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On the basis of the team's report of investigation, the respondent Commissioner The tax assessment by tax examiners are presumed correct and (b) Failure to submit required returns, statements,
of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax for 1966 made in good faith. The taxpayer has the duty to prove otherwise. reports and other documents. - When a report required
to 1970 in the amount of P7,154,685.16 and for deficiency specific tax for In the absence of proof of irregularities in the performance of by law as a basis for the assessment of an national
January 2,1964 to January 19, 1972 in the amount of P5,595,003.68 internal revenue tax shall not be forthcoming within the
duties, an assessment duly made by the BIR examiner and
time fixed by law or regulation or when there is reason to
Petitioner protested the deficiency assessments. The BIR recommended the approved by his superior officers will not be disturbed. All believe that any such report is false, incomplete, or
reiteration of the assessments in view of the taxpayer's persistent failure to presumptions are in favour of the correctness of tax assessments. erroneous, the Commissioner of Internal Revenue shall
present the books of accounts for examination. assess the proper tax on the best evidence obtainable.
Issue: WON the assessments have valid and legal basis. 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
documents, 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.
CIRV CA, CTA AND Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different Issue: WON it was necessary for BIR to follow the legal The act of reclassifying a cigarette and imposing a tax
FORTUNE brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified requirements when it issued its RMC based on an “interpretation” of the law amounts to a
TOBACCO CORP them as foreign brands since they were listed in the World Tobacco Directory as belonging legislative act and must conform to the rules on notice,
to foreign companies. However, Fortun changed the names of 'Hope' to 'Hope Luxury'and Held. YES. CIR may not disregard legal requirements in publication, and hearing.
'More' to 'Premium More,' thereby removing the said brands from the foreign brand the exercise of its quasi-legislative powers which
category. publication, filing, and prior hearing.
/ ALEEZAH GERTRUDE R. REGADO
When an administrative rule is merely interpretative in
A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. nature, its applicability needs nothing further than its
7654 was enacted – 55% for locally manufactured foreign brand while 45% for locally bare issuance for it gives no real consequence more
manufactured brands. 2 days before the effectivity of RA 7654, Revenue Memorandum than what the law itself has already prescribed. BUT
Circular No. 37-93 ("RMC 37-93"), was issued by the BIR saying since there is no showing when, upon the other hand, the administrative rule goes
who the real owner/s are of Champion, Hope and More, it follows that the same shall be beyond merely providing for the means that can facilitate
considered locally manufactured foreign brand for purposes of determining the ad or render least cumbersome the implementation of the
valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco law but substantially increases the burden of those
addressed to no one in particular. Then Fortune Tobacco received, by ordinary mail, a governed, the agency must accord, at least to those
certified xerox copy of RMC 37-93. CIR assessed Fortune Tobacco for ad valorem tax directly affected, a chance to be heard, before that new
deficiency amounting to P9,598,334.00. issuance is given the force and effect of law.
RMC 37-93 cannot be viewed simply as construing
Section 142(c)(1) of the NIRC, as amended, but has, in
Fortune Tobacco filed a petition for review with the CTA. 8 CTA upheld the position of
Fortune. CA affirmed. fact and most importantly, been made in order to place
"Hope Luxury," "Premium More" and "Champion" within
the classification of locally manufactured cigarettes
bearing foreign brands and to thereby have them
covered by RA 7654 which subjects mentioned brands
to 55% the BIR not simply interpreted the law; verily, it
legislated under its quasi-legislative authority. The due
observance of the requirements of notice, of hearing,
and of publication should not have been then ignored.
CIR V. Burroughs Ltd. is a foreign corporation conducting business in the Philippines. 1) Any modification or revocation of any rule shall not be BIR Rulings are not given retroactive effect if it will be
BURROUGHS • 1979: Burroughs applied with the BSP for authority to remit to its parent company abroad, retroactive if such will be prejudicial to the taxpayer prejudicial to the taxpayer.
thus paying the 15% branch profit remittance tax based on the amount APPLIED for EXCEPT:
remittance (this was a larger amount), instead of the amount ACTUALLY remitted (a lesser a) Where the taxpayer deliberately misstates his
amount), which would have yielded lesser taxes. return/documents
• Burroughs filed a petition for review to the CTA, which ordered the BIR to grant Burroughs b) Where the facts gathered by the BIR are different
a tax credit equal to the difference between the tax he paid and what he should have have from that on which the ruling is based.
paid (the lesser amount). c) Where the taxpayer acted in bad faith.
• The CIR appealed citing BIR rulings stating that such taxes must be based on the amount 2) In this case, the rulings were promulgated after the
APPLIED for remittance. filing of Burroughs’ tax returns.
