taxation} notes by topic based on 1999-2001 cases} made 2003} by su

8/12/2019 Taxation} Notes by Topic Based on 1999-2001 Cases} Made 2003} by SU

1/21

Silliman University College of Law Taxation Law Cases, New Features, ETC.

BarOps !!" # $en Law with a Conscience page % of %

&. &NCO'E T()

(fis*o &nsuran*e Corporation vs. Court of (ppeals, +an. , %---, angani/an, +.

0uestion: 41 non-life insurance corporations organized and existing under the laws of thePhilippines organized a pool of machinery insurers for the purpose of entering into a reinsurance

treaty (Quota Share Reinsurance reaty and a Surplus Reinsurance reaty! with a "erman firm#ased in $unich% a non-resident foreign insurance corporation&

'n pril 14% 1)*+ the pool su#mitted a financial statement and filed an information

return as an organization exempt from income tax for the year ending 1)*,& he .R assessed

the pool deficiency corporate income tax of P1&/ million and withholding tax of P1&* million on

pool di0idends paid to the "erman firm and P/) thousand on pool di0idends paid to mem#ers&

he insurance pool raises the following defenses why no deficiency taxes #e imposed on

them:

1! the pool is not formed as an unregistered partnership maing it taxa#le as a

corporation2

3! dou#le taxation

! prescription on the right of go0ernment to collect

Rule on the issues&

(nswer1

1& he pool is an association taxa#le lie a corporation pursuant to Section 34 (nowSec& 34(! of the 5.R6 of 1))*!& he ax 6ode has included under the term 7corporation8

partnerships% no matter how created or organized% 9oint-stoc companies% 9oint accounts (cuentas

en participacion!% association or insurance companies&

he term partnership includes a syndicate% group% pool% 9oint 0enture or other

unincorporated organization% through or #y means of which any #usiness% financial operation% or

0enture is carried on& (0angelista 0s& 6ollector!

he pool entered into #y the insurers is an association considered under the ax 6ode as

a partnership or association treated lie a corporation as it handles all the insurance #usinesses

co0ered under the reinsurance treaty with the "erman firm& (;omondon!

(not2er answer: rticle 1*+* of the 6i0il 6ode recognizes the creation of a contract of

partnership when indicated therein its 7present address8 is not sufficient compliance

with the legal re?uirement& (;omondon!

Banas, +r. vs. C( , Fe/. %!, !!!

0uestion1 seller sold on installment his land to the #uyer who executed promissory notesto co0er the installments& 'n the same day of the sale% the seller discounted the said notes from

the #uyer himself and got the proceeds thereof& .s the seller allowed to report his income under

the installment method@


2/21


BarOps !!" # $en Law with a Conscience page of %

(nswer1 5o& s a rule% the sale of real property may #e reported #y installment pro0ided

the initial payment does not exceed 3,A of the selling price& .nitial payment co0ers all payments

recei0ed in the year of sale& .n the case at #ar% although the proceeds of the discounted

promissory notes are not considered initial payment% still it must #e included as taxa#le incomeon the year it was con0erted into cash& (6o Bntian!

y 0irtue of the discounting% made on the same date as the sale% the seller lost his

entitlement to report the sale as a sale on installment since taxa#le disposition resulted therefrom&

Filipinas Synt2eti* Fi/er Corporation vs. C(, O*to/er %, %---, urisima, +.

0uestion: Chen is the proper time of withholding of a tax on income reported #y the earner

on the accrual #asis@

(nswer: he tax shall #e withheld at the time when the income is reported #y the payee

#ecause it is at this time where all the e0ents ha0e occurred that fix the taxpayers right to recei0e

the income% and the amount thereof at this precise moment can #e determined with reasona#le

certainty& hus% it is the right to recei0e income% and not the actual receipt% that determines whento include the amount in gross income& .t is at this time that the withholding of taxes at sources

shall #e made #y the payor& (#ella!

0uestion1 Chat is meant #y the accrual method of accounting@

(nswer1 .ncome is reporta#le when all the e0ents ha0e occurred that fix the taxpayer8s

right to recei0e the income% and the amount can #e determined with reasona#le accuracy& hus% it

is the right to recei0e income% and not the actual receipt% that determines when to include the

amount in gross income&

6onse?uently% the following are the re?uisites:

1! that the right to recei0e the income must #e 0alid% unconditional and enforcea#le%

i&e&% not contingent upon future time23! the amount must #e reasona#ly suscepti#le of accurate estimate2 and

! there must #e a reasona#le expectation that the amount will #e paid in due

course& (;omondon!

C&3 vs. 4'C( 5%--67

0uestion1 re the rentals recei0ed #y D$6 from the lease of its properties to small shop

operators (such as restaurants and canteens! and paring fees collected from nonmem#ers on its

0acant lot su#9ect to income tax@

(nswer1 Des& he rentals and paring fees are su#9ect to income tax& Sec& > of the ax

6ode mandates that >> shares witha par 0alue of P1>> per share&

Su#se?uently% First 66 6apital% has #ecome insol0ent& 6hina aning treated the

in0estment in its 1)/* .ncome ax Return as a /a$ $e/t or as an or$inary lossdeducti#le from

its gross income& he .R disallowed the deduction #ecause the in0estment should not #eclassified as


3/21


BarOps !!" # $en Law with a Conscience page " of %

(nswer1 Des& he .R was correct& he e?uity in0estment is capital in character% the loss

of which could #e deducti#le only from capital gains% and not from any other income of the

taxpayer&

First 66 6apital (sia! Gtd% the in0estee corporation% is a su#sidiary corporation of6hina aning whose shares in said in0estee corporation are not intended for purchase or sale #ut

an in0estment&

capital in0estment is a capital% not ordinary asset of the in0estor& he sale or exchange

of which results in either capital gain or a capital loss& Chen securities #ecome worthless there is

strictly no sale or exchange% #ut the law deems the loss anyway to #e


4/21


BarOps !!" # $en Law with a Conscience page < of %

(nswer1 0ery corporation formed or a0ailed for the purpose of a0oiding income tax with

respect to its shareholders or the shareholders of another corporation% #y permitting earnings and

profits to accumulate instead of #eing di0idend or distri#uted&

he . shall 5' apply to (1! pu#licly held corporation (3! #ans and other

non#an financial intermediaries2 and (! insurance companies& (Sec& 3) (!(3!! (;omondon!

0uestion1 Chat facts may show the purpose of a0oiding tax upon shareholders@

(nswer1 he fact that the earnings or profits of a corporation are permitted to accumulate

#eyond the reasona#le needs of the #usiness shall #e determinati0e of the purpose to a0oid the tax

upon its mem#ers unless the corporation% #y clear preponderance of e0idence% shall pro0e the

contrary& (Sec& 3)(6!(3!!

