GOMEZ
CASE NO. 181 in effect do indirectly what P.D. 31 would not like hotel room charges of foreign tourists to be
Senior Citizen Discount is a Tax Deduction not a Tax Credit
Mercury Drug Corporation v. Commissioner on Internal Revenue (CIR)
G.R. 164050, July 20, 2011
FACTS: Mercury, the petitioner, filed their income taxes taking the 20% sales discount from
Senior Citizens, under RA 7432, as tax deduction on their gross income.
Later, they realized that under said law, the 20% sales discount was actually a tax credit, thus,
creating an overpayment in their tax liability. They then applied for tax credit on the
overpayment with the CIR but the latter failed to act upon it.
ISSUE/S:Whether or not the 20% tax discount is a tax credit and not a tax deduction on gross
income.
RULING: NO. It is worthy to mention that RA 7432 had undergone two (2) amendments ;
first in 2003 by RA 9257 and most recently in 2010 by RA 9994. The 20% sales discount
granted by establishments to qualified senior citizens is now treated as tax deduction and
not as tax credit.
Based on the foregoing, we sustain petitioner’s argument that the cost of discount should be
computed on the actual amount of the discount extended to senior citizens. However, we give
full accord to the factual findings of the Court of Tax Appeals with respect to the actual
amount of the 20% sales discount.
AIRA
CASE NO. 182
Features of the income tax law
CIR vs. Tours Specialists, Inc. (TSI), 183 SCRA 402, March 21, 1990
FACTS: TSI, a local travel agency earning from its services offered to foreign tourists and
balikbayans, have an arrangement with some foreign tour agencies abroad wherein the foreign
tour agency will send money to TSI for the payment of the tourist’s hotel accommodation.
CIR assessed TSI for deficiency of 3% contractor’s tax as independent contractor by including
the entrusted hotel room charges in its gross receipts. TSI formally protested CIR’s assessment
because TSI only holds in trust the money for payment of hotel room; and that the reason why
tourists pay their room charge, or through their foreign tourists agencies, is the fact that the
room charge is exempt from hotel room tax under P.D. 31.
CIR contends that contractor’s tax is in the nature of an excise tax ; and collectible from the
person exercising the privilege to engage in business as a contractor; that while the burden
may be shifted to the person for whom the services are rendered by the contractor, the latter is
not relieved from payment of the tax.
ISSUE: Whether or not TSI may be compelled to pay the contractor’s tax.
RULING: NO. In context, direct taxes are those that are demanded from the very person who,
it is intended or desired, should pay them; while indirect taxes are those that are demanded in
the first instance from one person in the expectation and intention that he can shift the burden
to someone else.
If the hotel room charges entrusted to TSI will be subjected to 3% contractor’s tax, that would
subjected to hotel room tax.
Further, gross receipts subject to tax under the Tax Code do not include monies or receipts
entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer’s
benefit.
AR
CASE NO. 183
Direct Tax vs. Indirect Tax
CIR vs. PLDT 178 SCRA 61 (2005)
FACTS: PLDT is paying taxes amounting to 164M for equipment and machineries it
imported for its business and 116M for VAT for similar importations. It then sought a
confirmatory ruling on its tax exemption privileges under RA 7082 – the law granting its
franchise: it shall only pay 3% franchise tax on gross receipts in lieu of all taxes. Thus, it shall
also be exempted from VAT. CIR contends, however, that the phrase in lieu of all taxes only
referred to direct taxes, not to include indirect taxes.
ISSUE: Whether PLDT is exempt from paying indirect taxes such as VAT.
RULING: NO. One cannot invoke one’s exemption privilege to avoid the passing on or the
shifting of the VAT. It is important to determine if the tax exemption granted to a taxpayer
specifically includes the indirect tax, otherwise it is presumed that the tax exemption embraces
only direct taxes. Statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.
DIRECT TAXES are those that are exacted from the very person who, it is intended or
desired, should pay them; they are impositions for which a taxpayer is directly liable on the
transaction or business he is engaged in.
INDIRECT TAXESare those that are demanded, in the first instance, from, or are paid by,
one person in the expectation and intention that he can shift the burden to someone else. When
the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to
pay it, to the purchaser as part of the price of goods sold or services rendered.
PASTOR
Case No. 184
Direct Tax distinguished from Indirect Tax
Maceda v. Macaraig, 197 SCRA 771 (1991)
FACTS: Under the latest amendment to the NAPOCOR charter by PD 938, the exemption of
NAPOCOR from indirect taxation was revoked and repealed.
