I NTRC Tax Research Journal Yol. XXX IY.

2 March - April 2022 I

Digest of Select Supreme Court Cases

on Taxation, CY 2020*

A. JURISDICTION

I. COMMISSIONER OF INTERNAL REVENUE (CIR), PETITIONER, VS.

BANK OF THE PHILIPPI NE ISLANDS (BPI), RESPONDENT.
[G.R No . 227049, September 16, 2020]

The dete rmination (j(the CIR 's right to assess and collect is an issue cognizable by the
Court a/Tax Appeals in the exercise (j( its appellate jurisdiction over "other matters "
arisingfrom tax laws.

Facts:
Through a letter dated May 6, 199 1, the CIR sent Assessment Notices to Citytrust
Banking Co rporation ("Ci tytrust") in cOlmection with its deficiency of internal revenue
taxes for the year 1986.

The assessments came after Citytrust execution of tlu·ee Waivers of the Statute of
Limitations under the Tax Code and protested the assessments. In the interim, the C1R,
in a letter dated February 5, 1992, demanded the payment of the su bject deficiency
taxes withi n 10 days from the receipt thereof.

Meanwhile, on October 4, 1996, Citytrust and BPI entered into a merger agreement,
wherein the latter emerged as the surviving corporation. Subsequently, the CIR sought
to collect the above-mentioned tax li abil ities and issued a Warrant of Di straint and/or
Levy on November 4, 20 11 , against BPI.

BPI assailed the November 20 II Warrant before the Court of Tax Appeals (CTA)
through a petition for review asking the tax court to suspend the co llection of the
all eged deficiency taxes, cancel the November 20 11 Warrant, and enjoin the CI R from
further implementing it. It also prayed fo r the CT A to declare the assessments as
prescribed and cancel the related assessments. The OSG argued that CT A did not
acquire jurisdiction over BPI ' s petition, having been fil ed out of time. According to
OSG, tne February 5, 1992 letter was a "fin al dec ision" denying Citytrust' s protest.
Thus, the failure of Citytrust to appeal the "fi nal decision" wi thin 30 days fro m receipt
thereof rendered the tax assessment final, executory, and unappealable .

• Prepared by Ria Mariz P. Nadora, Financial Anal yst II , Tax Incentives Di vision, rev iewed by Atty. Khersien Y.
Bautista, Attorney IY, Legal Research and Communication Di vision. Reviewed and approved by Atty. Mark
Lester L. Aure, Deputy Executive Director, Legal Group, NTRC.

Digest a/Select Suprem e COllrt Cases On Taxation, CY 2020 9

I NT RC Tax Research Journal Vo l. XXX IV.2 March - Ap ril 2022 I

Issue:
Whether the CTA acquired jurisdiction over the petition of the BPI.

Ruling:
Yes, the CT A properly exercised its jurisd iction over BP I's petition for review. BPI did
not come to question any final dec ision issued in connection with Citytrust's
assessment. They went before the CTA primarily to assail the November 20 II
Warrant's issuance and implementation. To be sure, the issue for the CTA to resolve
was the propriety not of any assessment but of a tax co ll ection measure implemented
against BPI.

The law ex pressly vests the CTA the a uthority to take cognizance of "other matters"
ari sing from the Tax Code and other laws admini stered by the BIR, whi ch necessaril y
includes rul es, regulations, and measures on the collection of tax. Tax collection is part
and parcel of the CIR's power to make assessments and prescribe add itional
requirements for tax' administration and enfo rcement.

2. THE COMMISSION ON AUDIT (COA), THE BUREA U OF INTERNAL

REVENUE (BlR), AND THE BUREAU OF CUSTOMS (BOC), PETITIONERS,
VS. HON. SILVINO T. PAMPILO, JR., ET AL., RESPONDENTS.
[GR. No. 188760, June 30, 2020)

CHEVRON PHILIPPINES, INC, PETITION ER, VS. HON. SILVINO T.

PAMPILO, JR., ET AL., RESPONDENTS.
[G.R. No. 189060)

PETRON CORPORATION, PETITIONER, VS. HON. SILVINO T. PAMPILO,

JR., ET AL., RESPONDENTS.
[G.R. No. 189333)

The BIR and BOC can on ly examine the book s of accounts of a taxpayer when there
are taxes or duties invo lved in a case.

Facts:
Social Justice Society (SJS), a poli tical party duly registered with the Commission on
Elections, fi led with the Regional Trial Court (RTC) of Mani la, a Petition for
Declaratory Relie f, against Pilipinas Shell Petroleum Corporation (Shell ); Caltex
Philippines, Inc. (Caltex), and Petron Corporation (Petron), collectively referred to as
the "Big 3" alleging that the oil compani es business practice of increasing the prices of
their petroleum products whenever the price of crude oil increases in the world market
despite that fact that they had purchased their inventories at a mLlch lower price long
before the increase constitutes monopol y and combination in restraint of trade under
Article 186 of the Rev ised Penal Code.

The RTC directed the parties to refer the matter to the Joint Task Force of the
Department of Energy (DOE) and Department of Justice (DOJ) pursuant to Section I I
of RA No. 8479 (The Oil Deregul ation Law). Thereafter, the DOE-DOl Joint Task

10 Digest a/Select Supreme COllrt Cases on Taxation, CY 2020 I

I NTRC Tax Research JOUl'~al Vol. XXX IV.2 March - April 2022 I

Force submitted its RepOlt finding no clear evidence that the Big 3 violated Article 186
of the Rev ised Pena l Code or Section II (a) of Republic Act (RA) No. 8479. Based on
the said report, the Big 3 moved to dismi ss the case at the RTC. SJS, on the other hand,
moved to open and examine the books of account of the Big 3 to enable the court to
detennine whether Section 11 (a) of RA No. 8479 had been viol ated.

RTC denied the motion to dismiss of the Big 3 and directed the C hairman of CO A and
the Commissioners of the BIR and the BOC to form a panel of examiners to conduct
an examinatiOli of the books of accounts of the Big 3 and to submit a repolt thereon
within three (3) months from rcce ipt of the Order.

Though not parties to the case, the COA, the BIR, and the BOC, through the OSG, were
constrained to fil e a Motion for Reconsideration on the grounds that the order of
examinati on was un warranted and beyond their respective jurisd ictions.

Issue:
Whether the BlR and BOC can be ordered to examine the books of accounts of the Big
3 to determine if there is cartelization and monopoly?

Ruling:
No. It is beyond the mandates of the BIR and the BOC to open and ex amine the books
of accounts of the Big 3 for purposes of determining w hether the latter is gui lty o f
cartelization and monopol y since there are no taxes or duties invo lved in this case.

With respect to the BIR, its Commissioner is authorized to examine books, paper,
records, or other data of taxpayers but only to asceltain the correctness of any return,
or in making a retul11 when none was made, o r in determ ining the liability orany person
for any internal revenue tax , or in co ll ecting such liabil ity, or evaluatin g the person's
tax compli ance. The BOC, on th e other hand, is authori zed to audit or examine a ll
books, records, and documents of importers necessary or relevant for the purpose of
collecting the proper duties and taxes .

R INCOME TAX ON G OVERNMENT -OWNED AND -CONTROLLED

CORPORATIONS

COMMISSIONER OF I NTERNAL REVENUE (CIR), PETITIONER, VS.

