ESTATE TAX
the approval of the court, sitting in probate, or as a settlement
Dizon vs CTA GR 140944
FACTS: Fernadez died. A petition for the probate of his will was filed
thereafter. At the time of his death, he had high amounts payable to creditors.
These payables were appreciated as deductions from his gross estate. After the
estate taxes have been paid, the creditors condoned the said debts.
Issue: whether the actual claims of the creditors may be fully allowed as
deductions from the gross estate of Fernandez despite the fact that these claims
were reduced or condoned through compromise agreements entered into by the
estate with its creditors?
Ruling: YES. The claims of the estate’s creditors have been condoned.
Condonation or remission of debt is defined as an act of liberality, by virtue of
which without receiving any equivalent, the creditor renounces the enforcement
of the obligation, which is extinguished in its entirety or in that part or aspect of
the same to which the remission refers.
Applying the date-of-death valuation rule, the amount of claim against the
estate at the time of death of the decedent is not affected by the subsequent
settlements.
[G.R. No. 120880. June 5, 1997]
FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS,
THE COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE and HERMINIA D. DE GUZMAN, respondents.
Facts: Ferdinand R. Marcos II, the eldest son of the decedent, questions the
actuations of the respondent Commissioner of Internal Revenue in assessing,
and collecting through the summary remedy of Levy on Real Properties, estate
and income tax delinquencies upon the estate and properties of his father,
despite the pendency of the proceedings on probate of the will of the late
president.
Issue: Does the BIR have the authority to collect by the summary remedy of
levying upon, and sale of real properties of the decedent, estate tax deficiencies,
without the cognition and authority of the court sitting in probate over the
supposed will of the deceased?
Ruling: Yes.
tribunal over the deceased is not a mandatory requirement in the collection of
estate taxes. It cannot therefore be argued that the Tax Bureau erred in
proceeding with the levying and sale of the properties allegedly owned by the
late President, on the ground that it was required to seek first the probate
court's sanction. There is nothing in the Tax Code, and in the pertinent remedial
laws that implies the necessity of the probate or estate settlement court's
approval of the state's claim for estate taxes, before the same can be enforced
and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement
court which is bidden not to authorize the executor or judicial administrator of
the decedent's 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.
If there is any issue as to the validity of the BIR's decision to assess the estate
taxes, this should have been pursued through the proper administrative and
judicial avenues provided for by law in Sec. 229 of the NIRC.
Apart from failing to file the required estate tax return within the time required
for the filing of the same, petitioner, and the other heirs never questioned the
assessments served upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon the properties left
by President Marcos.
The Notices of Levy upon real property were issued within the prescriptive
period and in accordance with the provisions of the present Tax Code. The
deficiency tax assessment, having already become final, executory, and
demandable, the same can now be collected through the summary remedy of
distraint or levy pursuant to Section 205 of the NIRC.
The omission to file an estate tax return, and the subsequent failure to contest
or appeal the assessment made by the BIR is fatal to the petitioner's cause, as
under the above-cited provision, in case of failure to file a return, the tax may be
assessed at any time within ten years after the omission, and any tax so assessed
may be collected by levy upon real property within three years following the
assessment of the tax. Since the estate tax assessment had become final and
unappealable by the petitioner's default as regards protesting the validity of the
said assessment, there is now no reason why the BIR cannot continue with the
collection of the said tax. Any objection against the assessment should have
been pursued following the avenue paved in Section 229 of the NIRC on
protests on assessments of internal revenue taxes.
CIR v. Reyes
Facts: By virtue of a sworn affidavit for reward by one Abad, an investigation
was conducted by BIR on the estate of the deceased Maria Tancinco who died
in 1993 leaving a residential lot and old house in Dasma. Without submitting a
preliminary finding report, an LOA was issued and received by Reyes, one of
the heirs on 14 March 1997.
Then on 12 Feb 1998, a PAN was issued against the estate, and a FAN
as well as demand letter was issued on 22 April 1998. For the assessment of
P14.9M for estate tax of the estate of Maria Tancinco. On March 11, 1999,
the heirs proposed a compromise settlement of P1,000,000.00.