Prior to PD 938, NPC enjoys exemption from all taxes imposed directly or indirectly under
PD 380.
Petitioners were arguing that the exemption from indirect taxes was withdrawn in PD 938
(1976) by the deletion of the phrases “directly or indirectly”. Petitioner further states that the
exemption of NAPOCOR provided PD 938 regarding the payments of “all forms of taxes,
etc.” cannot be interpreted to include indirect tax exemption.
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ISSUE: Whether or not NPC has ceased to enjoy indirect tax and duty exemption with the
enactment of P.D. No. 938.
RULING: NO. It is still exempt.
PD 938 amended the tax exemption by simplifying the same law in general terms. It
succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs and
service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings."
NAPOCOR is a non-profit public corporation created for the general good and welfare, and
wholly owned by the government of the PH.
A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in. On the other hand, “indirect taxes are taxes primarily paid by persons who can
shift the burden upon someone else.”
AYEH
CASE NO. 185
CITIZENS
Calderon v CIR
FACTS: CIR issued RM Circular which provides that the officers and staff of the ADB who
Filipinos are subject to pertinent PH income taxes.
The Filipino ADB Employees argue that they are excused from paying income taxes in line
with the general tax-exemption provisions found in ADB Charter.
ISSUE: WON the resident citizens working for ADB are taxable on their income.
RULING: YES. NIRC –A citizen of the Philippines residing therein is taxable on all income
derived from sources within and without the Philippines.
However, petitioners were granted by the CTA their claim for refund of the erroneously ad
illegally paid income tax for the taxable year 2012 on the ground that the retroactive effect
application of the RMC prior runs counter to the principle of fair play and substantial justice.
MACY
Case No 186
Chapter IV Kinds of Tax Payers- Alien
Garrison v CA and Republic 187 SCRA 525 1990
FACTS: Petitioners are US Citizens who entered the country through the PH Immigration Act
of 1940 and are employed in the US Naval Base in Olongapo City. BIR sent notices to
Petitioners and claimed that they were resident aliens and required to file their ITR.
Petitioners refused stating that they were not resident aliens but only special temporary
visitors. They also claimed exemption by virtue of the RP-US Military Bases Agreement: a
“national of the US serving in or employed in the PH and reside in the PH by reason only of
such employment” is only liable for tax on Philippine sources of income.
ISSUE: WON Petitioners are exempted from paying Income tax
RULING: YES. Notwithstanding the fact that the Petitioners are resident aliens who are
generally taxable, their class is nonetheless exempt from paying taxes on income derived
from their employment in the naval base by virtue of the RP-US Military bases
agreement.
RESIDENCE: what the law requires is merely physical or bodily presence in a given place
for a period of time, not the intention to make it a permanent place of abode
Eloise
Case No. 187 | CIR v. Visayan Electric Co. | Estate and Trusts
Facts: Visayan Electric established a pension fund for the benefit of employees in the event
of a retirement, accident, and disability. An amount is set aside and is taken from the gross
operating receipts of the company. This reserve fund was later invested by the company in
stocks of San Miguel Brewery, Inc. for which dividends have been regularly received but
these dividends were not declared for tax purposes.
The Auditor General informed them that the dividends are not tax exempt. CIR then
assessed deficiency income tax
Issue: Whether the pension fund or trust fund as in this case qualifies for tax exemption
Ruling: NO. The non-diversion of fund in the Tax Code was written into the statute the better
to insure that the trust fund and its income will be used "for the exclusive benefit" of the
employees.
A trust device used to disguise added compensation to the shareholders and officers of a
company — and thereby avoid present payment of income tax thereon — instead of
providing for future security of the employees in general will not qualify under the exemption.
ANGELO
CASE NO. 188
Co-ownership Due to the Death of a Decedent; After Partition of Property
Oña v. CIR
FACTS: Julia Buñales died leaving as heirs her spouse, Lorenzo Oña and her 5 children.
Lorenzo submitted the project of partition, which was approved by the Court. The project of
partition shows that the heirs have undivided ½ interest in 10 parcels of land. However, no
attempt was made to divide the properties. Instead, the properties remained under the
management of Lorenzo who used said properties in business by leasing or selling them and
investing the income in real properties and securities.
ISSUE: Whether an unregistered partnership is formed for tax purposes.
RULING: YES. Should the co-owners invest the income of the in any income-producing
properties after the extrajudicial partition of the estate, they would be constituting themselves
into an unregistered partnership which is consequently subject to income tax as a corporation.