BASES CONVERSION AND DEVELOPMENT AUTHORITY (BCDA),
RESPONDENT.
[G.R. No . 217898 , January 15,2020]

The proceeds fro m the sale or disposition of BCDA properties are 110t income subject
to creditable withholding tax. The charter of BCDA, which prevails over the provision
of the Tax Code, expressly exempts said sale proceedsfrom all kinds offees and taxes.

Facts: ,
Respondent BCDA was the owner of fo ur (4) rea l properti es in Bon ifac io G loba l
C ity, Tagui g City, co ll ective ly referred to as the "Expand ed Bi g Del ta Lots" , It so ld

Digest a/Setect Suprem e Coun Cases on Taxation, CY 2020 II

I NTRC Tax Research Journal Vol. XXX IV .2 March - April 2022 I

these lots to the "Net Group" which committed not to remit to the Bureau of Internal
Revenue (BIR) the creditab le tax withheld (CWT) at source to give time to the
respondent to present a certification of tax exemption.

Having fai led to secure the certification of tax exemption from petitioner BIR, the
"Net Group" deducted the CWT and issued to the respondent the corresponding
certificates of CWT at source, and in turn , the "Net Group" remitted the amount to
the BIR.

Respondent sought the refund of th e remitted amount claiming that it was exempt
from all taxes and fees arising from or in relation to the sale of its properties, as
provided under its charter, Republi c Act (RA) No. 7227, as amended by RA 7917.
Petitioner countered that the respondent failed to sufficiently support its claim for a
tax refund, and that the latter was not an exempt corporation under Section 27 of the
National Internal Revenue Code (NIRC) of 1997, as amended,

Issue:
Whether respondent BCDA is exempt from CWT on the sale of its properties?

Ruling:
Yes, Respondent BCDA ' s enabling charter, RA 7227, as amended by Section 8 of
RA 7227, which exempts it from all forms of taxes and fees, is a spec ial la w, while
the NIRC of 1997, as amended , is a general law, It is a fundamental rule in statutory
construction that a special law cannot be repealed or modified by a subsequently
enacted general law in the absence of any express provision in the latter law to that
effect. A special law must be interpreted to constitute an exception to the general
law in the absence of special circumstances warranting a contrary conclusion ,

Section 8 ofRA 7227, as amended by RA 7917, spec ifically governs the BCDA's
disposition of the properties enumerated therein and its sale proceeds. The law
exempts these sale proceeds from all kinds of fees and taxes as the same law has
already appropriated them for specific purposes and designated beneficiaries,

In light of the foregoing considerations, therefore, the standard procedural and

documentary requirements for tax refund applicable to government-owned and/or -
controlled corporations, in general, do not apply to the BCD A vis-a-vis the
properties and the sale proceeds specified under Section 8 of RA 7227, as amended,
There is no income to speak of here; only the sale proceeds of spec i fic properties
which the legislatu~e itself exempts from all taxes and fees,

12 Digesl a/Select Supreme Courl Cases 0 11 Taxalion, C Y 2020 I

I NTRC Tax Research lournal Vol. XXXIV .2 March - April 2022 I

C. INCOME TAX ON FOREIGN CORPORATIONS

ASSOCIATION OF INTERNAT IONAL SHIPPING LINES, INC., APL CO_ PTE

LTD., AND MAERSK-FILIPINAS, INC., PETITIONERS V. SECRETARY OF
FINANCE AND COMMISSIONER OF INTERNAL REVENUE,
RES PONDENTS.
[G.R. No. 222239, January 15, 2020]

Demurrage and retention fe es charged by international sea carriers are treated as

regu lar income subject to regular income tax and not to the 2.5% preferential tax rate
based on Gross Philippine Billings (GPB).

Facts:
On March 7, 2013, Republic Act (RA) No. 10378 was enacted, amending Section 28
(A)(3)(a) of the National Internal Revenue Code (NIRC) of 1997, as amended,
recognizing the principle of reciprocity as a basis for the grant of exemptions to
international carriers. Subseq uently, the Secretary of Finance issued Revenue
Regulation (RR) 15-20 13 to implement RA No. 10378 .

Petitioners challenged Section 4.4 of RR 15-20 13 on the ground that said regulation
invalidly subjects demurrage and detention fees collected by internati onal shipping
carriers to regular corporate income tax rate. Petitioners also argued that demurrage and
detention fees are not income but penalties imposed by the carrier to recover losses or
expenses associated with or caused by the undue delay in the loading and/or discharging
the latter' s shipment from the container. FUlther, petitioners maintained that, assuming
that demurrage and detention fees may be treated as income, these fees are taxable only
if they form part ofOPB and taxed at the preferential rate of2.5%.

Issue:
Whether demurrage and detention fees imposed by internati onal sh ipping carriers fall
within the scope of OPB, thu s subject to the preferential rate of 2.5%, or treated as
regular income subject to regular income tax.

Ruling:
DemulTage and detention fees are not part of the GPB of an international sea carrier,
and, therefore, not subject to the preferential rate of2.5% since they are not income
deri ved from the tran sportation of persons, cargo, and/or mail. Rather, such fees form
part of an international sea carrier' s gross income subject to the regular income tax rate.

The OPB covers gross revenue derived from the transportation of passengers, cargo,
and/or mail originating fro m the Philippines up to the final destination. Any other
income, therefore, is subject to the regular income tax rate.

Demurrage fee is the allowance or compensati on due to the master or owners of a ship,
by the freighter, for the time the vessel may have been detained beyond the time
specified or implied in the contract of affreightment or the charter party. It is only an
extended freight or reward to the vessel, in compensation for the earn ings the carri er is
improperly caused to lose. Detention occurs when the consignee holds on to the carrier's

Digest o/Select Supreme COlirt Cases on Taxation. C Y 2020 13

I NTRC Tax Research loumal Vol. XXXIV.2 March - April 2022 I

container outside the port, tenninal, or depot beyond the allotted free time. A detention
fee is charged when import containers have been picked up, but the container
(regardless if it is full or empty) is still in the possession of the consignee and has not
been returned within the allotted time.

Demurrage and detention fees definitely form part of an international sea carrier's gross
income for they are acquired in the norn1al course of trade or business. Thus, excluding
such fees from the preferential rate of 2.5% under RR 15-2013 is proper since they are
not income derived from the transportation of persons, goods, andlor mail , in
accordance with the rule expressio unios est exciusio alterius.

D. VALUE-ADDED TAX

1. COMMISSIONER OF INTERNAL REVENUE (CIR), PETITIONER, VS.

FEDERATION OF GOLF CLUBS OF THE PHrUPPINES, INC., (FEDGOLF),
RESPONDENT.
[G.R. No. 226449, Jul y 28, 2020]

RMC No. 32-2012 is invalid. Mem bership fees, asseSSment dues, and the like are
neither income nor part of gross receipts of recreational clubs, but merely capital ; hence,
they are not taxable .insofar as income tax and VAT are concerned.

Facts:
Respondent FEDGOLF questions the validity of Revenue Memorandum Circular
(RMC) No . 35-2012, which subjects the income of recreational clubs from whatever
source, including but not limited to membership fees, assessment dues, rental income,
and service fee s, to income tax; and the gross receipts of such clubs including but not
limited to membership fees, assessment dues, rental income, and service fees to value-
added tax (V AT).