During those dates, RA 8424 Tax Reform Act was already in effect. RA
8424 stated that the taxpayer must be informed of both the law and facts on
which the assessment was based.The notice required under the old law was no
longer sufficient under the new law. First, RA 8424 has already amended the
provision of Section 229 on protesting an assessment. The old requirement of
merely notifying the taxpayer of the CIR’s findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which an
assessment would be made; otherwise, the assessment itself would be invalid.
Due to failure to pay tax on the deadline BIR notified on June 6, 2000
that the subject property would be sold at public auction on August 8, 2000.
Reyes filed a protest with the BIR. Hence the petition for review filed by Reyes
in CTA and a TRO to desist and refrain from proceeding with the auction sale
of the subject property or from issuing a warrant pending determination of the
case and/or unless a contrary order is issued.
CIR filed a motion saying CTA has no jurisdiction since the assessment
against the estate is already final and executory; and (ii) that the petition was
filed out of time
CTA – Ruled in favour of CIR ordering Reyes to pay the estate tax
amounting to 19M. CTA ratiocinated that there can only be a perfected and
consummated compromise of the estate’s tax liability[,] if the NEB has
approved [Reyes’s] application for compromise in accordance with RR No. 6-
2000, as implemented by RMO No. 42-2000.
CA – Partly granted petition. SC – Affirmed, petition w/o merit.
Issue: WON whether the assessment against the estate is valid; and, second,
whether the compromise entered into is also valid?
Ruling:
No. Under the present provisions of the Tax Code and pursuant to
elementary due process, taxpayers must be informed in writing of the law and
the facts upon which a tax assessment is based; otherwise, the assessment is
void. Being invalid, the assessment cannot in turn be used as a basis for the
perfection of a tax compromise. This was clear and mandatory under Section
228.
Reyes was not informed in writing of the law and the facts on which
the assessment of estate taxes had been made. She was merely notified of the
findings by the CIR, who had simply relied upon the provisions of former
Section 22913 prior to its amendment by Republic Act (RA) No. 8424, otherwise
known as the Tax Reform Act of 1997.
To be simply informed in writing of the investigation being conducted
and of the recommendation for the assessment of the estate taxes due is
nothing but a perfunctory discharge of the tax function of correctly assessing a
taxpayer. The act cannot be taken to mean that Reyes already knew the law and
the facts on which the assessment was based. It does not at all conform to the
compulsory requirement under Section 228. Moreover, the Letter of Authority
received by respondent on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under the law.
Validity of Compromise. It would be premature for the Court to
declare that the compromise on the estate tax liability has been perfected and
consummated, considering the earlier determination that the assessment against
the estate was void. Nothing has been settled or finalized. Under Section 204(A)
of the Tax Code, where the basic tax involved exceeds one million pesos or the
settlement offered is less than the prescribed minimum rates, the compromise
shall be subject to the approval of the NEB composed of the petitioner and
four deputy commissioners. Finally, as correctly held by the appellate court, this
provision applies to all compromises, whether government-initiated or not. Ubi
lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we
should not distinguish.
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL v CIR
GR No. 155541 January 27, 2004
FACTS:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business
affairs were managed by the Philippine Trust Company (Philtrust). The
decedent died on April 3, 1979. Two days after her death, Philtrust, through its
Trust Officer, Atty. Antonio M. Nuyles, filed her Income Tax Return for 1978.
The return did not indicate that the decedent had died. Philtrust also filed for a
verified petition for appointment as Special Administrator but the same was
denied. Its Motion for reconsideration was also denied and the appointment of
Special Administrator was given to Mr. Diez, which was then transferred to
Antonio Lantin, and subsequently to Atty. Vicente Onosa.
The Bureau of Internal Revenue conducted an administrative investigation on
the decedent’s tax liability and found a deficiency income tax for the year 1977.
Thus, the BIR sent by registered mail a demand letter and an Assessment
addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz, Manila"
which was the address stated in her 1978 Income Tax Return. No response was
made by Philtrust. The BIR was not informed that the decedent had actually
passed away. Commissioner of Internal Revenue then issued warrants of
distraint and levy to enforce collection of the decedent’s deficiency income tax
liability, which were served upon her heir, Francisco Gabriel. CIR filed a
"Motion for Allowance of Claim and for an Order of Payment of Taxes" with
the court a quo.