The co-ownership of inherited properties is automatically converted into an unregistered
partnership the moment the co-owners invest the income in any income-producing properties
ARZHY
CASE NO. 189
After Partition of Property
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 Lorenzo Oña et al v. CIR
SAME CASE: ISSUE: W/N petitioners have formed an unregistered partnership taxable as a
corporation
RULING: YES. For tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a common fund with intent
to produce profits for the heirs in proportion to their respective shares in the inheritance
as determined in a project partition either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or intestate proceeding.
COELI
CASE NO. 190
Isolated transactions of unimproved properties
PASCUAL V. CIR & CTA | 166 SCRA 560, 1988
FACTS: Petitioners bought 2 parcels of land and 1 year after, they bought another 3 parcels of
land. Petitioners subsequently sold the said lots and realized net profits.
RESPONDENT CIR: assessed and required Petitioners to pay the alleged deficiency
corporate income taxes. As co-owners in the real estate transactions, they formed an
unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its
income was subject to the taxes prescribed under Section 24, NIRC.
ISSUE/S: W/N the petitioners formed an unregistered partnership.
RULING/MP: NO. The Petitioners are simply under the regime of co-ownership and not
under unregistered partnership. The character of habituality peculiar to business transactions
for the purpose of gain must be present to consider them so.
Where the transactions are isolated, in the absence of other circumstances showing a contrary
intention, the case can only give rise to co-ownership. The sharing of returns does not in
itself establish a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property.
COELI
CASE NO. 191
Transfer of property from father to children
Obillos, Jr. v. CIR | 139 SCRA 436, 1985
FACTS: After completing payment on 2 lots, Obillos, SR., the father, transferred his rights to
his 4 children (petitioners) to enable them to build their residences.
After 1 year, the (petitioners) sold the lots at a profit. They treated the profit as a capital gain
and paid income tax on ½ thereof.
RESPONDENT CIR: required the 4 petitioners to pay corporate income tax in addition to
individual income tax on their shares thereof. CIR believed that the petitioners had formed an
unregistered partnership or joint venture.
ISSUE: W/N petitioners formed a partnership thus liable for corporate income tax.
RULING/MP: NO. The children had no intention of forming a partnership. The transaction
was isolated. Their original purpose was to divide the lots for residential purposes. The
division of the profit was merely incidental to the dissolution of the co-ownership, which was
temporary in nature.
The sharing of returns does not in itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property.
COELI
CASE NO. 192
Transfer of property from father to children
Pascual v CTA (should be CIR & CTA)
SAME CASE W/ CASE NO. 190. SAME MAIN POINT.
In Mamalateo, this case was cited in a bar q. No MP in the case regarding transfer from father
to children.
CHAM
Case No. 193
General Professional Partnership; Not a taxable entity for income tax purposes
Tan v. Del Rosario, p. 129
FACTS
The constitutionality Simplified Net Income Taxation Scheme ("SNIT"), amending certain
provisions of the NIRC and the validity of Section 6, Revenue Regulations promulgated by
CIR pursuant to the said law.
Petitioners argue that CIR have exceeded their rule-making authority in applying SNIT to
general professional partnerships,
which provides that in determining the net profit of the partnership, only the direct costs
mentioned in said law are to be deducted from partnership income. Also, the expenses paid or
incurred by partners in their individual capacities in the practice of their profession which are
not reimbursed or paid by the partnership but are not considered as direct cost, are not
deductible from his gross income.
ISSUE
W/N GPP may be taxed under SNIT
RULING/MAIN POINT: A general profession partnership is not considered as a taxable
entity for income tax purposes. The partners themselves, not the partnership, (although it is
still obliged to file an income tax return), are liable for the payment of income tax in their
individual capacity computed on their respective distributive shares of the partnership profit.
In the determination of tax liability, a partner does so as an individual, and there is
no choice on the matter. In fine, the GPP is deemed to be no more than a mere mechanism or
a flow-through entity in the generation of income by, and the ultimate mechanism
distribution of such income to, respectively, each of the individual partners.
CHAM
Case No. 194
General Professional Partnership; Share of partners in parternship profit is deemed
distributed to the partners in the year-end profit earned
Tan v. Del Rosario, p. 129
CHAM
Case No. 195
Domestic Corporation and Foreign Corporations; Doing business
CIR v. British Overseas Airways Corporation (BOAC), p. 135
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FACTS: BOAC is a 100% British GOCC, operates air transportation service and sells
transportation tickets over the routes of the other airline members.