[n its Petition', FED GOLF, among others, alleged that the implementation of the RMC
has adverse consequences for it and its members considering that prior to the issuance
of the same, membership fees , dues, and assessments received by it and its member golf
clubs had not been subjected to income tax and V AT.

The Regional Trial Court (RTC) declared that RM C No. 35-2012 is invalid as the CrR
exceeded its authority when it effectively imposed a tax upon the petitioner, a matter
within the sole prerogative of the Legislature.

Issue:
Whether RMC No. 35-2012 is valid?

Ruling:
No. Membership fee s, assessment dues, and the like are neither income nor pali of gross
receipts of recreational clubs, but merely capital ; hence, they are not taxable insofar as
income tax and V AT are concerned.

14 Digest a/Select Supreme COllrt Cases on Taxation, C Y 2020 I

I NTRC Tax Research Journal Vol. XXXIV.2 March - April 2022 I

Income is defined as "an amount of money coming to a person or corporation within a

specified time, whether as payment for services, interest or profit from investment"
while capital is "fund" or "wealth". Based on the foregoing , the Court considered
membership fees and the like as "capital," as they are intended for the upkeep of the
facilities and operations of the recreational clubs, and not to generate revenue. For as
long as these membership fees, assessment dues, and the like are treated as collections
by recreational clubs from their members as an inherent consequence of their
membership, and are, by nature, intended for the maintenance, preservation, and upkeep
of the clubs' general operations and facilities, then these fee s cannot be classified as
"the income of recreational clubs from whatever source" that are "subject to income
tax". Instead, they only form part of the capital from which no income tax may be
collected or imposed.

As to VAT, the COUlt interpreted that RMC No. 35-2012 erroneously included the gross
receipts of recreational clubs on membership fees, assessment dues, and the like as
subject to V AT because Section 105 of the National Internal Revenue Code (NIRC) of
1997, as anlended, specified the taxabi lity of only those which deal with the "sale, barter
or exchange of goods or properties, or sale of service". In collecting such fees from
their members, recreational clubs are not selling any kind of service, in the same way
the members are not procuring service from them.

2. IN THE MATTER OF DECLARATORY RELIEF ON THE VALIDITY OF

BUREAU OF INTERNAL REVENUE (BIR) REVENUE MEMORANDUM
CIRCULAR (RMC) NO. 65-2012 "CLARIFYING THE TAXABILITY OF
ASSOCIATION DUES, MEMBERSHIP FEES AND OTHER
ASSESSMENTS/CHARGES COLLECTED BY CONDOMINIUM
CORPORATIONS"
[G.R. No . 215801, January 15, 2020]

RMC No. 65-2012 is invali d. Association dues, membership fee s, and other
assessments/charges collected by condominimI1 corporations are not subject to income
tax, value-added tax (VAT), and withholding tax. These only constitute contributions
to and/or replenishment of the funds for the maintenance and operations of the facilities.
They represent funds "held in trust" to defray their operating and general costs and
hence, only constitute an infusion of capital.

Facts:
First E-Bank filed a petition seek ing to declare as invalid RMC No . 65 -2012 entitled
"Clarifying the Taxability of Association Dues, Membership Fees and Other
Assessments/ Charges Collected by Condominium Corporations" essentially arguing
that RMC No. 65-2012 imposed an additional burden on condominium unit owners
with income tax and VAT on what should exclusively be used for the maintenance and
preservation of the condomin ium building and its premi ses.

The trial court declared as invalid RMC No . 65-20 12 for it purportedly expanded the
law, created an additional tax burden on condominium corporations, and was issued
without the requisite notice and hearing, thereby violating the respondent' s right to

Digest a/Select Slipreme COllrt Cases on Taxation, CY 2020 15

NTRC Tax Research Journal Vol. XXXIV.2 March - Apri l 2022 I

substantive and procedural due process. The SIR challenged the tri al court's ruling
insofar as it declared RMC No. 65-20 12 invalid.

Issues:
1. Whether condominium corporati ons are engaged in trade or business?
2. Whether associ'!tion dues, membership fees, and other assessments/charges are
subject to income tax, VAT, and withholding tax?

Ruling No.1:
No. Under Republic Act (RA) No. 4726 or "The Condominium Act" the corporate
purposes of a condominium corporation are limited to holding the common areas, either
in ownership or any other interest in real propeliy recognized by law; management of
the proj ect; and to such other purposes necessary, incidental, or convenient to the
accomplishment of these purposes. Add iti onally, the said law also prohibits the articles
of incorporation or by-laws of the condominium corporation from containing any
provisions coiltrary to the provisions of RA NO. 4 726, the enabling or master deed, or
the declaration of restrictions of the condomini um project.

In sum , the collection of associati on dues, 'membership fees , and other

assessments/charges is purely for the benefit of the condominium owners. It is a
necessary incident fo r the purpose of effecti ve ly overseei ng, maintaining, or even
improving the common areas of the condom ini um as well as its governance.
Condominium corporations are not considered engaged in trade or business.

Ruling No.2:
No. Association due's, membersh ip fees, and other assessments/charges are not subject
to income tax, VAT, and withholdi ng tax.

First. Section 32 of RA No. 8424 does not include association dues, membership fees,
and other assessments/charges collected by condominium co rporati ons as sources of
gross income. The subsequent amendment under the Tax Reform for Acceleration and
Incl usion (TRAIN) Law substantially replicates the old Section 32.

Clearl y, RMC No . 65-2012 expanded, if not altered, the li st oftaxable items in the law.
RMC No. 65-2012, therefore, is void. Membership fee s, assessment dues, and other
fees of similar nature·only constitute contributi ons to and/or repleni shment of the funds
for the mai ntenance and operations of the facilities. They represent funds "held in trust"
to defray their operating and general costs and hence, only constitute an infusion of
capital.

Second. Association dues, membership fees , and other assessments/charges do not ari se
from transactions involving the sale, barter, or exchange of goods or property. Nor are
they generated by the performance of services. As such, they are not subj ect to VAT
per Section 105 of RA No . 8424.

Neither can it be said that a condominium corporation is rendering services to the unit
owners for a fee, remuneration, or consideration. Association dues, membership fees ,
and other assessments/charges form part of a pool from which a condomi nium

16 Digest a/Select Supreme COllrt Cases on Taxation, C Y 2020

I NT RC Tax Resea;ch Journal Vo l. XXX IV. 2 March - April 2022 I

corporation must draw fund s in order to bear the costs for maintenance, repair,
improvement, reconstruction expenses, and other administrative expenses.
Indisputabl y, the nature and purpose of a condominium corporation negate the
application of our VA T provi sions on its transactions and activities.

Third. The withholding tax system was devised for three (3) primary reasons : i.e. (I) to
provide taxpayers a co nveni ent manner to meet their probable income tax liability; (2)
to ensure the .collection of income tax which can otherwise be lost or substanti ally
reduced tlu'ough failure to file the corresponding returns; and (3) to improve the
government's cash fl ow. Thi s results in administrative savings, prompt and efficient
co llection of taxes, preventi on of delinquencies, and reduction of a governmental effort
to co llect taxes through more complicated means and remedies. Succinctly put,
withholding tax is intended to facilitate the collection of income tax. Thus, if there is
no income tax, withholding tax cannot be collected.