0uestion1 Chat is meant #y reasona#le needs of #usiness for . purposes@

(nswer1 Reasona#le needs of the #usiness includes the reasona#ly anticipated

(immediate! needs of the #usiness& (Sec& 3) (!!

.n order to determine whether profits are accumulated for the reasona#le needs of the

#usiness to a0oid the surtax upon shareholders% it must #e shown that the controlling intention of

the taxpayer is manifested at the time of the accumulation% not intentions declared su#se?uently%which are mere afterthoughts& Furthermore% the accumulated profits must #e used within a

reasona#le time after the close of the taxa#le year& (;omondon!

0uestion1 Chat are the tests to determine whether or not the accumulation of profits is

proper@

(nswer1 he tests to determine whether accumulation is 9ustified are:

1! &mme$ia*y test # 3ule ? he ratio of current assets to current lia#ilities (current ratio! and

the adoption of industry standard& he ratio of current assets to current lia#ilities is

used to determine the sufficiency of woring capital&

.deally% the woring capital should e?ual the current lia#ilities and there must

#e 3 units of current assets for e0ery unit of current lia#ility% hence the so-called # llows the retention as woring capital reser0e% sufficient

amounts to li?uid assets to carry the company through one operating cycle& .t applies

to companies with short operating cycles&

he formula re?uires an examination of whether the taxpayer has sufficient

li?uid assets to pay all its current lia#ilities and any extraordinary expenses

reasona#ly anticipated% plus enough to operate the #usiness in one operating cycle&

Operating *y*le is the period of time it taes to con0ert cash into raw

materials% raw materials into in0entory% and in0entory into sales% including the timeto collect payment for the sales& (;omondon!

0uestion1 Chat is the ;ol*on$a 3ulingin relation to the application of .@

(nswer1 his is an merican case where the 5inth 6ircuit 6ourt of ppeals ruled that

accumulated earnings tax would only apply to *losely 2el$ *orporations& his is the rule

followed under the 1))* 5.R6& (den!


5/21



0uestion1 Chat are two usual defenses of taxpayers in . cases@

(nswer1 hat (1! it is a pu#licly held corporation and (3! it did not declare di0idends in

order to use the accumulated earnings as woring capital reser0e to meet reasona#le needs of the#usiness& (den!

0uestion1 6yanamid raised the a#o0e two defenses to refute the assessment of surplus tax

on it& 6yanamid stressed that it used the


6/21


BarOps !!" # $en Law with a Conscience page A of %

5et operating losses incurred in a taxa#le year during which the taxpayer was exempt

from income tax *annot /e *arrie$o0er to the succeeding taxa#le years&

5et operating losses incurred #y oard of .n0estment ('.!-registered enterprises from

registered acti0ities are not allowed as 5olco deduction from gross income deri0ed from

unregistered #usiness acti0ities&

5et operating loss incurred in a taxa#le year may #e carried o0er only in the next

succeeding three taxa#le years&

5olco shall #e utilized on a Kfirst in% first outK #asis&

5olco is not transfera#le to another taxpayer% except in the following instances:

'erger of two or more *orporations.

he 5olco of the a#sor#ed corporation may #e transferred or assigned to the sur0i0ing

corporation% if the stocholders of the a#sor#ed corporation gain control (*, percent or more! of

the sur0i0ing corporation&

Consoli$ation of two or more *orporations.

he 5olco of any one of the constituent corporations may #e transferred or assigned tothe consolidated corporation if the stocholders gain control (*, percent or more! of the

consolidated corporation&

Com/ination of two or more taxpayers.

he 5olco of any one of the constituent taxpayers may #e transferred or assigned to the

com#ined entity if the same constituent taxpayer gains control (*, percent or more! of the

com#ined entity&

5olco shall #e allowed as a deduction from the gross income of the same taxpayer thatsustained and accumulated it regardless of the change in ownership& .n case of merger% the

sur0i0ing entity is allowed to utilize the 5olco that it accumulated prior to the merger&

ll taxpayers su#9ect to normal income tax or preferential tax rates under the ax 6odeon their taxa#le income are allowed to claim deduction of the 5olco% except the following:

L .ndi0iduals earning purely compensation income2

L 5on-resident alien indi0iduals not engaged in trade or #usiness within the Philippines2L 5on-resident foreign corporations2

L 'ffshore #aning unit ('B! of a foreign #aning corporation2

L Foreign currency deposit unit (F6;B! of a domestic or foreign #aning corporation2

L nterprises registered with the '. with respect to its '.-registered acti0ity en9oying theincome tax holiday2

L nterprises registered with the Philippine conomic Mone uthority (Peza! pursuant to Repu#lic

ct 5o& *)1+% as amended% with respect to its Peza-registered #usiness acti0ity2

L nterprises registered under the ases 6on0ersion and ;e0elopment ct of 1))3% e&g&% Su#ic

ay $etropolitan uthority-registered enterprises% with respect to its registered #usiness acti0ity2

L Foreign corporations engaged in international shipping or air carriage #usiness in the

Philippines2 and

L ny person% natural or 9uridical% en9oying exemption from income tax pursuant to the pro0isions

of the ax 6ode or any special law with respect to its operation during the period for which theaforesaid exemption is applica#le&

.ts accumulated net operating losses incurred or sustained during the said period shall not

?ualify for purposes of the 5olco&

n in$ivi$ualengaged in trade or #usiness or in the exercise of profession who claimsthe 1> percent optional standard deduction shall not simultaneouslyclaim deduction of 5olco&


7/21



For mines other than oil and gas wells% a net operating loss without the #enefit of

incenti0es pro0ided for under the 'mni#us .n0estment 6ode of 1)/*% as amended% incurred in the

first 1> years of operation may #e carried o0er as a deduction from taxa#le income for the next

fi0e taxa#le years following the loss&

5olco shall #e allowed as deduction in computing the taxpayer8s income taxes per

?uarterly and annual final ad9ustment returns&

he 5olco shall #e separately shown in the taxpayer8s income tax return& T2e unuse$

Nol*o s2all /e presente$ in t2e Notes to t2e Finan*ial Statementsshowing% in detail% the

taxa#le year in which the net operating loss was incurred and the amount claimed as 5olco

deduction&

Failure to comply with this re?uirement will dis?ualify the taxpayer from claiming the

5olco&

&@. '&N&'U' CO3O3(TE &NCO'E T() 5'C&T7

'ne type of income tax that companies may pay is the $inimum 6orporate .ncome ax%

or $6.% which was imposed starting Jan& 1% 1))/&

he rules and regulations go0erning $6. are Se*tions 5E7 an$ 65(757of the ax

6ode% 3evenue 3egulations 5337 No. -?-6 $ate$ (ug. , %--6 and the recently issued

3evenue 'emoran$um Cir*ular No.