CIR assessed BOAC the aggregate amount of P2.4M for deficiency income taxes. This was
paid by BOAC but the latter protested because the proceeds of sales of BOAC passage tickets
in the PH do not constitute BOAC’s income from PH sources since no service of carriage of
passengers or freight was performed by BOAC within the PH"
ISSUE: Whether or not BOAC is liable for the assessed amount income tax deficiency
RULING/MAIN POINT: Yes. For the source of income to be considered as coming from the
PH, it is sufficient that the income is derived from activity within the PH. In BOAC's case,
they,’’ sale of tickets in the Philippines is the activity that produces the income.
There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its peculiar environmental circumstances.
The term “doing business” implies a continuity of commercial dealings, and arrangements,
and contemplates, to that extent, the performance of acts and works or the exercise of some of
the functions normally incident to, and in progressive prosecution of commercial gain or for
the purpose of business organization. In order that a foreign corporation may be regarded as
doing business within a State, there must be a continuity of conduct and intention to
establish a continuous business, such as the appointment of a local agent, and not one of
temporary character.
CHAM
Case No. 196
Domestic Corporation and Foreign Corporations; Taxable Joint Ventures
Collector v. Batangas Transporation Co and Laguna Tayabas Bus Company, p.140
FACTS
Respondent companies are 2 distinct and separate corporations engaged in the business of land
transportation by means of motor buses.
After liberation from the American War, the two companies were placed under one sole
management. The purpose of the joint management, which was called, "Joint Emergency
Operation", was to economize in overhead expenses. At the end of each calendar year, all
gross receipts and expenses of both companies were determined and the net profits were
divided fifty-fifty, and transferred to the book of accounts of each company, and each
company "then prepared its own income tax return from this fifty per centum of the gross
receipts and expenditures, assets and liabilities thus transferred to it from the `Joint Emergency
Operation' and paid the corresponding income taxes thereon separately".
CIR: Joint Emergency Operation was a corporation distinct from the two respondent
companies, and so liable to income tax
ISSUE: Whether the 2 transportation companies are liable to the payment of income tax as a
corporation
RULING/MAIN POINT Yes.  Although no legal personality may have been created by the
Joint Emergency Operation, nevertheless, said Joint Emergency Operation is a joint venture,
or joint management operated the business affairs of the two companies as though they
constituted a single entity, company or partnership.
The two companies contributed money to a common fund to pay the sole general manager, the
accounts and office personnel attached to the office of said manager, as well as for the
maintenance and operation of a common maintenance and repair shop. Examples of a taxable
partnership include; (a)joint emergency operations of two bus companies
SHEENA
CASE NO. 197
Taxable Joint Ventures
Evangelista v. Collector, 102 Phil. 140 (1957)
FACTS:
Petitioners sisters borrowed sum of money from their father and together with their own
personal funds to buy several real properties. They then appointed their brother as manager of
the said properties with authority to sell, lease or rent out to third persons. They realized rental
income.
CIR demanded the payment of income tax on corporations, real estate dealer's fixed tax and
corporation residence tax.
Petitioners petitioned to be absolved from the payment of the taxes insisting that they are mere
co-owners, not copartners. CTA denied. Hence, this petition.
ISSUE: W/N petitioners have formed a partnership thus are subject to the tax on corporations
provided for in the NIRC.
RULING & MAINPOINT in bold: YES.
Leasing of 24 properties by 3 sisters to various tenants under common management for
15 years is a taxable partnership.
As defined under NIRC "the term corporation includes partnership, no matter how created or
organized." This indicates that a joint venture need not be undertaken in any of the standards
form, or conformity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for the purposes of the tax on corporations.
SHEENA
CASE NO. 198
Taxable Joint Ventures
Reyes v. CIR, 24 SCRA 198 (1968)
FACTS: Petitioners father and son purchased a lot and building which they continued the
leasing business of the previous owner for 15 years under the administration of a building
administrator. CIR assessed them income tax allegedly arising “from the partnership formed”
by the petitioners.
Petitioners insisted that they could not be considered as a partnership as their intention was not
to engage in rental business but divide and use the building to house their own enterprises..
ISSUE: W/N petitioners acquired the personality of a partnership for them to be subjected to
income tax for corporations and partnerships under the NIRC.
RULING & MAINPOINT in bold: YES. Leasing by father and son of lot and building to
tenants under administration by a building administrator is a taxable partnership.
The NIRC is clear and equivocal in its provisions that except for those duly registered as
general partnerships, a partnership, “no matter how created or organized” is similarly taxed as
a corporation.