E. TAX REMEDIES.

I. KABALIKAT PARA SA MAUNLAD NA BUHAY, INC., PETJTfONER, VS.

COMMISSIONER OF INT ERNAL REVENUE, RESPONDENT.
[G.R. Nos. 217530-31 , February 10,2020]

KABALIKAT PARA SA MAUNLAD NA BUHAY, INC., PETITIONER, VS.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
[G.R. Nos. 217536-37]

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.

KABALlKAt PARA SA MAUNLAD NA BUHAY, INC., RESPONDENT.
[G .R. No. 2 17802]

Revenue losses on the part of the government may warrant the relaxation of procedural
rules in tax cases.

Facts:
Kabalikat is a non-stock , non-profi t CIVIC organi zation. The Bureau of Internal
Revenue (B IR) confirmed that it was a civic organi zation exempted £i'om the payment
of income tax through BIR Ruling No . S-30-071-20017 dated October 8, 200 1. In
2006, pursuant to RA No. 8425 or the "Social Reform and Poverty Alleviation Act" ,
Kabalik at amended its Articles oflncorporation to expressly provide micro-financing
services to "small , cottage-scale, micro-entrepreneurial poor and the di sadvantaged
such as farmers, fi shermen, women, tribal minorities, urban poor and other simil ar
sectors."

BIR issued Preliminary Assessment Notices (PAN) again st Kabalikat in rel ation to
unpaid taxes for the TY 2006. On December 28, 2009, Kabalikat executed a Wai ver
of the Defense of Prescri ption under the Statute of Limitations to extend the
assessment peri od for its 2006 unpaid taxes until December 3 1, 2010. The
Commiss ioner ofInternal Revenue (C IR) iss ued Final Assessment Notices (FAN) and

Digesl o/Selecl Supreme Courl Cases on Taxation, CY 2020 17 I

I NTRC Tax Research Journal Vo l. XXX IV.2 March - April 2022 I
a Forma l Letter of Demand (FLD) against Kabali kat for unpaid taxes, inclusive of
interest, surcharge, and compromise penalty. Kabalikat fi led an admini strative protest
with the BIR and upon inacti on, fil ed a Peti tion for Review before the Court of Tax
Appeals (CTA).

The CTA Di vision cancell ed and set aside the assessments issued on the ground that
the tax authoriti es right to assess has already been prescribed. The CT A Di vision also
denied the parti es' subsequent moti ons fo r reconsiderati on. Both parties appealed to
the CTA En Banc via their respective petitions fo r review. The CTA En Banc
dismissed both petitions o utri ght fo r being procedurall y defecti ve, no tin g that
Kabalikat fa iled to aver in their petition a "concise and d irect statement of comp lete
fac ts" and attach "either clearly legib le d uplicate originals or certi ti ed true copi es" of
the issuances assail ed. On the other hand, the CIR fai led to attach a Verifi cation and
Certification Against Forum Shopping and also fa iled to properl y serve a copy of the
peti tion upon Kabalikat.

Issue:
Whether or not the CT A En Banc erred when it denied outright the parties' respective
petitions due solely to fo rmal and procedural infirm ities?

Ruling:
Yes. The Co urt find s tbat the CT A En Banc erred when it refused to consider the
parties' respective mi stakes. The circulllsta nces in the present case warrant the
relaxation of procedural rul es. Th ~ parties face signifi cant fi nancial loss from the
assessment's fi nal adj udication. If cance lled, the government stands to lose revenues
from taxation, its li feblood. On the other hand, if upheld, the immensely one rous
obligation of settli ng the assessment shall loom over Kabalikat, a non-stock, non-
pro fi t civic organi zati on generall y exempt therefrom. Certain ly, an appeal is the
proper fo rum to fu lly ventil ate their cases. Abruptly ending li tigation solely based on
techni cali ties amoutlts to seri ous inj ustice to the parties .

To be sure, the fo rm al and procedural lapses in the present case shoul d not have
rendered the parties' respecti ve appeals fata lly defective. The court a quo's insistence
on stri ct impl ementati on of these techni ca li ties is unjust, especially when "the more
prudent co urse of acti on wo uld have been to afford petiti oners time" to remedy their
oversight which they already have, instead of us ing these mi stakes to j ustify
"dispossessing pet itioners of relief'.

2. COMMISSIONER OF INTERNA L REVENUE (CIR), PETITIONER, VS.

DE UTSCHE KNOWLEDGE SERVICES (DKS) PTE. LTD., RESPONDENT.
[G. R. No. 234445, July 15,2020]

Whether the claimant's submissions "are actually complete as required by law - is for
the CIR and the co urts to determi ne ." Clearly, the CIR has no authority to unilaterall y
determine the completeness of these doc uments and dictate the runnin g of the 120-day
period to reso lve the claim.

18 Digesl o/Seleci Supreme COllrl Cases on Taxalion. C Y 2020 I

I NTRC Tax Research Journal Vol. XXX IV.2 March - April 2022 I
Facts:
OKS is a value-added tax (VAT)-registered Philippine branch of a Singaporean
company and li censed to operate a regional operating headquarters in the country,
providing services to affiliates and related parties. On October 2 1,20 II , OKS filed with
the Bureau oflnternal Revenue (B IR) an Application for Tax Refund/Credit sUPP0l1ed
by th e relevant documents, on the basis of excess input VAT attributable to zero-rated
sales to some affiliate clients.

Alleging that the CIR had not acted upon their administrative claim, OKS filed a
petition for review before the Court of Tax Appeals (CTA) on March 19, 20 12. In its
Answer, the CIR claimed that OKS failed to submit the documents necessary to support
its claim, and that under Revenue Memorandum Circular (RMO) 53 -98, a taxpayer
must submit the documents contained therein to substantiate his claim for tax refund or
credit. It points out that OKS fa iled to submit the complete documents when it filed its
administrative claim. Thus, the 120 and 30-day periods to resolve a claim, and file an
appeal, did not begin to run.

Issue:
Whether OKS timely filed its j udicial claim?

Ruling:
Yes. Section 11 2 (C) of the NIRC of 1997, as amended, gives the C1R 120 days from
the date of submission of complete documents supporting the application for cred it or
refund excess input VAT attributable to zero-rated sales to resolve the adm ini strative
claim. If it remains unresolved after this period, the law allows the taxpayer to appeal
the unacted claim to the CT A within 30 days from the expiration of the 120-day period.

The claimant has sufficient latitude to determine the completeness of his submission to
ascertain the date of completi on from which the 120-day period shall be reckoned. To
counterbalance the claimant's liberty to do so, according to RMC No. 49-2003 , he may
be required by the tax authorit ies, in the course of their evaluation, to submit additi onal
documents for. the proper evaluation thereof. In this case, the CIR shall duly notify the
claimant of hi s request, from which the clai mant has 30 days to comply.

Whether the claimant's submi ssion s "are actually complete as required by law - is for
the C1R and the courts to determ ine." The C1R and courts' subsequent evaluation of the
documents is a substantive determination of completeness, for the purpose of
ascertaining the claimant's entitlement to the tax refund or credit sought. Clearly, the
CrR has no authority to unilaterally determine the completeness of these documents
and dictate the running of the l20-day period to resolve the claim.

In this case, there was no action on the claim on the administrative level. The first
instance the BIR served a formal response to the claimant, alleging documentary
deficiencies, was already in the CIR's Answer filed before the CTA on May I I, 2012.
In other words, it took the BI R 203 days to show concern on the matter. The CIR cannot
now fault DKS for proceeding to court for the appropriate remedial action on the claim
they ignored.