• Issue: WON a tax credit can be availed by Burroughs. 3) Burroughs does not fall under any of these exceptions
that could deprive him of his tax credit.
4) Burroughs’ basis was Section 24(b)(2) of the 1977
Tax Code: The 15% branch profit tax shall be imposed
on the branch profits ACTUALLY remitted abroad and
not on the total branch profits out of which the
remittance is to be made.
PBC V. CIR Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation memorandum-circular of a bureau head could not
duly organized under Philippine laws, filed its quarterly income tax returns for the first and Ruling operate to vest a taxpayer with shield against judicial
second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00 RR 7-85 altering the 2-year prescriptive period imposed action. For there are no vested rights to speak of
by applying PBCom's tax credit memos for P3,401,701.00 and P1,615,253.00, respectively. by law to 10-year prescriptive period is invalid respecting a wrong construction of the law by the
Subsequently, however, PBCom suffered net loss of P25,317,228.00, thereby showing no Administrative issuances are merely interpretations and administrative officials and such wrong interpretation
income tax liability in its Annual Income Tax Returns for the year-ended December 31, not expansions of the provisions of law, thus, in case of could not place the Government in estoppel to correct or
1985. For the succeeding year, ending December 31, 1986, the petitioner likewise reported inconsistency, the law prevails over them. Administrative overrule the same.
a net loss of P14,129,602.00, and thus declared no tax payable for the year. agencies have no legislative power.
But during these two years, PBCom earned rental income from leased properties. The “When the Acting Commissioner of Internal Revenue
/ ALEEZAH GERTRUDE R. REGADO
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in issued RMC 7-85,
1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the Commissioner
of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the changing the prescriptive period of two years to ten
overpayment of taxes in the first and second quarters of 1985. years on claims of excess quarterly income tax
payments, such circular created a clear inconsistency
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld with the provision of Sec. 230 of 1977 NIRC. In so
by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for doing, the BIR did not simply interpret the law; rather it
P234,077.69. legislated guidelines contrary to the statute passed by
Congress.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner
instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals “It bears repeating that Revenue memorandum-circulars
(CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of are considered administrative rulings (in the sense of
Communications vs. Commissioner of Internal Revenue." more specific and less general interpretations of tax
laws) which are issued from time to time by the
The CTA decided in favor of the BIR on the ground that the Petition was filed out of time as Commissioner of Internal Revenue. It is widely accepted
the same was filed beyond the two-year reglementary period. A motion for Reconsideration that the interpretation placed upon a statute by the
was denied and the appeal to Court of Appeals was likewise denied. Thus, this appeal to executive officers, whose duty is to enforce it, is entitled
Supreme Court. to great respect by the courts. Nevertheless, such
Issues: interpretation is not conclusive and will be ignored if
judicially found to be erroneous. Thus, courts will not
a) Whether or not Revenue Regulations No. 7-85 which alters the reglementary period from countenance administrative issuances that override,
two (2) years to ten (10) years is valid. instead of remaining consistent and in harmony with, the
law they seek to apply and implement.
b) Whether or not the petition for tax refund had already prescribed.
“Further, fundamental is the rule that the State cannot be
put in estoppel by the mistakes or errors of its officials or
agents. As pointed out by the respondent courts, the
nullification of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an administrative
interpretation which is not in harmony with Sec. 230 of
1977 NIRC, for being contrary to the express provision
of a statute. Hence, his interpretation could not be given
weight for to do so would, in effect, amend the statute.
ABS-CBN V. CTA & The ABS-CBN Broadcasting Corporation (herein shall be called the “Company”) was Can the CIR apply the law retroactively? (NO)
CIR engaged in the business of telecasting local as well as foreign films acquired from foreign Has the power to assess the deficiency prescribed? (YES)
corporations not engaged in trade or business with the Philippines. Under Section 24 (b) of The prejudice to ABS of the retroactive application of Memorandum Circular No. 4-71 is beyond question. It was issued only in 1971, or
the National Revenue Code, a withholding tax of 30% (RA 2343). It was implemented 3 years after 1968, the last year ABS had withheld taxes under General Circular No. V-334. The assessment and demand on ABS to pay
deficiency withholding income tax was also made 3 years after 1968 for a period of time commencing in 1965. ABS was no longer in a
through Circular No. V-334. Pursuant to the foregoing, ABS-CBN dutifully withheld and
position to withhold taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control
turned over to the BIR the amount of 30% of one-half of the film rentals paid by it to foreign over them when the new Circular was issued. And in so far as the enumerated exceptions are concerned, admittedly, petitioner does not
corporations not engaged in trade or business within the Philippines. The last year that fall under them.