8/21


BarOps !!" # $en Law with a Conscience page 6 of %

he amount of income tax paid% if any% #y the company in the first to the third ?uarters

during the taxa#le year may #e deducted from the amount of $6. due in the same taxa#le year&

he amount of credita#le withholding tax withheld from income payments made to the company

in the same period may also #e deducted from the amount of $6. paya#le&

'C&T is $etermine$ /y multiplying t2e gross in*ome /y two per*ent 5D7 & he tax

#ase in computing for $6. is the gross income% which is specifically defined in the ax 6ode

and the pertinent regulations and circulars&

ased on the $6. regulations% Kgross incomeK for sale of goods means gross sales less

sales returns% discounts and allowances and cost of goods sold& K"ross salesK shall include only

sales contri#utory to income taxa#le under Se*tion 5(7 of t2e Tax Co$e&

K6ost of goods soldK shall include all #usiness expenses directly incurred to produce the

merchandise to #ring them to their present location and use&

Passi0e incomes that ha0e #een su#9ect to a final tax at source shall 5' form part of

gross income for purposes of the $6.& .nterest on Philippine #an deposits and di0idends

recei0ed from another domestic corporation% are examples of passi0e income that are su#9ect to

final tax&

3egulations

he $6. regulations defined Kcost of goods soldK for each type of #usiness operations&

For a tra$ing or mer*2an$ising *on*ern% Kcost of goods soldK means the in0oice cost of the

goods sold% plus import duties% freight in transporting the goods to the place where the goods are

actually sold% including insurance while the goods are in transit&

.n one of its rulings% the .R mentioned that the cost composition of Kcost of goods soldK

includes only those items that are direct and incidental to the ac?uisition of the merchandise

intended for resale& .t therefore excludes items of expenses that the company may incur when it

sells the merchandise&

Cost of goo$s sol$

he .R further stated that the latter should form part of the companyNs operating oradministrati0e o0erhead that are liewise necessary in the #usiness operation& 6on0ersely% these

costs do not form part of the Kcost of goods sold&K

For a manufa*turing *on*ern% Kcost of goods manufactured and soldK means all costs of

production of finished goods% such as raw materials used% direct la#or and manufacturing

o0erhead% freight cost% insurance premiums and other costs incurred to #ring the raw materials to

the factory or warehouse&

.n the case of sales of servi*es% the term Kgross incomeK generally means gross receipts

less sales returns% allowances% discounts and cost of ser0ices& he term Kgross receiptsK forpurposes of this tax% means the amounts actually or constructi0ely recei0ed during the taxa#le

year&

Pro0ided% that for taxpayers employing the accrual #asis of accounting% the term KgrossreceiptsK shall mean amounts earned as gross income& 'n the other hand% Kcost of ser0icesK

generally means all direct costs and expenses necessarily incurred to pro0ide the ser0ices re?uired

#y the customers and clients&

Cre$iting payments

his circular should ser0e as a reference to determine the income and allowa#le expense

or cost items for purposes of computing the $6. of these sellers of ser0ices&

he go0ernment allows as deduction against R6.% to a certain extent and su#9ect to

limitation% the amount of $6. paid& ny excess of the $6. o0er the normal income tax as

computed under Se*tion 5(7 of t2e Tax Co$eduring the taxa#le year shall #e carried forwardon an annual #asis and credited against the normal income tax for the three immediately

succeeding taxa#le years&Please note that the excess $6. in a gi0en taxa#le year may only#e utilized when the

amount of R6. in any year during the next three taxa#le years is 2ig2er t2anthe amount of

$6. in the same year&

.n other words% the excess $6. may only #e credited against the R6. that may #epaya#le in the next three years& he excess $6. *annot#e credited against the $6. that may

#e due during this three-year period&


9/21


BarOps !!" # $en Law with a Conscience page - of %

.n the example cited earlier% the ,>%>>>-peso excess $6. o0er the normal income tax in

taxa#le year 3>>3 may #e used as credit against the income tax due in taxa#le years 3>> to 3>>,

#ut only when the amount of R6. in any year during this period exceeds the amount of $6. in

the same year&

hus% assuming that in taxa#le year 3>>% the amount of $6. is again higher than the

R6. amount% the ,>%>>>-peso excess $6. in taxa#le year 3>>3 cannot #e used as credit

against the amount of $6. paya#le in year 3>>&

3elief

$oreo0er% under certain conditions% relief from the payment of $6. may also #e

granted&

he secretary of finance% upon recommendation of the .R commissioner% may suspen$imposition of the $6. upon su#mission of proof #y the applicant-corporation% duly 0erified #y

the 6ommissionerNs authorized representati0e% that the corporation (1! sustained su#stantial losses

on account of a prolonged la#or dispute or #ecause of (3! Kforce ma9eureK or (! #ecause of

legitimate #usiness re0erses&

here ha0e #een 0arious instances in which the .R chief suspended the payment of

$6. to 0arious companies that sustained significant losses #rought a#out #y these conditions&

.t is therefore ad0isa#le for companies who may ?ualify for such relief to as the

authorities for suspension of the $6. as early as possi#le so that a ruling can #e issued #efore

the deadline for filing the annual income tax return&

he grant of such tax relief will indeed result in sa0ings of the much-needed funds of

companies&

@. 'OST F(@O3E: N(T&ON CL(USE 5'FN CL(USE7

B5;R the 2ilippine?US Tax Treaty, (rti*le %" 5/75iii7it is pro0ided that in case of

royalties arising from Philippine sources% the tax imposed #y the Philippines shall #e K the lowestrate of Philippine tax that may be imposed on royalties of the same kind paid under

similar circumstances to a resident of a third State &K ccordingly% a resident of the BS canin0oe this pro0ision and use the lowest tax rate of a country with which the Philippines has

concluded a treaty&

.n .R .; Ruling 5o& 1>3->3% dated $ay 3/% 3>>3, the .R held that the royalty

payments #y P% a domestic company% to 6% a non-resident foreign corporation existing under

the laws of the Bnited States% are su#9ect to the preferential tax rate of 1, percent pursuant to the

Kmost fa0ored nation clauseK of the Philippine-BS tax treaty% in relation to the 2ilippine?

Net2erlan$stax treaty&

Cithout in0oing the lower tax rate found in the 2ilippine?Net2erlan$stax treaty% the

applica#le tax rate on the royalty payments #y P to 6 would ha0e #een a higher rate of 3,percent of the gross amount of the royalties&

Commissioner of &nternal 3evenue vs. S.C. +o2nson Son, &n*., +une , %---, ;on9aga?

3eyes, +.