Digesf o/Selecf Supreme COllrf Cases on Taxation, CY 2020

I NTRC Tax Research Journal Vol. XXX IV .2 March - April 2022 I

3. COMMISSIONER OF INTERNAL REVENUE (CIR), PETITIONER, VS. T

SHUTTLE SERVICES, I c., RESPONDENT.
[G.R. No. 240729, August 24, 2020 ]

The mere presentation of the regislly receipt is insufficient to prove the receipt of the
Preliminary Assessment Notice and the Final Assessment NOTice.

Facts:
In 2009, petitioner CrR issued 10 the respondent a Letter of Notice (LN) informing it of
the di screpancy found on its tax returns for 2007 with the Reconciliation of Listings for
Enforcement and Third-Party Matching under the Tax Reconciliation System.

Subsequently, the Bureau of Internal Revenue (B IR) issued a follow-up letter but still ,
the respondent madt( no action. Thus, on January 12, 20 10, the C IR issued a Letter of
Authority (LOA) and Notice of Informal Conference (N IC). On March 29, 2010, the
CIR issued a Preliminary Assessment Notice (PAN) with attached Details o f
Discrepancies that found the respondent liable for deficiency income tax and value-
added tax (VAT). On Jul y 20, 20 10, the CrR issued a Final Assessment Noti ce (FAN).

In 20 13, the revenue district offi cer (ROO) issued a Final Notice Before Seizure
(FNBS), giving the respondent the last opportunity to settl e its tax li abi li ty with in 10
days from the notice. On March 20, 20 13, the respondent sent a letter to the ROO and
co llection officers stating that it was not aware of any pending li ab ility for 2007 and
that Mr. B. B enitez, who signed and received the preliminary noti ces, was not
authori zed to receive the not ices. On April 19, 2013, the respondent protested the
FNBS. It claimed that the service of the IC was invalid and that it did not receive the
PAN and FA prior to the issuance of the FNBS.

Aggrieved, the respondent fil ed a Petition for Review with the COUli of Tax Appeals
(CTA) Division. Meanwhile, the CrR prayed fo r the denial of the petiti on for review,
arguing that no error or illegali ty can be ascribed to his assessment as due process was
observed, and the respondent fai led to interpose a timely protest against the FAN aJld
to submit within the prescribed period of 60 days su pporting documents to refute the
findin gs of the revenue examiners.

Issue:
Whether the PAN and FAN were properly and duly served upon and received by the
respondent?

Ruling :
No. Section 3 of RR 12-99 provides that the service of the PAN or the FAN to the
taxpayer may be made by registered mail. Under Section 3(v), Rule 13 1 of the Rules of
Court, there is a disputable presumption that "a letter dul y directed and mai led was
received in the regul ar course of the mail. " However, the presumption may be
controverted, and in the case of direct denial , the burden is shifted to the party favored
by the presumption to establish that the addressee actuall y received the subject mailed
letter.

Digest o/Select Supreme COllrl Cases on Taxation, C Y 2020 I

I NTRC Tax Research Journal Vo l. XXX IV.2 March - Ap ril 2022 I
The petitioner CIR's mere presentation of the Registry Receipt was insuffi cient to prove
the respondent's receipt of the PAN and the FAN . Witnesses fo r the CrR fa iled to
identify and authenticate the signatures appearing on the registry receipts; thus, it
cannot be ascertained whether the signatures appearing in the docum ents were those of
the respondent's authorized representatives.

4. IMELDA SZE, SZE KO U FOR, & TERESITA NG, PETITIONERS, VS.

BUREAU OF INTERNAL REVENUE (BIR), REPRESENTED BY THE
COMMISSIONER OF INT ERNAL REVENUE (CIR), RESPONDENTS.
[G. R. No . 2 10238, January 06, 2020]

An offense under the Tax Code is considered di scovered onl y after the manner of
commi ssion and the nature and extent of fraud have been definitely ascertai ned, which
occurs when the BIR renders its fi nal decision and requires the taxpayer to pay the
defic iency tax:

Facts:
In 2003, the BIR issued a Letter of Authority (LOA) for the exanlination of accounting
books and records of Chi at Corporation for all internal revenue taxes for 1999 and 2000.
Due to its refusal to present it accounting records, the BIR conducted an investi gation
and di scovered that Chi at Corporation de li berately and willfully misdecl ared its taxabl e
base to evade payment of correct internal revenue li abilities.

Thereafter, the BIR issued a Not ice of Info rmal Confe rence (N lC), Prelim inary
Assessment Noti ce (PAN), Fo rmal Letter of Demand (FLD), and Final Assessment
Notice (FAN). Chiat Corporatio n fa iled to interpose any protest resulting in the fi nality,
and demandability of the assessment on May 26,.2005. I-lence, in 2005, the BIR charged
the officers of Chiat Corporation, petitioners Ime lda T . Sze, Sze Kou For, and Teresita
A. Ng, with tax evasion and/or tax fraud for violati on of the National Internal Revenue
Code (NIRC) of 1997, as amended, but was denied by the Department of Justice (DOJ).
The BIR elevated the case befo re the Court of Appeals (CA) , whi ch resolved that a
probabl e cause was suffi cient ly establi shed for tax evasion and violati on of the NIRC
of 1997, and ordered the DOJ to file the corresponding informati on with the proper
C01ll1. Pursuant to the said decision o f the CA , an amended infornlation

Issue:
Whether the failure of the petItIoner to fLie a protest resulted in the fi nality,
demandabili ty, and executory nature of the assessment for defi ciency taxes triggered
the running oHhe fi ve-year prescripti ve peri od for violation of the prov ision of the Tax
Code?

Ruling:
Yes, Revenue Memorandum Circul ar 10 1-90 provides that an offense under the NIRC
of 1997, as amended, is considered discovered only after the manner o f comm ission
and the nature and ex tent of fraud have been deflllitely ascertained. Thi s occurs when
the BIR renders its fin al decision and requires the tax payer to pay the defi ciency tax.

Digest o/Select Supreme CO llrt Cases on Taxation. C Y 2020 21

I NTRC Tax 'Research Journal Vol. XXX IV.2 March - April 2022 I

The FLO and the FAN for taxable years 1999 and 2000 were served on Chiat
Corporation on February 7, 2005. Chiat Corporation did not file a protest, resulting in
the finality, demandability, and executory nature of the assessment for deficiency taxes.
Counting 30 days from the servi ce of the FLO and the FAN, the violations were
considered discovered on March 9, 2005. However, the original In fonn ation was only
filed in cou rt on April 23, 20 14, which exceeded the five-year prescriptive period.
Therefore, the action had been prescribed .

5. KE PCO PHILIPPINES CORPORATION, PET ITIONER, VS.

COMMISSIONER OF INTERNAL REVENUE (CIR), RESPONDENT.
[G.R. No. 225750-5 1, July 28, 202 0]

The power of the CrR to enter into compromise agreements for deficiency taxes is
explicit in Section 204(A) of the Nat ional Internal Revenue Code (NIRC) of 1997, as
amended. The CIR may compromise an assessment when a reasonable doubt as to the
validity of the claim against the taxpayer exists, or the financial position of the taxpayer
demonstrates a clear inability to pay the tax .