/ ALEEZAH GERTRUDE R. REGADO
ABS-CBN withheld taxes pursuant to the foregoing Circular was in 1968. The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It provides
that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior executive
RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35 construction. Note should be taken of the fact that this case involves not a mere opinion of the Commissioner or ruling rendered on a
% and revising the tax basis from “such amount” referring to rents, etc. to “gross income.” mere query, but a Circular formally issued to "all internal revenue officials" by the then Commissioner of Internal Revenue.
This Court is not unaware of the well-entrenched principle that the Government is never estopped from collecting taxes because of mistakes or
The following was implemented by Circular No. 4-71.
errors on the part of its agents. In fact, utmost caution should be taken in this regard. But, like other principles of law, this also admits of
exceptions in the interest of justice and fair play. The insertion of Sec. 338-A into the National Internal Revenue Code, as held in the case of
Petitioner requested for a reconsideration and withdrawal of the assessment.
Tuason, Jr. vs. Lingad, is indicative of legislative intention to support the principle of good faith. In fact, in the United States, from where Sec.
24 (b) was patterned, it has been held that the Commissioner of Collector is precluded from adopting a position inconsistent with one previously
taken where injustice would result therefrom, or where there has been a misrepresentation to payer.
CIR V. BENGUET Benguet Corporation is a domestic corporation engaged in the exploration, development Issues: (1) WON Benguet’s sale of gold to the Central Bank during the
CORP and operation of mineral resources, and the sale or marketing thereof to various entities. It period when such was classified by BIR issuances as zerorated could be taxed validly at a 10% rate after the
is a VAT registered enterprise. consummation of the transactions involved; (2) WON there was prejudice to Benguet Corp due to the new BIR VAT
Ruling.
The transactions in question occurred during the period between 1988 and 1991.
Under Sec. 99 of NIRC as amended by E.O. 273 s. 1987 then in effect, any person who, in Held: (1) NO. At the time when the subject transactions were consummated, the prevailing BIR regulations relied
the course of trade or business, sells, barters or exchanges goods, renders services, or upon by Benguet ordained that gold sales to the Central Bank were zero-rated. Benguet should not be faulted for
engages in similar transactions and any person who imports goods is liable for output VAT relying on the BIRs interpretation of the said laws and regulations.
at rates of either 10% or 0% (zero-rated) depending on the classification of the transaction
under Sec. 100 of the NIRC. While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain unpaid on
account of the errors or mistakes of its agents and/or officials and there could be no vested right arising from an
In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on erroneous interpretation of law, these principles must give way to
its sale of gold to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued exceptions based on and in keeping with the interest of justice and fair play. (then the Court cited the ABS-CBN
which declared that the sale of gold to Central Bank is considered as export sale subject to case).
zero-rate pursuant to
Section 100 of the Tax Code, as amended by EO 273. (2) YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR of the
amount equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a
Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central zero-rated scenario or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate.
Bank during the period of 1 August 1989 to 31 July 1991 and entered into transactions that Thus, it is clear that Benguet suffered economic prejudice when it consummated sales of gold to the Central Bank
resulted in input VAT incurred in relation to the subject sales of gold. It then filed were taken out of the zero-rated category. The change in the VAT rating of Benguet’s transactions with the Central
applications for tax refunds/credits Bank resulted in the twin loss of its exemption from payment of output VAT and its opportunity to recover input VAT,
corresponding to input VAT. and at the same time subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the
total prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.
However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23
January 1992 that was issued subsequent to the consummation of the subject sales of gold Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed, this relief
to the Central Ban`k which provides that sales of gold to the Central Bank shall not be would only address Benguet’s overpayment of income tax but not the other burdens discussed above. Verily, this
considered as export sales and thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008- remedy is not a feasible option for Benguet because the very reason why it was issued a deficiency tax assessment
92 withdrew, modified, and superseded all inconsistent BIR issuances. is that its input VAT
Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary and
is valid only if such application would not be prejudicial to the Benguet pursuant Sec. 246 of cumbersome refund process is prejudice enough.
the NIRC.
