CIR v TELEFUNKEN

October 23, 1995 | Romero, J. | Construction of Tax Laws

Digester: Marella, Jose Maria L.
SUMMARY: Telefunken contends it is exempt from payment of
contractors tax, being a pioneer industry registered under the
Exports Incentives Act. CIR contended saying it had no exemption
because it must ALSO be registered under the Investments
Incentives Act. SC ruled that Telefunken is entitled to the
exemption by clear provision of law and based also on a previous
CIR ruling.
DOCTRINE: A comparison of the prior and new provisions of the
Tax Code reveals that both provisions specifically mention
pioneer industries as exempt from payment of the contractor's
tax. In fact, the wording of the relevant part at both provisions are
the same. Clearly, Telefunken falls under the category of "pioneer
industries" contemplated and should be entitled to the exemption
provided for.
Under Sec. 246 of the National Internal Revenue Code, rulings of
the BIR may not be given retroactive effect, if the same is
prejudicial to the taxpayer.
FACTS:
Telefunken is a domestic export producer registered under RA
6135 (Exports Incentives Act). Between 1979 and 1981, it
produced semi-conductor devices for which it paid contractors
tax totaling around Php 2 Million.
Later on, Telefunken claimed a refund/tax credit saying that
the payment of contractors tax is erroneous because it was
exempted from paying all national internal revenue tax (except
for income tax) for the stated period. It construed pertinent
provisions of The Investment Act and Exports Incentive Act to
mean it was exempt from contractors tax.

CIR contends that under the subject tax provision,1 the firm
must ALSO be registered under RA 5186 (Investments
Incentives Act) and NOT JUST RA 6135 to avail of the
contractors tax exemption.

RULING: Petition dismissed.

W/N Telefunken is exempt from paying contractors tax
YES
There is no distinction between being registered under
6135 and 5186
o Section 7 of Republic Act No. 6135 (the law under which
Telefunken is registered) provides that registered export
producers in a pioneer status are entitled to the incentives
provided in section 8 (a) of Republic Act No. 5186.2
o The provisions yield no other conclusion but that gross
receipts of a pioneer enterprise registered with the Board
of Investments, such as Telefunken, are exempt from the
contractor's tax.
o This is in line with the government policy to actively
encourage, promote, and diversify exports of services and
of manufacturers utilizing domestic raw materials to the
fullest extent possible, and to develop new markets for
Philippine products, in order to attain a rising level of
production and employment, increase foreign exchange
earnings, hasten the economic development of the nation,
1 Sec. 205.Contractors, proprietors or operators of dockyards and others. A
contractor's tax of three percentum of gross receipts is hereby imposed on the
following:
xxx
xxx
xxx
(16)
Business agents and other independent contractors including private
detective or watchman agencies, except gross receipts of a pioneer enterprise
registered with the Board of Investments under Republic Act 5186. (As amended by
P.D. No. 1457 , June 11, 1978)

2 Sec. 7.Incentives to registered export producers Registered export producers.

Registered export producers unless they already enjoy the same privileges under
other laws shall be entitled to the incentives set forth in parahraphs (h), (i) and (j)
of Section 7 of Republic Act Numbered Fifty-one hundred eigthy-six, known as the
Investment Incentives Act; and registered export producers that are pioneer
enterprises shall be entitled also to the incentives set forth in paragraphs (a), (b)
and (c) of Section 8 of the said Act. In addition to the said incentives, and in lieu of
other incentives provided in Section 7 and in Section 9 of that Act, registered
export producer shall be entitled to benefits and incentives as enumerated
hereunder: xxx

and ensure that the benefits of development accrue to the

Filipino people.
Under a 1974 CIR ruling, gross receipts of registered
pioneer enterprises were even held to be exempt
Said the CIR in that ruling: Pursuant to Section 7 of
Republic Act No. 6135, that corporation as a registered
export producer on a pioneer status is entitled to the same
tax incentives granted to a pioneer industry set forth in
section 8(a) of republic Act No. 5186. Under this latter
provision, a pioneer industry is exempt from all taxes under
the National Internal Revenue Code, except income tax. In
other words, both a registered export producer on a
pioneer status under Republic Act No. 6135 and a pioneer
industry under Republic Act No. 5186 are entitled to the

same tax exemption benefits under the Tax Code. Such

being the case, like the latter, the former should not also
shoulder the contractor's tax which could be passed on it
legally by its contractor.
Notwithstanding the subsequent enactment of the Tax Code
in 1977, the 1974 ruling still stands because the new Tax
Code basically reproduces the language of the previous Tax
Code. Hence the 1974 ruling is still accommodated by the
language of the new law.
Lastly, under Sec. 246 of the National Internal Revenue
Code, rulings of the BIR may not be given retroactive effect,
if the same is prejudicial to the taxpayer.