Mr. Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was not
acted upon because the assessment notice had allegedly become final, executory and
incontestable. The Estate of the decedent, through Mr. Ambrosio, filed a formal
opposition to the BIR’s Motion for Allowance of Claim based on the ground
that there was no proper service of the assessment and that the filing of the
aforesaid claim had already prescribed. The BIR filed its Reply, contending that service
to Philippine Trust Company was sufficient service, and that the filing of the claim against the
Estate on November 22, 1984 was within the five-year prescriptive period for assessment and
collection of taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC).
ISSUES:
1.) Whether or not the service of deficiency tax assessment against Juliana
Diez Vda. de Gabriel through the Philippine Trust Company was a
valid service in order to bind the Estate;
2.) Whether or not the action of the CIR to collect against the Estate has
prescribed.
HELD:
1.) No. The relationship between the decedent and Philtrust was one
of agency, which is a personal relationship between agent and principal. Under
Article 1919 (3) of the Civil Code, death of the agent or principal automatically
terminates the agency. In this instance, the death of the decedent on April 3,
1979 automatically severed the legal relationship between her and Philtrust, and
such could not be revived by the mere fact that Philtrust continued to act as her
agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978.
SEC. 104. Notice of death to be filed. – In all cases of transfers subject to
tax or where, though exempt from tax, the gross value of the estate
exceeds three thousand pesos, the executor, administrator, or any of the
legal heirs, as the case may be, within two months after the decedent’s
death, or within a like period after qualifying as such executor or
administrator, shall give written notice thereof to the Commissioner of
Internal Revenue.
Since the relationship between Philtrust and the decedent was automatically
severed at the moment of the Taxpayer’s death, none of Philtrust’s acts or
omissions could bind the estate of the Taxpayer. Service on Philtrust of the
demand letter and Assessment Notice was improperly done.
2.) No. Since there was never any valid notice of this assessment, it
could not have become final, executory and incontestable, and, for failure to
make the assessment within the five-year period provided in Section 318 of the
National Internal Revenue Code of 1977, respondent’s claim against the
petitioner Estate is barred. Said Section 18 reads:
SEC. 318. Period of limitation upon assessment and collection. – Except as
provided in the succeeding section, internal revenue taxes shall be
assessed within five years after the return was filed, and no proceeding
in court without assessment for the collection of such taxes shall be
begun after the expiration of such period. For the purpose of this
section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day: Provided, That this
 limitation shall not apply to cases already investigated prior to the
approval of this Code.
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 an 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 P60, 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 [P50, 000] and the notarization fee [P60,
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.
Issue: 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.
Ruling: 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- As a rule
attorney's fees in order to be deductible from the gross 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. 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.
DONORS TAX
Republic vs. Guzman GR 132964 Feb 18, 2000
FACTS: David Guzman, a natural born American citizen is the son of sps.
Simeon and Helen Guzman, both American Citizens. Simeon died in 1968
leaving to his sole heirs Helen and David an estate constituting several parcels
of land. On December 10, 1981, Helen executed a Quitclaim Deed assigning,
transferring and conveying to her son David her undivided ½ interest on all the
parcels of land. Abela, Helen’s atty. in fact, upon instruction of Helen, paid
donor’s taxes to facilitate the registry of the parcels of land in the name of
David. The State initiated escheat proceedings. It asserts that David, being an
American Citizen could not validly acquire ½ interest in the parcels of land by
way of the quitclaim deed as they are in reality donations inter vivos.
ISSUE: was there a donation?
RULING: NO. The essential elements of a donation are:
1. Reduction of the patrimony of the donor;
2. Increase in the patrimony of the done; and
3. Intent to do an act of liberality or animus donandi
4. The law further requires that in a donation of an immovable property,
it 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 this case, Helen’s intention to peform 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
was missing. However, the inexistence of a donation does not render the
repudiation made by Helen in favor of David valid. There is no repudiation of
inheritance as Helen had already accepted her share of the inheritance when she,
together with David, executed a deed of extrajudicial settlement of the estate of
Simeon Guzman. The repudiation being of no effect whatsoever, the parcel of
land should revert to their private owner, Helen, who although being an
American citizen, is qualified by hereditary succession to own the property
subject of the litigation.