0uestion: ;iscuss the applica#ility of the 1>A withholding tax on royalties imposed under

the 3?est ;ermanyax reaty under the A withholding tax rate under the 3?est ;ermanyax reaty will

5' apply to payments of royalties to BS-ased corporations under the most fa0ored nation

clause of the RP-BS ax reaty on the ground that there is 5' $6H.5" O 6R;.pro0ision pro0ided therein as that in the RP-Cest "ermany ax reaty&

Hence% the circumstances as to the tax payments are not similar w2i*2 is a *on$ition

for most favore$ nation *lause to apply& .n fine% the phrase


10/21


BarOps !!" # $en Law with a Conscience page %! of %

(not2er answer: he entitlement of the 1>>A rate #y the B&S& Firms despite the a#sence

of a matching credit (3>A for royalties! would derogate from the design #ehind the most fa0ored

nation clause to grant e?uality of international treatment since the tax #urden laid upon the

income of the in0estor is not the same in the two countries& he similarity in the circumstances of

payment of taxes is a condition for the en9oyment of the most fa0ored nation treatment preciselyto underscore the need for e?uality of treatment& (;omondon!

0uestion1 2at is t2e p2ilosop2y /e2in$ t2e a$option of t2e most favore$ nation

5'FN7 *lauseG

(nswer: he intention should #e considered in the light of the purpose #ehind the $F5

clause which is to grant to the contracting party treatment not less fa0ora#le than which has #een

or may #e granted to the 7most fa0ored8 among other countries&

he $F5 is intended to esta#lish the principle of e?uality of international treatment #y

pro0iding that the citizens or su#9ects of the contracting nations may en9oy pri0ileges accorded #y

either party to those of the most fa0ored nation&

he essence of the principle is to allow the taxpayer in one state to a0ail of more li#eralpro0isions granted in another tax treaty to which the country of residence of such taxpayer is also

a party pro0ided that the su#9ect matter of taxation is the same as that in the tax treaty under

which the taxpayer is lia#le& (;omondon!

@&. T() S(3&N; 3ULE

HR are instances when countries offer tax #enefits to encourage economic

de0elopment& .n such cases% when the tax credit method is applied to these items of income% such

incenti0es are siphoned off #y the state of residence since% in effect% the tax #enefits are cancelled

out&

For example% a particular income is made exempt #y special measures in the state of

source& .f the tax credit method is applied #y the state of residence% there is no more tax to credit

since the income that was pre0iously su#9ect to tax in the state of source is now exempt&

his pro#lem has #een addressed #y the tax sparing provisionincorporated in some tax

treaties& T2is provision states t2at t2e state of resi$en*e allows as *re$it, t2e amount t2atwoul$ 2ave /een pai$, as if no re$u*tion 2as /een ma$e&

his way% the state of residence gi0es recognition to the special incenti0es measures of

the state of source&

@&&. T() #F3EE E)CH(N;E

0uestion1 Chat is the so-called O-FR O6H5"@

(nswer1 s a general rule% upon the sale or exchange of property% the entire amount of

gain or loss% as the case may #e% shall #e recognized&

here may howe0er% #e called tax?free ex*2anges& here are two instances under theax 6ode&

he first in0ol0es a plan of merger or *onsoli$ationwhere: (ax free merger!

a! a corporation which is a party to a merger or consolidation ex*2anges propertysolely for sto*8in a corporation which is% a party to the merger or consolidation%

#! a shareholder ex*2anges sto*8in a corporation which is a party to the merger or

consolidation solely for t2e sto*8 in another corporation also a party to the

merger or consolidation or

c! a security holder of a corporation which is a party to the merger or consolidation

ex*2anges his securities in such corporation solely for sto*8s in another

corporation% a party to the merger or consolidation&


11/21


BarOps !!" # $en Law with a Conscience page %% of %

he second form occurs when: (ax free exchange of property!

a! if property is transferred to a corporation #y a person in ex*2angefor sto*8 in

such corporation 2

#! resulting of that exchange% said person% alone or together with others 5'exceeding four (4! persons% gains *ontrol 5%D of all voting sto*8s7 of said

corporation2c! pro0ided that stocs issued for ser0ices shall not #e considered as issued in return

of property& (den!

he tax conse?uences of a tax-free exchange are that% 1! 5' income tax shall #e

recognized in the transaction whether or not gain or loss resulted in the transfer2 3! 5'

shall #e paid2 ! 5' donor8s tax shall also #e paid as there was no intent to donate 4! ut the

documentary stamp taxes shall #e paid on the transaction&

@&&. SE3@&CES @S. 3O4(LT&ES

.n B&3 3uling No. ?!!! $ate$ Nov. , !!!% the .R made a ruling% thus:

.n this ruling% 6ompany 6-Philippines was a domestic company primarily engaged in

the licensing% implementation and maintenance of computer software in the domestic and foreign

marets& .t was licensed #y a company in the Bnited ingdom (B 6o&! to distri#ute% support and

use in the Philippines% licensed systems% owned #y B 6o&% consisting of computer software for

#ans% including #asic and related materials and incidental ser0ices&

6-Philippines will 5' ac?uire any proprietary rights of whate0er ind in or o0er the

licensed systems except to distri#ute% support and use the same within the Philippines& 6-

Philippines pays royalties to B 6o&

s its principal and main acti0ity% 6-Philippines distri#utes the licensed systems #y

entering into licensing agreements as well as consultancy% supplementary license and ser0ices

agreement with its Philippine clients& he licensing agreements grant Philippine clients% the non-

exclusi0e right to use the licensed system or a modified form of the system for internal #usinesspurposes only&

he ser0ices agreement% on the other hand% pro0ides for technical ser0ices to #e

performed #y 6-Philippines personnel to its Philippine clients in support of the licensed

system& 6-Philippines recei0es fees in consideration for the rights granted and the supportser0ices&

he .R ruled that to #e su#9ect to the 3>-percent final withholding tax% the royalties

must #e in the nature of passive in*ome&

Since the income deri0ed #y 6-Philippines from the distri#ution of the Gicensed

6omputer Systems to its Philippine clients and the performance of support ser0ices is in*ome

generate$ in t2e a*tive pursuit an$ performan*e of its primary purpose % the same is clearly

5' passi0e income su#9ect to the 3>-percent final tax&

Such #eing the case% the payments recei0ed #y 6-Philippines from the acti0e conduct

of trade or #usiness are considered or$inary /usinessincome su#9ect to the percent (now 3!

regular corporate income tax&

.n the more recent B&3 3uling :(?%6?!! $ate$ O*t. %A, !! % 6ompany ODM% a

domestic company was primarily engaged in su#licensing to third parties% the use of copyrightsrelating to ;isney characters and materials in 0arious promotion and merchandising acti0ities& .t

also pro0ides ad0ertising% promotions and other ser0ices to su#-licensees to enhance the 0alue of

the licensed materials& .t was licensed #y ;isney nterprises% a BS resident% to su#license%

support% promote and protect ;isney characters and trademars owned #y the BS 6ompany& ODM

will 5' ac?uire any proprietary rights o0er the ;isney characters except to distri#ute% support

and use them in the Philippines&


12/21



ODM pays royalties to the BS 6ompany& ODM su#licenses to third parties the right to use

