wine Factory. Upon investigation of the BIR, it was found
that Silver Cup has deficiency taxes amounting to millions of pesos.
Po/Silver Cup was mandated to produce their tax records and
reports but they continued to fail to do so. The BIR was then forced
to seize the wine bottles in order to account for the taxes due from
Silver Cup. It was also revealed that Po Bien Sing was operating
illegally, bringing in untaxed liquor from Cebu. He was able to do so
without the revenue inspector knowing and he was also involved in
the false entries in the accounting books. Petitioner contests the
validity of the tax assessment, submitting that the same are wrong.
ISSUE: Whether or not the tax assessment made by the BIR is
correct.
RULING: YES, the tax assessment of the BIR is correct. "Tax
assessments by tax examiners are presumed correct and made in
good faith. The taxpayer has the duty to prove otherwise. In the
absence of proof of any irregularities in the performance of duties,
an assessment duly made by a Bureau of Internal Revenue examiner
and approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax assessments.
Moreover, "The law is specific and clear. The rule on the "best
evidence obtainable" applies when a tax report required by law for
the purpose of assessment is not available or when the tax report is
incomplete or fraudulent. In the instant case, the persistent failure of
the late Po Bien Sing and the herein petitioner to present their books
of accounts for examination for the taxable years involved left the
Commissioner of Internal Revenue no other legal option except to
resort to the power conferred upon him under Section 16 of the Tax
Code."