[G.R. No. 120721. February 23, 2005]
MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D.
REGALA, AVELINO V. CRUZ, petitioners, vs. COMMISSIONER OF
INTERNAL REVENUE and COURT OF APPEALS, respondents.
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 Edgardo Angara, then
running for the Senate. In letters dated April 21, 1988, the Bureau of Internal
Revenue (BIR) assessed each of the petitioners P263,032.66 for their
contributions. On August 2, 1988, petitioners questioned the assessment
through a letter to the BIR. They claimed that political or electoral contributions
are not considered gifts under the National Internal Revenue Code (NIRC), and
that, therefore, they are not liable for donors tax. The claim for exemption was
denied by the Commissioner.
Issue: Was there a donation?
Ruling: Yes. 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. 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.
Issue: Was there donative intent?
Ruling: Yes. Since animus donandi or the intention to do an act of liberality is
an essential element of a donation, petitioners argue that it is important to look
into the intention of the giver to determine if a political contribution is a gift.
Petitioners argument is not tenable. First of all, donative intent is a creature of
the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed present
when one gives a part of ones patrimony to another without consideration.
Second, donative intent is not negated when the person donating has other
intentions, motives or purposes which do not contradict donative intent. This
Court is not convinced that since the purpose of the contribution was to help
elect a candidate, there was no donative intent. Petitioners contribution of
money without any material consideration evinces animus donandi. The fact
that their purpose for donating was to aid in the election of the donee does not
negate the presence of donative intent.
The fact that petitioners will somehow in the future benefit from the election of
the candidate to whom they contribute, in no way amounts to a valuable
material consideration so as to remove political contributions from the purview
of a donation. Senator Angara was under no obligation to benefit the
petitioners. The proper performance of his duties as a legislator is his obligation
as an elected public servant of the Filipino people and not a consideration for
the political contributions he received. In fact, as a public servant, he may even
be called to enact laws that are contrary to the interests of his benefactors, for
the benefit of the greater good. In fine, the purpose for which the sums of
money were given, which was to fund the campaign of Senator Angara in his
bid for a senatorial seat, cannot be considered as a material consideration so as
to negate a donation.
Obiter: Finally, this Court takes note of the fact that subsequent to the
donations involved in this case, Congress approved Republic Act No. 7166 on
November 25, 1991, providing in Section 13 thereof that political/electoral
contributions, duly reported to the Commission on Elections, are not subject to
the payment of any gift tax. This all the more shows that the political
contributions herein made are subject to the payment of gift taxes, since the
same were made prior to the exempting legislation, and Republic Act No. 7166
provides no retroactive effect on this point.
CIR v. BF Goodrich
Facts: Private respondent BF Goodrich Philippines Inc. was an American
corporation prior to July 3, 1974. As a condition for approving the manufacture
of tires and other rubber products, private respondent was required by the
Central Bank to develop a rubber plantation. In compliance therewith, private
respondent bought from the government certain parcels of land in Tumajubong
Basilan, in 1961 under the Public Land Act and the Parity Amendment to the
1935 constitution, and there developed a rubber plantation.
On August 2, 1973, the Justice Secretary rendered an opinion that
ownership rights of Americans over Public agricultural lands, including the right
to dispose or sell their real estate, would be lost upon expiration on July 3, 1974
of the Parity Amendment. Thus, private respondent sold its Basilan land
holding to Siltown Realty Phil. Inc., (Siltown) for P500,000 on January 21, 1974.
Under the terms of the sale, Siltown would lease the property to private
respondent for 25 years with an extension of 25 years at the option of private
respondent.
Private respondent books of accounts were examined by BIR for
purposes of determining its tax liability for 1974. This examination resulted in
the April 23, 1975 assessment of private respondent for deficiency income
taxwhich it duly paid. Siltown’s books of accounts were also examined, and on
the basis thereof, on October 10, 1980, the Collector of Internal Revenue
assessed deficiency donor’s tax of P1,020,850 in relation to said sale of the
Basilan landholdings.
Private respondent contested this assessment on November 24, 1980.