;isney trademars and characters #y entering into license agreements& hese license agreements

also grant clients the non-exclusi0e right to use ;isney trademars and characters in a num#er of

merchandising acti0ities& .n addition% ODM pro0ides assistance in consumer awareness of the

Calt ;isney trademars=characters through 0arious mareting acti0ities such as design supportser0ices% ad0ertising% and customer promotions% among others&

he .R ruled that the royalties and other fees recei0ed #y ODM are in the nature of

a*tive in*ome, arising from t2e a*tive pursuit of its /usiness expense % #ecause its acti0ities are

in accordance with its primary purpose& s pro0ided under its rticles of .ncorporation% one ofits primary purposes is the su#licensing of licensed materials to its Philippine clients and the

performance of support ser0ices& ccordingly% the fees it recei0es are acti0e income su#9ect to

3-percent regular corporate income tax% instead of the 3> percent final income tax&

B(3 !! 0uestion1

he $-Phils& is a '.-registered domestic corporation licensed #y the $ of the

Bnited ingdom to distri#ute% support and use in the Philippines its computer software systems%

including #asic and related materials for #ans& he $-Phils& pro0ides consultancy and

technical ser0ices incidental thereto #y entering into licensing agreements with #ans& Bndersuch agreements% $-Phils& will 5' ac?uire any proprietary rights in the licensed systems&

he $-Phils& pays royalty to the $-B% net of 1,A withholding tax prescri#ed #y the RP-

B ax reaty&

.s the income of the $-Phils& under the licensing agreement with #ans considered

royalty su#9ect to 3>A final withholding tax@ Chy@ .f not% what ind of tax will its income #e

su#9ect to@ xplain& (,A!

U SU;;ESTE: (NSE3: DS& he income of $-Phils& under the licensing agreement

with #ans shall #e considered royalty su#9ect to the 3>A final withholding tax&he term royalty is #road enough to include technical ad0ice% assistance or ser0ices

rendered in connection with technical management or administration of any scientific% industrial

or commercial undertaing% 0enture% pro9ect of scheme& (Sec& 43(4!(f!% 5.R6!&ccordingly% the consultancy and technical ser0ices rendered #y $-Phils% which are

incidental to the distri#ution% support and use of the computer systems of $-B are taxa#le as

royalty (ayo na #ahala dito!

@&&&. EST(TE T()(T&ON

C&3 vs. +osefina aIonar, 'ar*2 , !!!, ;on9aga?3eyes, +.

0uestion1 O was a mem#er of the Philippine Scout% ataan 6ontingent who too part in the

infamous death march% resulting into his insanity& His sister #ecame the guardian of his person

while his property was placed under guardianship of the #an& Chen O died% his sister #ecame

the administratrix of his estate& mong the deductions claimed in his gross estate are theattorney8s fees in the guardianship proceedings and notarial fee for the extra9udicial settlement&

.R denied deduction of the notarial fee as such amount of P+>%*, is ?uite

extraordinary for a mere notarial fee& .n addition% .R maintains that only 9udicial expenses of

the testamentary proceedings are allowed as deduction to the gross estate&

re these two items deducti#le from gross estate@

(nswer1 Des& Judicial expenses are expenses of administration& dministration expenses%as allowa#le deductions% include all expenses essential to the collection of the assets% payment of

de#ts or the distri#ution of the property to the persons entitled to it&

he ser0ices for which the fees are charged must relate to the proper settlement of the

estate& .n this case% the guardianship proceeding was necessary for the distri#ution of the propertyof the deceased to his rightful heirs&

.n other words% the expenses must #e essential to the proper settlement of the estate&

xpenditures incurred for the indi0idual #enefit of the heirs% de0isees or legatees are not

deducti#le& (6o Bntian!

&). LOC(L T()(T&ON


13/21


BarOps !!" # $en Law with a Conscience page %" of %

'anila Ele*tri* Company vs. Barlis, 'ay %6, !!%, :e Leon, +.

0uestion1 he $unicipal reasurer sent notices of assessment and collection of real

property taxes to $eralco after finding that the latter failed to mae proper tax declaration ofcertain power plant machineries and e?uipment in the year 1)*+-1)*/& hereafter% the $unicipal

reasurer sent out warrants of garnishments to different #ans where $eralco maintaineddeposits&

$eralco without exhausting administrati0e remedies o#tained an in9unction #efore the

trial court arguing that since it is no longer the owner of the property in ?uestion (now with

5P'6'R!% it can o#tain in9uncti0e relief with the trial court e0en without the condition

precedent protest payment as re?uired under the Real Property ax 6ode (now in the G"6!& .n

effect% $eralco is saying that the trial court has 9urisdiction as it is the issuance of the warrants of

garnishment he is seeing to en9oin not the tax assessment&

.s $eralco correct@

(nswer1 5o& he trial court has no 9urisdiction to entertain a petition for prohi#ition

a#sent $eralco8s payment under protest of the tax assessed pursuant to Sec& +4 of the RP6 (now

in G"6!& Such payment under protest is a condition sine ?ua non and failing to do so% the R6has no 9urisdiction to entertain it&

he restriction upon the power of courts to impeach tax assessment without a prior

payment% under protest% of the taxes is consistent with the doctrine that taxes are the life#lood ofthe nation and as such their collection cannot #e curtailed #y in9unction or any lie action&

here is also no merit on the contention that the trial court could tae cognizance of the

petition as it only ?uestions the 0alidity of the warrants of garnishment on the #an deposits and

not the tax assessment& s the warrants were issued to collect #ac taxes from $eralco% the

petition for prohi#ition would in effect forestall the collection of said #ac taxes&

his% $eralco cannot do without first resorting to the proper administrati0e remedies 'Rpay under protest the tax assessed% to allow the court to assume 9urisdiction o0er the petition&

0uestion1 .s $eralco8s argument correct in saying that since 5P'6'R is now the owner

of the plant and machineries it is no longer the taxpayer lia#le@

(nswer1 5o& .t is $eralco that misdeclared the property in ?uestion way #ac in 1)*+-1)*/& he fact that 5P'6'R is the present owner of the property does not constitute a legal

#arrier to the collection of delin?uent taxes from the pre0ious owner who defaulted in its

payment&

he unpaid tax attaches to the property and is chargea#le against the person who had

actual or #eneficial use of it regardless of whether he is the owner& ut to impose the realproperty tax on the su#se?uent owner which was neither the owner nor the #eneficial of the

property during the designated periods (1)*+-1)*/! would not only #e contrary to law #ut also

un9ust& (den!