Facts:
On September 8, 2009, Kepco rece ived Preliminary Assessment Notice (PAN) for
alleged defic iency income tax, value-added tax (V AT), expanded withholding tax , and
final with holding tax (FWT) for the taxable year (TY) 2006. On October 30, 2009,
Kepco received a Formal Letter of Demand (FLO) for deficiency VAT and FWT.
Kepco filed its protest to the FLO on November 26, 2009.

Sub sequently~ on June 25, 2010, Kepco fi led its petition before the COUlt of Tax
Appeals (CTA) Division. The CTA Divi sion partly granted Kepco's petition and
canceled the deficiency FWT assessment and the compromise penalties. Kepco was
ordered to pay deficiency V AT plus interest and surcharges. Kepco and the CIR filed
motions for reconsideration but were denied fo r lack of merit.

Not satisfied, on May 5, 2014, Kepco elevated the case to the CTA En Bane but was
denied for being filed out oftime. Kepco sought reconsideration , but the CTA En Bane
denied the motion .

Meantime, on December 28, 2017 , Kepco fi led a Manifestation that it entered into a
compromi se agreement with the C IR on its tax assessments for the years 2006, 2007,
and 2009. In turn, Kepco moved that the case be declared closed and terminated .

The Office of the Solicitor General (OSG) opposed Kepco's manifestation and motion.
It avers that the compromise agreement is not valid because first , it failed to allege and
prove any of the grounds for a valid compromise under Section 3 of Revenue
Regulations (RR) N o. 30-2002; second , the CTA did not yet issue any adverse Decision
against Kepco, hence, there is no "doubtful val idity" to speak of as a ground for a valid
compromise pursuant to Section 2 of RR No . 8-2004; and third, Kepco did not pay in
full the compromi se amount upon the fi ling of the application in violation of Section 2
ofRR No. 9-20 13. The OSG posits that the C IR improperly arrogated un to himself the

122 Digest a/Selecl SlIpreme CalirI Cases on Taxation, C Y 2020 I

I NTRC Tax Research Journa l Vol. XXX IV .2 M arch - April 2022 I
power of the Nati onal Eva luation Board (N EB) to decide on the offer of compromise
when the CIR accepted Kepco' s addi tional payment before the EB could approve or
reject Kepco ' s original application.

Meanwhil e, the C1R fi led his own Reply to the OSG's Comm ent. The C IR asserts that
Kepco paid the full 40% ofthe basic tax assessed fo r TY s 2006, 2007, and 2009 when
it applied for compromise. In consonance w ith Revenue Memorandum Order (RMO)
No. 20-2007, the applicati on was evaluated and processed, the Large Tax payers
Enforcement Collection Division recommended the approval of Kepco's application
and thereafter; forwarded the favorable reconunendation to the La rge Taxpayers
Service-Evaluation Board and subsequently to NEB based on doubtful validity.
Eventually, the NEB approved Kepco's appli cation, and the CIR issued a Certi ficate of
Availment in its favor.

Issue:
Whether the comprom ise agreement is valid?

Ruling:
Yes. The power of the C lR to enter into comprom ise agreements for de fi ciency taxes
is expli cit in Section 204(A) of the NIRC of 1997, as amended. The C lR may
compromi se an assessment when a reasonable doubt as to the validity of the claim
against the taxpayer ex ists, or the fi nancial position of the taxpayer demonstrates a clear
inabi lity to pay the tax.

In this regard, the BIR issued RR No. 30-2002, as amended by RR No. OS-2004, whi ch
enumerates the bases for acceptance of the comprom ise settlement on the ground of
doubtful validi ty, vi z. :

SEC. 3. Basis for Acceptance of Compromise Settlement. - xx x

I. Doubt fu l validi ty of the assessment. - The offer to comprom ise a deli nq uent account
or di sputed assessment under these Regulations on the ground of reasonab le doubt as
to the validity o f the assessment may be accepted when it is shown that:
(a) x x x; or
(e) T he taxpayer fail ed to elevate to the CTA an adverse deci sion of the Commi ssioner,
or hi s authori zed representative, in some cases, within 30 days from receipt thereof, and
there is reason to beli eve that the assessment is lacking in legal and/or factual basis; or
(f) xxx

Kepco's case fall s under paragraph "e" as the assessment became final because Kepco
fai led to appeal the inaction or "deemed denial " of the CIR to the CTA with in 30 days
after the ex piration o f the ISO-day period, and there is reason to believe that the
assessment is lacking in legal and/or factual basis.

As to whether the CIR properly accepted Kepco's offer for a compromise becau se "the
assessment is lacking in legal and/or fac tual basis", the general rule is that the authori ty
of the CIR to compromise is purely discreti onary, and the co urts cannot interfe re wi th
his exercise of di screti onary fu ncti ons, absent grave abuse of discretion. Here, no grave
abuse d f discretion ex ists. Kepco co mplied w ith the procedures prescri bed under the

Digest o/ Select Supreme COllrt Cases 011 Taxation, CY 2020 23

I NTRC Tax Research Journal Vol. XXX IV.2 March - April 2022 I
BIR rules on the application and approval of the compromi se settlement on the ground
of doubtful validity.'

A compromise agreement has the effect of res judicata on the parties. Compromi ses ate
generall y to be favo red, and those entered into in good faith cannot be set aside except
when there is a mi stake, fraud, vio lence, intimidation, undue influence, or fa lsity of
documents. None of these exceptions obtain in the present case.

6. PHILIPPINE DREAM CO MPANY, INC. (PDCI), PETITIONER, VS.

COMMISSIONER OF INTERNAL REVENUE (C IR), RESPONDENT.
[G.R No . 2 16044, August 27, 2020]

Being a court of special j uri sdict ion, the Court of Tax Appeals (CTA) can take
cogn izance onl y of such matters as are cleatly within its j urisdicti on. Whi le the right to
appeal a deci sion of the CIR to the CTA is a statutory remedy, the requirement that
appeal must be brought within the prescribed thirty days peri od is j uri sd ictional.

Facts:
On January 6, 2003, the Bureau of Intel1lal Revenue (B IR) issued a Letter of Authority
(LOA) to petitioner- POCI for exami nation of its financial records for its alleged tax
deficiencies. On December 19, 2005, a Preliminary Assessment Notice (PAN) was
issued to POC I for its supposed value-added tax (V AT) and expanded withhold ing tax
(EWT) deficiencies for the taxable year 2002. POCI protested but was denied on the
grounds that the POCI already ceased its operati on thus its assets were deemed sold and
subj ected to VAT, and POCI fai led to prove that it remitted witWlOlding taxes on rental
payments made. Consequently, a Formal Letter of Demand (FL O) and Final
Assessment Notices (FAN) dated March 3 1, 2006, were issued to POCI, which POCI
received on April 10, 2006.

On May 10,2006, POC I interposed its protest again st the V AT assessment. On January
4, 2007, POCI received a Final Notice Before Sei zure (FNBS) giving it ten (J 0) days
from notice to settle its tax liabilities, otherwise, a watrant of distraint and/or levy and
garnishment shall be issued to enforce co ll ection. Instead of settl ing its liabiliti es, POCI
requested ROO No . 80 to return the case to ROO No . 13 so it can submit evidence to
refute its VAT liability. However, ROO No. 13 deni ed its request on the grou nd that its
tax liabi lities were due for co ll ection because its period to interpose a protest had
expired. Accord ingly, on May 25, 2007, BIR requested the publication of the Notice of
Sale ofPOCl's vessel MV Philippine Dream.