Another assessment dated March 16, 1981, increasing the amount demanded
for the alleged deficiency donor’s tax, surcharge, interest and compromise
penalty and was received by private respondent on April 9, 1981. On appeal,
CTA upheld the assessment. On review, CA reversed the decision of the court
finding that the assessment was made beyond the 5-year prescriptive period in
Section 331 of the Tax Code.
Issue: Whether or not petitioner’s right to assess has prescribed.
Ruling: Applying then Sec. 331, NIRC (now Sec. 203, 1997 NIRC which
provides a 3-year prescriptive period for making assessments), it is clean that the
October 16, 1980 and March 16, 1981 assessments were issued by the BIR
beyond the 5-year statute of limitations. The court thoroughly studied the
records of this case and found no basis to disregard the 5-year period of
prescription, expressly set under Sec. 331 of the Tax Code, the law then in
force.
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law or prescription, being a
remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.
IV. EXCISE TAXES
CHEVRON PHILIPPINES INC., VS COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 210836, September 01, 2015
DOCTRINE: Excise tax on petroleum products is essentially a tax on
property, the direct liability for which pertains to the statutory taxpayer (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
Section 135 of the National Internal Revenue Code (NIRC) exempt from excise tax
is deemed illegal or erroneous, and should be credited or refunded to the payor
pursuant to Section 204 of the NIRC. This is because the exemption granted
under Section 135 of the NIRC must be construed in favor of the property
itself, that is, the petroleum products.
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 the 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 respondent Commissioner of Internal
Revenue (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 Chevron's 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 Section 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, Section 135(c) of
the NIRC of 1997, 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/seller."
Also, based on jurisprudence, the Supreme Court held that the exemption from
excise tax payment on petroleum products under Section 135(a) of the NIRC of
1997, as amended, is conferred on international carriers who purchased the
same for their use or consumption outside the Philippines. The oil companies
which sold such petroleum products to international carriers are not entitled to
a refund of excise taxes previously paid on the petroleum products sold." Thus,
Chevron is not entitled".
Hence, Chevron has filed the Motion for Reconsideration.
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
CDC in 2007.
HELD:
YES. Section 131 of the NIRC declares that excise taxes on imported things
shall be paid by the owner or importer to the Customs officers, conformably
with the regulations of the Department of Finance and before the release of
such articles from the customs house, unless the imported things are exempt
from excise taxes and the person found to be in possession of the same is other
than those legally entitled to such tax exemption. For this purpose, the statutory
taxpayer is the importer of the things subject to excise tax. Chevron, being the
statutory taxpayer, paid the excise taxes on its importation of the petroleum
products
Pursuant to Section 135(c), petroleum products sold to entities that are by law
exempt from direct and indirect taxes are exempt from excise tax. The
phrase which are by law exempt from direct and indirect taxes describes the entities to
whom the petroleum products must be sold in order to render the
exemption operative. Section 135(c) should thus be construed as an exemption in
favor of the petroleum products on which the excise tax was levied in the first
place. The exemption cannot be granted to the buyers - that is, the entities that
are by law exempt from direct and indirect taxes - because they are not under
any legal duty to pay the excise tax. Inasmuch as its liability for the payment of
the excise taxes accrued immediately upon importation and prior to the removal
of the petroleum products from the customshouse, Chevron was bound to pay,
and actually paid such taxes. But the status of the petroleum products as exempt
from the excise taxes would be confirmed only upon their sale to CDC in 2007
(or, for that matter, to any of the other entities or agencies listed in Section 135
of the NIRC). Before then, Chevron did not have any legal basis to claim the
tax refund or the tax credit as to the petroleum products.
It is noteworthy that excise taxes are considered as a kind of indirect tax, the
liability for the payment of which may fall on a person other than whoever
actually bears the burden of the tax. Simply put, the statutory taxpayer may shift
the economic burden of the excise tax payment to another - usually the buyer.
In cases involving excise tax exemptions on petroleum products under Section
135 of the NIRC, the Court has consistently held that it is the statutory
taxpayer, not the party who only bears the economic burden, who is entitled to
claim the tax refund or tax credit. But the Court has also made clear that this
rule does not apply where the law grants the party to whom the economic
burden of the tax is shifted by virtue of an exemption from both direct and
indirect taxes. In which case, such party must be allowed to claim the tax refund
or tax credit even if it is not considered as the statutory taxpayer under the law.