0uestion1 $eralco argues that real property tax constitutes a lien on the property su#9ect to

tax% thus% payment thereof should #e made #y proceeding against the real property itself (plant

machineries and e?uipment! or any personal property located therein% and 5' the separate

personal property of $eralco% specifically the #an deposits& .s $eralco correct@

(nswer1 5o& here are concurrent and simultaneous remedies to enforce the collection

of real property taxes% namely: (1! distraint of personal property (3! sale of delin?uent real

property% and (! collection of real property tax through ordinary court action&

he remedy of le0y can #e pursued #y putting up for sale of RG PR'PRD su#9ect to

tax% i&e&% the delin?uent property upon which the tax lien attaches% regardless of the present owner

or possessor thereof&

he remedy of distraint and le0y of PRS'5G PR'PRD meanwhile allows the taxing

authority to su#9ect 5D personal property of the taxpayer to execution% sa0e certain exceptions


14/21


BarOps !!" # $en Law with a Conscience page %< of %

as enumerated under Sec& +) of the Real Property ax 6ode& an deposits are not among those

exceptions& (den!

Lig2t 3ail Transit (ut2ority vs. Central Boar$ of (ssessment (ppeals, O*t. %, !!!

0uestion1 he 6ity ssessor of $anila assessed the properties of GR% a go0ernment

owned and controlled corporation consisting of carriageways and passenger terminal stations&GR refused to pay the real property tax contending that these are not real property and if the

same are considered realty% these are not taxa#le since these are for pu#lic use=purpose and

moreo0er these are owned #y the national go0ernment&

.s GR8s carriageways and passenger terminal stations su#9ect to real property tax@

(nswer1 Des& Bnder the Real Property ax 6ode (now part of G"6!% real property is

classified for assessment purposes on the #asis of actual use% which is defined as


15/21



0uestion1 O Pipeline is a grantee of a pipeline concession to contract% install and operate oil

pipelines& 'n Jan& 1)),% when it applied for mayor8s permit% the local treasurer re?uired O

Pipeline to pay a local tax (G! on its gross receipts in 1)) stressing that it is engaged in the

#usiness of transporting petroleum 0ia pipelines& O Pipeline contends that it is exempt from G

pursuant to Sec& 1(9! of the G"6 exempting from G transportation contractor& .s thecontention correct@

(nswer1 Des& common carrier may #e defined #roadly as one who holds himself out to

the pu#lic as engaged in the #usiness of transporting persons or property from place to place% for

compensation% offering ser0ices to the pu#lic generally&

ased on the definition of a common carrier under rticle 1*3 of the 6i0il 6ode% there

is no dou#t that O Pipeline is a common carrier engaged in the transportation of petroleum& .t is

therefore exempt from the payment of G&

Figuerres vs. Court of (ppeals, 'ar*2 , %---, 'EN:OJ(, +.

0uestion: 6an the presumption of 0alidity of a tax ordinance #e o0ercome #y #are

assertions of procedural defects on its enactment@

(nswer: 5o& he S6 recognized the petitioner8s claim that pu#lic hearings are re?uired to

#e conducted prior to the enactment of an ordinance imposing real property taxes& Chen there

are conflicting claims #etween the taxpayer and the go0ernment regarding the o#ser0ance ofpu#lic hearings% #ut #oth were not a#le to present e0idence to esta#lish their respecti0e

allegations% the ;'B shall #e resol0ed in F'R of the go0ernment&

he tax ordinance shall #e presumed to #e 0alid% hence their constitutionality or legality

should #e upheld in the a#sence of e0idence showing that the procedure prescri#ed #y law was

not o#ser0ed in their enactment& (#ella!

0uestion: Chat are the remedies a0aila#le to a real property owner who ?uestions the0alidity of tax ordinance@

(nswer: he taxpayer files appeal to the Secretary of Justice% within > days from

effecti0ity thereof& .n case the Secretary decides the appeal% a period of > days is allowed for an

aggrie0ed party to go to court& ut if the Secretary does not act thereon% after the lapse of +>

days% the party could see relief in court&

hese three separate periods are clearly gi0en for compliance as a prere?uisite #efore

seeing redress in a competent court& Such statutory periods are set to pre0ent delays as well as

enhance the orderly and speedy discharge of 9udicial functions& For this reason the courtsconstrue these pro0isions of statutes as mandatory& (3eyes vs. C(, :e*em/er %!, %---7

(;omondon!

0uestion: Chen factual issues are in0ol0ed% can the Secretary of Justice tae cognizance of

the case in0ol0ing the constitutionality of tax ordinances@

(nswer: Des% the Secretary of Justice can tae cognizance of a case in0ol0ing the

constitutionality or legality of tax ordinances where there are factual issues in0ol0ed&

(;omondon!

City ;overnment of San a/lo, Laguna vs. Hon. 3eyes, 'ar*2 , %---, ;on9aga?3eyes, +.

0uestion: etween a pro0ision in the franchise of $RG6' that grants an exemptionfrom local taxes and the express pro0ision of the Gocal "o0ernment 6ode which withdrew all

exemptions that are en9oyed pre0iously #ut are now inconsistent to the taxes that are imposed

under the G"6% which shall pre0ail@

(nswer: he G"6 pre0ails o0er the exemption granted in $RG6'8s franchise #ecause

the former8s legislati0e intent is clear that prior exemptions en9oyed #y taxpayers are expressly

withdrawn #y the enactment of the 6ode& (6o Bntian!


16/21


BarOps !!" # $en Law with a Conscience page %A of %

0uestion: ;oes the withdrawal of tax exemption pri0ilege granted in a special franchise

0iolate the non-impairment clause of the 6onstitution@

(nswer: 5o& ax exemptions contained in special franchises are not strictly contractual innature& 6ontractual tax exemptions% in the real sense and which is the proper su#9ect of the non-

impairment clause% are those which are agreed upon #y the taxing authority in contracts% such asthose in go0ernment #onds and de#entures wherein the state8s immunity from suit is wai0ed&

franchise is in the nature of a grant so the non-impairment clause does not apply& (6o Bntian!

(not2er answer: he S6 ruled that the franchise of $eralco containing the of the ariff and 6ustoms 6ode& .s the one year period applica#le to the case at #ar@

xplain&


17/21



(nswer1 5o& he one-year prescripti0e period in forfeiture proceedings does not apply

when there is fraud&

O8s misrepresentation that he was connected with P"6'R leading to the release of the

imported articles without any taxes constituted fraud& he essence of fraud is the intentional andwillful employment of deceit deli#erately done or resorted to in order to induce another to gi0e up

some right& (6o Bntian!