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SHEENA
CASE NO. 199
Taxable Joint Ventures
AFISCO Insurance Corporation v. CA, G.R. No. L-112675, January 25, 1999
FACTS: Petitioners machinery insurers (41 non-life domestic insurance corporations) entered
into reinsurance treaties with the Munich Insurance Corp. The reinsurance treaties required
petitioners to form a pool, which they complied with. Petitioners submitted a financial
statement and filed for exemption from Income Tax.
CIR assessed them deficiency and withholding taxes.
ISSUE: W/N a pool of machinery insurers was a partnership taxable as a corporation.
RULING: YES. An insurance pool or clearing house, composed of 41 non-life insurance
corporations, for the purpose of allocating and distributing the risks is a taxable
partnership.
The NIRC is clear and equivocal in its provisions that except for those duly registered as
general partnerships, a partnership, “no matter how created or organized” is similarly taxed as
a corporation.
RYLE
CASE NO. 200
Resident Foreign Corporation
Philippine branch is merely an Extension of the Foreign Head Office
Marubeni v. CIR
FACTS: Marubeni Corporation is a Japanese corporation, with a branch in PH, and is licensed
to engage in business in the PH.
When the profits on Marubeni’s investments were declared, a final 10% withholding tax were
paid to the BIR. Marubeni now claims for a refund or tax credit for the amount which it has
allegedly overpaid the BIR.
ISSUE/S: W/N Marubeni Corporation is a resident or non-resident foreign corporation.
RULING: Marubeni Corporation is a non-resident foreign corporation, with respect to the
transaction. Marubeni Corporation’s head office in Japan is a separate and distinct income
taxpayer from the branch in the PH. The investment was made for purposes peculiarly
germane to the conduct of the corporate affairs of Marubeni Corporation in Japan, but
certainly not of the branch in the Philippines.
MP:
GR: the head office of a foreign corporation is the same juridical entity as its branch in the PH
following the "single entity concept." The income from sources within the Philippines of the
foreign head office shall thus be taxable to the Philippine branch.
XPN: But when the head office of a foreign corporation independently and directly
invested in a domestic corporation without the funds passing through its PH branch,
the taxpayer with respect to the tax on dividend income would be the foreign
corporation itself and the income shall be subject to the tax similarly imposed on
non-resident foreign corporations.
RYLE
CASE NO. 201
Resident Foreign Corporation
CIR v. Marubeni
FACTS: Marubeni had undeclared income from contracts with NDC and Philphos for
construction of a wharf/port complex and ammonia storage complex respectively.
CIR: claimed that the income respondent derived were income from Philippine sources, hence
subject to internal revenue taxes.
ISSUE/S: W/N Marubeni is exempted from paying tax
RULING: Yes. While the construction and installation work were completed within the
Philippines; hence, subject to tax in the Philippines, the evidence is clear that some pieces of
equipment and supplies were completely designed and engineered in Japan. They were already
finished products when shipped to the PH.
All services for the design, fabrication, engineering and manufacture of the materials
and equipment under Japanese Portion Yen I were made and completed in Japan. These
services were rendered outside the taxing jurisdiction of the Philippines and are
therefore not subject to tax.
MAINPOINT (in bold)
RYLE
CASE NO. 202
Resident Foreign Corporation
Philippine branch is merely an Extension of the Foreign Head Office
Marubeni v. CIR
FACTS: Petitioner entered into reinsurance contracts with foreign insurance companies not
doing business in the Philippines. Philippine Guaranty Co., Inc. Ceded (yielded) to the foreign
reinsurers the premiums, which were excluded by it from its gross income when it filed its
ITRs.
CIR assessed Philippine Guaranty Co against withholding tax on the ceded reinsurance
premiums.
Philippine Guaranty protested bec the premiums did not constitute income from sources within
the PH because the foreign reinsurers did not engage in business in the PH.
ISSUE/S: W/N insurance companies required to withhold tax on reinsurance premiums ceded
to foreign insurance companies.
RULING: Yes. The reinsurance premiums were income created from the undertaking of the
foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc. against liability for
loss under original insurances. Such undertaking took place in the PH. These insurance
premiums therefore came from sources within the PH and, hence, are subject to corporate
income tax.
5
MAINPOINT The foreign insurers' place of business should not be confused with their place
of activity. Business should not be continuity and progression of transactions while activity
may consist of only a single transaction. An activity may occur outside the place of business.

Section 24 of the Tax Code does not require a foreign corporation to engage in business in the
Philippines in subjecting its income to tax. It suffices that the activity creating the income is
performed or done in the Philippines. What is controlling, therefore, is not the place of
business but the place of activity that created an income.