Accordingly, Chevron was entitled to the refund or credit of the excise taxes
erroneously paid on the importation of the petroleum products sold to CDC.la
CIR vs. PILIPINAS SHELL PETROLEUM CORPORATION
G.R. No. 188497
February 19, 2014
FACTS: Pilipinas Shell Petroleum Corporation assails the Court’s 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 Court’s 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 State’s 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: The court maintains 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, the court agrees 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 the Government’s 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, the 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.
The court 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.
CIR vs Fortune Tobacco GR 180006 Sept. 28, 2011
FACTS: Under our laws, manufacturers of cigarettes are subject to pay excise
taxes on their products. Prior to Jan 1, 1997, the excise taxes on these products
were in the form of ad valorem taxes. Beginning Jan 1, 1997, RA 8240 took
effect and a shift from ad valorem to specific taxes was made. The rates of
specific tax on cigars under par. 1,2,3 and 4 of Sec. 142 shall be increased by
12% on Jan. 1, 2000. SEC.1 of RR 17-99 contains a proviso which says that the
new specific tax rate for any existing brand of cigars and 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. Fortune Tobacco
paid in advance excise taxes for the year 2003. In 2004 it filed an administrative
claim for tax refund claiming erroneously and or illegally collected taxes in the
amount of P491M.
ISSUE: Did the proviso in Sec. 1 RR17-99 go beyond the terms of the law it
was supposed to implement (RA 8240)
RULING: YES. By adding 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, RR 17-99 effectively imposes a tax which is the higher amount
between the ad valorem tax being paid at the end of the 3 year transition period
and the specific tax under Paragraph C, as increased by 12 – a situation not
supported by the plain wording of Sec. 145 of the tax code. The proviso in
RR17-99 clearly went beyond the terms of the law it was supposed to
implement, and therefore entitles Fortune Tobacco to claim a refund of the
overpaid excise taxes collected pursuant to this provision. The rule on
uniformity of taxation was violated by Section 1 of RR17-99.
CIR v. San Miguel
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
January 1, 1998, Republic Act (R.A.) 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 National Internal Revenue Code as amended by R.A. No. 8240 which
became effective on January 1, 1997. Part of 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 Republic Act No. 8240 shall not be lower than the tax which was due from each
brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall be
increased by twelve percent (12%) on January 1, 2000.
Thereafter, on December 16, 1999, the Secretary 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
Section 1 of 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 January 1, 2000.
For the period June 1, 2004 to December 31, 2004, respondent was
assessed and paid excise taxes amounting to P2,286,488,861.58. Respondent,
however, later contended that the said qualification in the last paragraph of
Section 1 of Revenue Regulations No. 17-99 has no basis in the plain wording
of Section 143 and filed before the BIR a claim for refund or tax credit of the
amount of P60,778,519.56 as erroneously paid excise taxes for the period of
May 22, 2004 to December 31, 2004. Later, said amount was reduced to
P58,213,294.92 because of prescription.
 On September 26, 2007, the CTA Second Division granted the petition
and ordered petitioner to refund P58,213,294.92 to respondent or to issue in the
latter’s 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 for review on certiorari.
Issue: Whether or not Section 1 of 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 January 1, 1997, the date when R.A. No. 8240 took effect,
until December 31, 1999; and the second is the period thereafter. During the 3-
year transition period, Section 143 provides that "the excise tax from any brand
of fermented liquor...shall not be lower than the tax which was due from each
brand on October 1, 1996." After the transitory period, Section 143 provides
that the excise tax rate shall be the figures provided under paragraphs (a), (b)
and (c) of Section 143 but increased by 12%, without regard to whether the
revenue collection starting January 1, 2000 may turn out to be lower than that
collected prior to said date. Revenue Regulations 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 January 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 January 1, 2000, such interpretation is clearly an invalid exercise of the power
of the Secretary of Finance to interpret tax laws and to promulgate rules and
regulations necessary for the effective enforcement of the Tax Reform Act of
1997.