On September 2 1, 2007, POC I fil ed a notice of tax amnesty avaihnent under Republic
Act No. 9480 and requested the release of its vessel. In BIR Ru ling No. OA-5 14-2007,
dated September 27, 2007, the BI R denied PDCl's tax amnesty application for non-
compli ance wi th the requirements of RA 9480 and directed the concerned ROO to
proceed with the auction sa le. On October 31, 2007, PDCI initiated a petition before
the Co urt of Tax Appeals seeking to nullify the Final Notice Before Se izure, Watrant
of Distra int and Levy, and the auction sale, with prayer for restraining order to prevent

Digest a/Select Supreme Court Cases on Taxation, CY 2020 I

I NTRC Tax Research Journal Vol. XXX IV.2 March - April 2022 I
CIR from taking possession of MV Philippine Dream and turning it over to the winning
bidder.

The denied POCI ' s appeal for having been filed out of time. It ruled that the FNBS,
wh ich POCI received on January 4, 2007, was deemed a denial of its protest. POCI,
therefore, had 30 days therefrom or until February 3,2007, within wh ich to appeal. As
it was though, it belatedly fil ed its appeal on October 3 1,2007.

In its motion for reconsideration, POCI asserted that the petition should be given in due
course as it also included the nul lifi cation of the auction sale. The 30-day period for
appeal should be reckoned from the notice orthe certi licate of sa le on October 2,2007.
Thus, the same was still within the period when it filed its petition on October 31 , 2007 .
However, the CTA En Bane denied on the ground that the petition, insofar as it
questioned the auction sale, was filed two (2) days late. The reckoning period was
September 28,2007, when POC I was notified of the auction sale and the BIR ruling on
its defective tax anmesty appl ication.

Issues:
1. Whether PDCI timely fil e its appeal to the CTA?
2. Whether the CTA has jurisdiction to take cogn izance of the petition filed by POCI?

Ruling No. I: No, the appeal was filed out of time. The FNBS can be considered as
CIR's action 6n POCI' s protest, and the 30-day period for appeal must be reckoned
from POCI' s receipt thereof. The correct recourse that the petitioner should have done
was to dispute the final decision on the assessment with the Co urt within 30 days upon
its receipt of FNBS. Section 228 of the National Internal Revenue Code (N IRC) of
1997, as amended, is clear when it states that upon final denial , the only recourse left is
to elevate the assessment to the CTA within a period of 30 days. Unfortunately, the
petitioner chose to file a Petition for Review only on October 31 , 2007, which was
already beyond the period allowed by law.

As to the issue on the auction sa le, the CT A is correct when it held that the 30-day
period should be reckoned from POCl's notice of the adverse BIR ruling (B IR Ruling
No. OA-514-2007), all owing the auction sale to proceed. Pursuant to Section II ofR.A.
No. 11 25, as amended by R.A. No. 9282, the petitioner had thirty (30) days from
September 28, 2007, or until October 29, 2007, within which to seek the nullification
of both the BIR ruling and the auction sale of MIV Phi lippine Dream. However, the
Petition for Review was only fi led on October 31 , 2007, or two (2) days after the lapse
orthe thirty-day period to appeal.

Ruling No.2:
No, the belated filing of appeal deprives the CTA of any authority to entertain it. The
requirement that an appeal must be brought within the prescribed thirty days period is
jurisdictional.

Digesl o/Seleci Supreme Courl Cases on Taxalion, C Y 2020 25

I NTRC Tax Research Journal Vol. XXX I V.2 March - April 2022 I
7. QATAR AIRWAYS COMPANY WITH LIMITED LIABILITY, PETITIONER,
VS. COMMISSIONER OF INTERNAL REVEN UE (ClR), RESPONDENT.
[G.R. No. 23891 4, June 08, 2020)

The 25% surcharge provided in Section 248(A)( I) of the 1997 NIRC is neither unjust
nor excessive, even if the taxpayer was only one-day late filing its tax return and paying
the tax due thereon. Dura lex sed lex.

Facts:
On November 30, 20 11 , Qatar Airways Company wi th Limited Liability (petitioner)
filed, through the Electronic Filing and Payment System (eFPS) of the Bureau of
Internal Revenue (BIR), its 2nd Quarterly Income Tax Return (lTR) for the Fiscal Year
ending March 31, 2012, and paid the corresponding tax due thereon. The said filin g
was one day ,late. Thus, the petiti oner sent a letter to respondent CIR req uesting the
abatement of the surcharge. The BIR issued an assessment notice on May 18,2012 ,
informing the petitioner of its charges/fees .

On Jul y 3, 20 12, via the eFPS , the petitioner paid for the compromise penalty and the
interest for late payment. As for the surcharge, the petitioner sent Letters dated Jul y 4,
2012, and March 7,201 3, to the CIR requesting its abatement or cancellation on the
ground that its imposition was unj ust and excessive considering that: I) the petitioner
paid the tax due just one day after the deadline; 2) such belated filing was due to
circumstances beyond petitioner's control ; and 3) petitioner acted in good faith.

However, the BIR informed the petitioner that its appl icati on for abatement had been
denied. Petitioner sought reconsideration contending inter-alia, that the late filing of
such return was due to circumstances beyond the company's contro l as it was due to a
technical failure brought about by a fa ulty internet corlllection at the company's office,
but the BIR denied due co urse thereon. Undeterred , the petitioner appea led for another
reconsideration, which the CIR denied for the last ti me. The petitioner fil ed a Petition
for Review before the Court of Tax Appeals (CT A). However, th e CT A Second
Division denied the petition for lack of jurisdiction. It held that the 30-day peri od to file
a Petition for Review already commenced when the petitioner received the letter of the
BIR denying its request for reconsideration . Upon appeal , the CT A En Banc rul ed that
while the petition for review was seasonably fi led, the surcharge imposed by the BIR
was not unjust nor excessive

Issue:
Whether the surcharge is unjust or excessive subject to abatement or cancellation?

Ruling:
No. In 200 I, the BIR issued Revenue Regulations (RR) I o. 13-200 I prescri bing the
guidelines on the implementation of Section 204(B) regarding abatement or
cancellation of in tenia I revenue tax li abiliti es. The eTA En Banc, citing the CIR's April
3, 20 14 Letter, fowld that there was no advice on eFPS unavailability on November 29,
20 11 , and the delay could have been easily avoided had the petitioner undertaken to file
its ITR earlier or before the deadline. The Court agrees with the eTA En Bane that the
surcharge imposed upon the petiti oner was not unjust or excessive pursuant to Section

Digesl a/Seleci SlIpreme Caliri Cases on Taxalion. CY 2020 I

I NTRC Tax Research Journal Vol. XXXIV .2 March - Apri l 2022 I

248(A)( I) of the 1997 NIRC , which provides for the imposition of a penalty equivalent
to 25% of the amount due for failure to timely file any return and pay the tax due
thereon. Dura lex sed lex.

A technical malfunction is not a situation too bleak to render the petitioner completely
without recourse. As correctl y observed by the CT A, the petitioner would not incur a
delay in filing its ITR if only it filed the same before the deadline and not at the II th
hour or on the last day of fili ng.