CIR V. BWSC-Denmark, Mitsui Engineering and Mitsui and Co. formed a consortium and entered Issue: Are the receipts of Burmeister entitled to VAT For a service to be zero rated, the following conditions
BURSMEITERS & into a contract with NAPOCOR to operate the latter’s two power barges. BWSC established zero-rated status? must be satisfied:
WAIN BWSC-Mindanao which subcontracted the actual operation of the barges. (1) Recipient non-resident corp doing trade outside the
• • NAPOCOR paid the capacity and energy fees to the Consortium in a mixture of Held: PARTIALLY. Respondent is entitled to the refund Philippines
SCANDINAVIAN
currencies, while the Consortium pays BWSC-Mindanao in foreign currency inwardly prayed for BUT ONLY for the period covered prior to the (2) Service paid in foreign currency
remitted to the Philippines via banking system. filing of CIR’s Answer in the CTA. (3) BSP Rules and Reg
(4) Service not a processing, manufacturing, repacking
/ ALEEZAH GERTRUDE R. REGADO
• • BWSC-Mindanao sought clarification on its tax implications. BIR told them that if The claim has no merit since the consortium, which was of goods
they choose to be VAT + Paid by Foreign currency + BSP Rules = 0% rated! the recipient of services rendered by Burmeister, was (5) VAT-Registered
deemed doing business within the Philippines since its
• • BWSC-Mindanao chose this and availed of the Voluntary Assessment Program 15-year O&M with NPC can not be interpreted as an Fact that the members of a company are principally
and availed of tax credits. Denied! isolated transaction. foreign does NOT mean it is doing business outside
PHP.
Is BWSC-Mindanao entitled to the refund as wrongly paid? (NO) In addition, the services referring to ‘processing, GR – Exports are 0%
manufacturing, repacking’ and ‘services other than those EXC – Services done to foreign companies but done
in (1)’ of Sec. 102 both require (i) payment in foreign here.
currency; (ii) inward remittance; (iii) accounted for by the
BSP; AND (iv) that the service recipient is doing
business outside the Philippines. The Court ruled that if
this is not the case, taxpayers can circumvent just by
stipulating payment in foreign currency.
FILIPINAS SYNTHETIC Filipinas Synthetic Fiber was assessed a deficiency Section 53 of the NIRC is silent as to when the duty to withhold taxes
FIBER CORP V. CA withholding tax at source in the total amount of P829k from arise. In the provision, however, the withholding tax liability of the agent
1974 to 1975. The bulk of the deficiency consisted of is explicitly expressed and makes the agent personally liable for the Section 53 (c) he is held
interest and compromise penalties for alleged late payment income tax. personally liable for the tax he
of withholding taxes due. • • Phil Guaranty v. CIR – Law sets no condition for personal is duty bound to withhold;
• • CIR – The liability to withhold and pay income liability of withholding agent to attach. Reason is to compel the agent to
tax withheld at source from payments due to a foreign withhold the tax under ALL CIRCUMSTANCES. He is the AGENT of the whereas, the Commissioner of
corporation is at the time of accrual and NOT at time of taxpayer in the payment of the tax to the government and is the agent Internal Revenue and his
actual remittance. Synthetic failed to pay the withholding of the GOV’T in the collection of it for its remittance. deputies are not made liable to
tax on interest, royalties, and guarantee fee at the time of • • Accrual Basis – Income is reportable when all the events
accrual have occurred that fix the taxpayer’s right to receive the income + law.
amount can be determined with reasonable accuracy. Thus, it is the Since there was a definite
• • SYNTHETIC – Withholding taxes on interest of right to receive income and NOT the actual receipt that determines clear liability and imminent
income and royalties were paid to the gov’t when they were when to include the amount in gross income.
actually remitted abroad. Whatever amount has accrued in certainty that it was going to
the books, the withholding tax due is paid upon remittance. There was definite liability + clear and imminent certainty that at the earn income it should already
maturity of the loans, the foreign corporation was going to earn income
Is it upon remittance OR accrual? (ACCRUAL) in an ascertained amount, so much that Filipinas already deducted as
be taxable.
business expense the said amount as interests due to the foreign Moreover, petitioner is
corporation. Having written-off the amounts as business expenses in its estopped for he has already
book, it has taken advantage of the benefit provided in the law for
allowing for deductions from gross income. It has represented to the
claimed deductions as there
BIR that the amounts deducted were incurred as business expense in were incurred as a business
the form of interest and royalties paid to the foreign corporations. It is expense in the form of interest
ESTOPPED now.
and royalties paid.
B. TAXABLE INCOME
GENERAL PRINCIPLES OF INCOME TAXATION
INDIVIDUALS
KINDS OF INDIVIDUALS
CIR V. VISAYAN Visayan Electric established a pension fund known as the “Employees Investment of fund is NOT business op – It is For a trust fund to be exempt:
ELECTRIC Reserve for Pensions.” The fund is for the benefit of present and future NOT income hence not part of the income tax (1) Definite Plan
employees in the event of retirement, accident, or disability. This fund was given in its legislative franchise -It is also not (2) Good faith
later invested by the company in stocks of San Miguel Brewery, for which incidental to the operations of the company. What is (3) Impossible to divert to other purposes
dividends have been regularly received. These dividends were NOT exempt under the legislative franchise are receipts, (4) Solely for the benefit of employees
declared for tax purposes. revenues, and profits of the COMPANY.
The Auditor General alleged that since the company retained full control of The intention to create a trust in favor of the