G.R. No. 183553 November 12, 2012
DIAGEO PHILIPPINES, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Facts: Petitioner Diageo Philippines, Inc. (Diageo) is a domestic corporation
organized and existing under the laws of the Republic of Philippines and is
primarily 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.5 The purchase
price for the raw alcohol included, among others, the excise taxes paid by the
supplierin the total amount of P12,007,528.83. 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 Taxpayer’s 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 respondent Commissioner of Internal
Revenue (CIR) to act upon Diageo’s claims, the latter was constrained to timely
file a petition for review before the CTA. On December 27, 2005, the CIR filed
its Answer assailing Diageo’s 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. Subsequently, the CIR filed a motion to dismiss reiterating the same
issue
Issue: Does Diageo have the legal personality to file aclaim 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: No. 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. when the excise taxes paid by the supplier
were passed on to Diageo, what was shifted is not the tax per se but
anadditional 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. 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.
Commissioner of Internal Revenue v. Philippine Airlines
G.R. Nos. 212536-37
Tax Law
DOCTRINES: The phrase "in lieu of all other taxes" includes but is not
limited to taxes that are "directly due from or imposable upon the purchaser or
the seller, producer, manufacturer, or importer of said petroleum products but
are billed or passed on the grantee either as part of the price or cost thereof or
by mutual agreement or other arrangement."
If the state expects taxpayers to observe fairness and honesty in paying their
taxes, it must hold itself against the same standard in refunding erroneous
exactions and payment of such taxes.
FACTS:
PAL was granted under PD 1590 a franchise to operate air transport
services domestically and internationally. Under Section 13 of the franchise
PAL, during the lifetime of its franchise, shall pay the government either basic
corporate income tax or franchise tax based on revenues and/or the rate
defined in the provision, whichever is lower and the taxes thus paid under either
scheme shall be in lieu of all other taxes, duties and other fees. On January 1,
2005, RA 9334 took effect amending Sec. 131 of the 1997 National Internal
Revenue Code (NIRC) where imported products including cigarettes, distilled
spirits, fermented liquors and wines even if destined for tax and duty-free shops,
shall be subject to all applicable taxes, duties, charges, including excise taxes due
thereon. After being assessed for excise taxes on importation of cigarettes and
alcoholic drinks for its commissary supplies used in its international flights,
PAL, thereafter, filed separate administrative claims for refund before the BIR
for the alleged excise taxes it erroneously paid on said dates.
ISSUE:
Whether or not PAL’s claims for refund over excise tax on its importations of
alcohol and tobacco products for its commissary supplies should be granted.
Yes.
RULING:
The tax privilege of PAL provided in Sec. 13 of PD 1590 has not been revoked
by Sec. 131 of the NIRC of 1997, as amended by Sec. 6 of RA 9334. PD 1590
is a special law, which governs the franchise of PAL. Between the provisions
under PD 1590 as against the provisions under the NIRC of 1997, as amended
by 9334, which is a general law, the former necessary prevails. This is in
accordance with the rule that on a specific matter, the special law shall prevail
over the general law, which shall be resorted only to supply deficiencies in the
former. In addition, where there are two statutes, the earlier special and the later
general – the terms of the general broad enough to include the matter provided
for in the special – the fact that one is special and other general creates a
presumption that the special is considered as remaining an exception to the
general, one as a general law of the land and the other as the law of a particular
case.
Under its franchise, PAL’s payment of either the basic corporate income tax or
franchise tax, whichever is lower, PAL is exempt from paying: (a) taxes directly
due from or imposable upon it as the purchaser of the subject petroleum
products; and (b) the cost of the taxes billed or passed on to it by the seller,
producer, manufacturer, or importer of the said products either as part of the
purchase price or by mutual agreement or other arrangement. Thus, it is
endowed with the legal standing to file the subject tax refund claim,
notwithstanding the fact that it is not the statutory taxpayer as contemplated by
law. PAL has presented in context a clear statutory basis for its refund claim of
excise tax, a claim predicated on a statutory grant of exemption from that forced
exaction. It thus behooves the government to refund what it erroneously
collected. As held in CIR v. Fortune Tobacco Corporation, if the state expects
taxpayers to observe fairness and honesty in paying their taxes, it must hold
itself against the same standard in refunding erroneous exactions and payment
of such taxes.