Bureau of Customs vs. Nelson Ogario an$ 'ar8 'onteli/ano 5!!!7

0uestion1 he forfeiture proceedings in0ol0ed 3,%>>> #ags of rice on #oard $= l#erto

that were seized #y 6ustoms 'fficials #ased on the report #y the .. that the same had #een

smuggled into Palawan& he consignee and his #uyer filed a complaint #efore the R6 for

in9unction and upon posting of a #ond% the court ordered the release of the goods& ;oes the R6

ha0e 9urisdiction of the instant case@

(nswer1 5o& he R6 is de0oid of any competence to pass upon the 0alidity or regularity

of seizure and forfeiture proceedings conducted #y the 6ollector of 6ustoms and to en9oin or

otherwise interfere with the proceedings&

he 6ollector of 6ustoms sitting in seizure and forefeiture proceedings has exclusi0e

9urisdiction to hear and determine all ?uestions touching on the seizure and forfeiture of dutia#le

goods& he ariff and 6ustoms 6ode pro0ides the proper remedy of aggrie0ed importers% that is%to appeal the actions of the 6ollector of 6ustoms to the 6ommissioner of 6ustoms whose

decision% in turn% is su#9ect to the exclusi0e appellate 9urisdiction of the 6 and from there to

the 6 and S6& (6o Bntian!

0uestion1 ;o customs authorities need to secure search warrant from the court on articles

on #oard a 0essel suspected of #eing imported or intended to #e shipped a#road #efore they

exercise the power to effect customs searches and seizures@

(nswer1 5o& he customs authorities do not ha0e to pro0e to the satisfaction of the court

that the articles on #oard a 0essel were imported from a#road or are intended to #e shipped

a#road #efore they may exercise the power to effect customs searches% seizures% or arrest

pro0ided #y law and continue with the administrati0e hearings

Transglo/e &nternational, &n*. vs. C(, +anuary , %---, Bellosillo, +.

0uestion: 6an redemption of seized articles #y the ureau of 6ustoms #e allowed if:

1& he articles were declared as hand tools when as a matter of fact they were textile

fa#rics23& ll the / consignees were fictitious2 and

& 6ustoms rules specifically state that the shipment to fictitious consignees that isseized shall not #e su#9ect to redemption@

(nswer1 Des& he articles may #e redeemed upon payment of their domestic maret 0alue

since the articles are not among those which are a#solutely prohi#ited under the ariff and

6ustoms 6ode&

Redemption is not allowed only in any of the following cases:

1! when there is fraud2

3! when the importation is a#solutely prohi#ited2 'R

! when the release would #e contrary to law&

Fraud% as alleged #y the 6ommissioner% must #e actual and not merely constructi0e& .tmust #e intentional and deli#erate& $isdeclaration in the manifest and rider that the goods were

hand tools and not textile fa#rics cannot #e imputed on the consignee who did not prepare them&

.f at all% the falsity of the documents can only #e attri#uted to the foreign suppliers& (6o Bntian!

(not2er (nswer: Redemption of forfeited property is una0ailing in three (! instances%

namely (1! when there is fraud% (3! where the importation is a#solutely prohi#ited 'R (! where

the release of the property would #e contrary to law&


18/21


BarOps !!" # $en Law with a Conscience page %6 of %

he S6 stressed that any ruling against redemption #ased on fraud% the fraud

contemplated #y law must #e actual and not constructi0e& .t must #e intentional% consisting of

deception willfully and deli#erately done or resorted to in order to induce another to gi0e up some

right&

Chile the shipment was misdeclared in the rider and the manifest (it appearing that what

was contained in shipment were textiles and not hand tools!% the consignee is innocent of the factstherein stated as it had no hand in their preparation or issuance& Hence% the consignee should #e

allowed to redeem the articles forfeited upon payment of their domestic maret 0alue& (#ella!

)&. 3E'E:&ES

Ban8 of t2e 2ilippine &slan$s vs. C&3, (ugust 6, !!%, 'en$o9a, +.

0uestion1 Family an merged with P. on July 1% 1)/,& Prior to the merger% Family an

had excess credita#le withholding tax credits amounting to P1*4%>+,& P. filed Family an8s

final ad9ustment return on pril 1,% 1)/+& hereafter% P. filed a claim for refund of Family

an8s excess tax credits with the .R& ccordingly% P. filed a petition for re0iew seeing

refund with the 6ourt of ax ppeals on ;ecem#er 3)% 1)/*&he 6 dismissed the petition and denied the claim on the ground of prescription& P.

argued that the two-year period should #e counted from pril 1,% 1)/+& 6 ruled that the two-

year period commenced to run July 1% 1)/, or > days after the appro0al of the S6 of the plan

of dissolution&;ecide&

(nswer1 he two-year period has prescri#ed& he two-year period must #e counted from

July 1% 1)/, or > days after the appro0al of the S6 of the plan of dissolution pursuant to Sec&

*/ (now ,3 (6!! of the ax 6ode and Sec& 344 of Re0enue Regulations 3 (the consolidated

income tax regulations!&

Sec& */ (and Sec& 344 of RR 3! pro0ides that within > days after the adoption #y thecorporation of a resolution or plan for dissolution of the corporation or for the li?uidation of the

whole or any part of its capital stoc xxx render a correct return (short return! to the 6.R setting

forth terms of such resolution or plan&

hus% Family an% after the end of its corporate life on June >% 1)/,% should ha0e filed

its income tax return (called short return! within thirty (>! days after the cessation of its #usinessor thirty days after the appro0al of the rticles of $erger% which is July 1% 1)/,& he two-year

period therefore shall end on July 1% 1)/*& (den!

rote*torKs Servi*es, &n*. vs. C&3 5!!!7

0uestion: 'n ;ecem#er 1>% 1)/*% taxpayer recei0ed 6.R8s assessment notices co0ering thetaxa#le years 1)/ and 1)/4& 'n January 13% 1)//% it protested the said assessments and

re?uested for a rein0estigation& .s the protest filed on time@

(nswer1 5o& he taxpayer may no longer dispute the correctness of the assessments& .t

only has thirty (>! days from receipt thereof within which to protest an assessment& From

;ecem#er 1>% 1)/* to January 13% 1)//% thirty-three (! days ha0e already lapsed& (6o Bntian!

0uestion1 ;oes the act of the taxpayer in filing a petition #efore the 6 to pre0ent the

collection of the assessed deficiency tax and in ele0ating the case to the S6 for re0iew suspend

the running of the Statute of Gimitation@

(nswer1 Des& he running of the prescripti0e period to collect deficiency taxes shall #esuspended for the period during which the 6.R is prohi#ited from #eginning a distraint and le0y

or instituting a proceeding in court% and for sixty (+>! days thereafter&

o assert that the pendency of the appeal did not stop the running of the period #ecause the6 did not ha0e 9urisdiction o0er the case would encourage taxpayers to delay the payment of

taxes in the hope of ultimately a0oiding the same& (6o Bntian!


19/21


BarOps !!" # $en Law with a Conscience page %- of %

C&3 vs. B& an$ C(, +an. %, %---, 'en$o9a, +.

0uestion: 'n pril 3% 1)/+% Paramount filed its corporate annual income tax return for the

calendar year ending ;ecem#er 1% 1)/,& ll in all% Paramount paid the total amount of

P1%31/%)4> there#y showing a refunda#le amount of P+,%3,)&'n pril 14% 1)//% P.% as li?uidator of Paramount% filed with the 6 a letter dated

pril 13% 1)// reiterating its claim for the refund of P+,%3,) as o0erpaid income for the calendaryear 1)/,& 'n pril 1,% 1)//% the Paramount representati0e% filed with the 6 a petition to toll

the running of the prescripti0e period for filing a claim for refund of o0erpaid income taxes& he

6 ruled that the two-year prescripti0e period commenced to run pril 1,% 1)/+% the last day

for filing the corporate income tax return and granted the refund& Cas the grant of the refund

proper@

(nswer: 5o& he two-year prescripti0e period for actions for refund of corporate income

tax should #e computed from the time of a*tual filingof the Final d9ustment Return or nnual

.ncome ax Return& he reason #eing% that at that point% it can already #e determined whether

there has #een an o0erpayment made #y the taxpayer& $oreo0er% payment is made at the time the

return is filed&

Since Paramount filed its corporate annual income tax return on pril 3% 1)/+% it had only

two-years from the date within which to file its written claim for refund& Chen it filed a written

claim for refund on pril 14% 1)//% and a petition for refund only on pril 1,% 1)//% #oth claim

and action for refund were thus #arred #y prescription&(;omondon!

(not2er answer: 5o& he refund was not proper&

he S6 ruled that the context of Section 3> of the 5.R6% which pro0ides for a two-year

period of prescription counted from the date of payment of the tax for action for refund of

6orporate .ncome ax% the said period should #e counted from the time of 6BG filing of the

d9ustment Return or nnual .ncome ax Return& his is in consonance with the pay-as-you filesystem mandated under Section 4) (now ,+! where at the point of filing it can already #e

determined whether there has #een an o0erpayment #y the taxpayer& (#ella!

2ilippine Ban8 of Communi*ations vs. C&3, +an. 6, %---

0uestion: 6an the 6.R issue a Re0enue $emorandum 6ircular (R$6 *-/,! that changesthe prescripti0e period of filing claims for refund of tax credit from two (3! years as pro0ided in

the ax 6ode into ten (1>! years@

(nswer: 5o& he courts will not countenance administrati0e issuances that wouldo0erride% instead of #eing consistent and in harmony with% the law they see to apply and

implement& .n maing the change% the 6.R did not simply interest the law2 rather% it legislatedguidelines contrary to the statute passed #y 6ongress& (6o Bntian!

0uestion: y the aforementioned change in the prescripti0e period% is the 6.R estopped

from denying the claim for refund made #y the taxpayer who relied on the its R$6@

(nswer1 5o& stoppel does not lie& 5ot only #ecause the go0ernment is not estopped #y

the errors of its agents #ut also #ecause in the instant case% it was the 6% not the 6.R% who

denied the claim for refund% and correctly so& (6o Bntian!

(not2er answer: 5o& Such circular changing the prescripti0e period of 3 years as

pro0ided under Section 3> of the 5.R6 to 1> years is a clear inconsistency in the interpretation

of the law for it legislated guidelines contrary to the statute passed #y 6ongress&

eing so% reliance thereto cannot #e granted to allow a claim for tax refund if filed

#eyond the 3-year prescripti0e period pro0ided #y law& Such administrati0e rulings issued #y

heads of executi0e offices of go0ernment although gi0en respect in the courts may% ne0ertheless%#e ignored if found 9udicially erroneous& he state cannot #e put in estoppel #y the mistaes and

errors of its officials& (#ella!


20/21


BarOps !!" # $en Law with a Conscience page ! of %

C&3 vs. Carnation 2ilippines an$ C(, Fe/. , %---, urisima, +.

0uestion: O 6orporation filed its income tax returns in January 1)), for its income for the

year 1))4& .n 'ct& 1))*% $arch 1))/ and $ay 1))/% O 6orporation through its authorized

representati0e signed three (! separate wai0ers of


21/21



(nswer: Des& here can #e no criminal charges without first determining what is the

correct taxes due from Fortune& his is #ecause Fortune su#mitted documents (daily

manufacturer8s sworn statements! containing the registered wholesale prices of the goods% and

these documents were appro0ed #y the .R&

he registered wholesale price of the goods% appro0ed #y the .R is presumed to #e the

actual wholesale price% therefore% not fraudulent and unless and until the .R has made a finaldetermination of what is supposed to #e the correct taxes% the taxpayer should not #e placed in the

cruci#le of criminal prosecution&

Unga/ vs. Cusi, - SC3( 5%-6!7

0uestion: .s precise computation of the tax due (assessment! a prior condition #efore any

criminal prosecution may #e commenced against a taxpayer@

(nswer: 5o& criminal prosecution for 0iolations of the 5.R6 is within the cognizance

of the R6& Chile there can #e no ci0il action to enforce collection #efore the assessment

procedures are followed% there is no re?uirement for the precise computation of the tax #efore

there can #e a criminal prosecution under the code&

he crime is complete when the 0iolator has nowingly and willfully filed fraudulent

returns with the intent to e0ade part of the tax& .t is grounded upon the taxpayers nowledge that

he has made an inaccurate return% and the State8s failure to disco0er such and promptly to assessis of no rele0ance& (BP ax .. Re0iewer #y -))!

3epu/li* of t2e 2ilippines vs. Salu$ Hi9on, :e*em/er %", %--- 'EN:OJ(, +.

0uestion: 6an the power of the 6ommissioner to appro0e the filing of ci0il and criminal

actions #e delegated@

(nswer: Des& he S6 ruled that this power can #e 0alidly delegated& he highest tri#unalhas 0alidly recognized Re0enue dministrati0e 'rder 5o& 1>-), specifically delegating the

power to the Regional ;irector and therefore% any complaint 0erified #y the said Re0enue 'fficial

is in compliance with the law& his rule #ecame more manifest with the passage of the ax 6ode

of 1))* wherein the non-delega#le powers are clearly enumerated& Bnder Section * thereof% such

is not among the non-delega#le powers&

C&3 vs. (teneo $e 'anila University 5%--7

0uestion1 .s it proper for the 6.R to apply the principle on tax exemption (that exemptions

are strictly construed against the taxpayer! #efore resol0ing whether or not the tax statute appliesto the taxpayer@

(nswer1 5o& .t is error for the 6.R to do so& .n accordance with the

taxation} notes by topic based on 1999-2001 cases} made 2003} by su

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