F. TAX REFUND

1. COMMISSIONER OF INTERNAL REVENUE (CIR), PETITIONER, VS.

CHEVRON HOLDINGS, INC., [FORMERLY CAL TEX (ASIA) LIMITED],
RESPONDENT.
[G.R. No. 233301 , February 17, 2020]

RMO No. 53-98 assumes relevance only on malters pertinent to an audit of tax
liabilities. [tfinds no application in the claimfor a ref und of input lax.

Facts:
Chevron, a US corporation duly registered with the Securities and Exchange
Commission and the Bureau of Internal Revenue (BIR) to transact business in the
Philippines as regional operating headquarters , filed 011 November 2, 2010, an
application for tax credit/refund for excess input value-added tax (V AT) credits
pertaining to taxable quarters o f2009.

Having its application unacted upon by the BIR, Chevron appealed to the Court of Tax
Appeals (CTA), which parti ally granted the petition and ordered the CIR to refund or
to issue a tax credit certilicate in the reduced amount as not all the amount claimed was
duly substantiated and therefore not all tbe input VAT claimed was allowed.

Both the BIR and Chevron fi led their respecti ve motions for reconsiderati on. The BIR
maintains that Chevron 's petition with the CTA Divi sion was prematurely filed since
the 120-day period (for the BIR to decide the admini strative claim for refund) did not
even commence to run for the failure of Chevron to submit complete documents to
support its claim pursuant to Revenue Memorandum Order (RMO) No. 53-98.
Chevron, on the other hand , argues that the BIR did not notify it of the need to submit
additional supporting documents to substantiate its claim and stresses that absent such
notification, the documents it submitted are deemed complete and sufficient.

Issue:
Whether or not the failure of the taxpayer to submit all the documents enumerated in
RMO No. 53 -98 is fatal to its judicial claim for a VAT refund?

Ruling:
No. RMO No. 53-98 is addressed to internal revenue officers and employees for
purposes of equity and uniformity to guide them as to what documents they may require

Digesl Qf Selecl S upreme COlII'I Cases on Taxalion. C Y 2020 27 I

I NTRC Tax Research Journal Vol. XXX lV.2 March - Ap ril 2022 I
taxpayers to present upon aud it of their tax liabilities:The BIR's reliance on RMO 53-
98 is mi splaced. There is nothing in Sectio n 112 of the ational Intemal Revenue Code
(NIRC) of I 997, as amended , Revenue Regulations (RR) 3-88 or RMO 53-98 itself that
requires submission of the complete documents enumerated in RMO 53-98 for a grant
of a refund or credit of input VAT.

RMO No. 53-98 assumes relevance only on matters pertinent to an audit of tax
liabiliti es. Thus, it finds no application in the present case since Chevron's claim is one
for a refund of its input tax .

Here, Chevron submitted all documents it deemed necessary for the grant of its refund
claim. Interestingly, the BIR did not notify Chevron of the document it failed to submit,
if any. In fact, there is not a single letter or notice sent to Chevron informing it of its
failure to submit complete documents and/or ordering the production of the lacking
documents necessary for the allowance of the claim. The BIR should have taken a
positive step in appraising Chevron of the completeness and adequacy of its supporting
documents considering their particular relevance in reckoning the 120-day period under
Section I 12(C) ofthe NIRC of 1997, as amended .

2. ZUELLIG-PHARMA ASIA PACIFIC LTD. PHlLS. ROHQ, PETITIONER, VS.

COMMISSIONER OF INTERNAL REVENUE (CIR), RESPONDENT.
[G.R. No. 244154, July 15, 2020]

For claims for a refund made prior to June 11, 2014, the rule is that it is the taxpayer
who ultimately determines when complete documents have been submitted for the
purpose of commencing and continui ng the rulming of the 120-day period. For claims
for refund filed on June I I, 20 14, and thereafter, RMC 54-20 14 is the controll ing rule
where it provides that the taxpayer is required to submit complete documents upon its
filing of an adm inistrative claim for a V AT refund/tax credit, as no other documents
shall be accepted afterward.

Facts:
Zuell ig-PH, a regional operating headquarters (ROHQ) ofZuell ig-Pharma Asia Pacific
Hong Kong, filed on February 15, 201 I, its amended Quarterly Value-Added Tax
(VAT) Retums for 2010 and filed an administrative claim for refund with the Bureau
of Internal Revenue (BIR) on February 17,20 11.

On June 29, 20 1 I , the BIR requested Zuellig-PH to present its records and submit
supporting documents in relation to its administrative claim for a refund . In response
thereto, Zuellig-PH submitted the req uested documents to the BIR on Jul y 5, 2011. The
BIR made fUliher verbal requests fo r the su bmi ssion of documents from 2012 until
2014, to which the fornler acceded .

The BIR, again, requested Zuellig-PH to resubmit certain documents, to which the latter
complied on Apri l 29, 20 14. In the same letter, Zuellig-PH manifested that it had
already submitted tl1e complete documents in support of its application. However, the
BIR failed to act on the administrative claim for refund with in 120 days fro m receipt of

I 28 Digest a/Select Supreme Court Cases on Taxation. CY 2020 I

I NTRC Tax Research Journal Vol. XXXIV.2 March - April 2022 I

Zuellig-PH's last correspondence on April 29, 2014 (the I 20th day being August 27,
2014), thus Zuellig-PH filed a Petition for Review before the Court of Tax Appeals
(CTA) -Second Division on September 25, 2014.

BIR argued that the CTA di d not acquire jurisdiction over the case, considering that
Zuell ig-PH's judicial claim for refund was belatedly filed. In particular, the BIR pointed
out that since Zuellig-PH filed its admini strative claim for refund on February 17,2011 ,
the RDO had until June 11, 20 11 , to act on the claim. When the RDO failed to do so,
Zuellig-PH should have fil ed a judicial claim with the CTA within thirty (30) days
therefrom, or 'wltil July 11 , 2011. Since Zuellig-PH filed its judicial claim only on
September 25, 2014, which was clearly long after the lapse of the 30-day period, the
claim was already belatedly fi led.

Issue:
Whether petitioner Zuell ig-PH 's judicial claim for refund was filed out of time?

Ruling:
No, Zuellig-PH 's judicial claim for refund was timely filed on September 25,2014. As
held in the Pi lipinas Total Gas case, it is the taxpayer who ultimately determines when
complete documents have been submitted for the purpose of commencing and
continuing the running of the 120-day period. The 120-day period should be reckoned
from the April 29, 2014 letter of Zuellig-PH wherein it stated that it had already
submitted the complete documents in support of its refund claim. In turn, the BIR had
120 days from such time (or until August 27, 2014) to act on Zuellig-PH's
administrative claim for a renmd. Since it was established that the BIR failed to act
within such a period, Zuellig-PH had thirty (30) days, or until September 26, 20 14, to
fi Ie its judicial claim.

In this case, records show that Zuellig-PH dul y complied with the BIR officials' written
and verbal requests for additi onal documents through its letters dated July 5, 2011, May
8, 2012, July 25 , 2012, December 6, 2012, September 11 , 2013, and April 29, 2014,
with the last letter ind icating tbat it had "already submitted the complete documents in
support of [its] application for refund of excess and un utilized input VAT for the four
(4) quarters of TY 2010 in the amount of Php39,931 ,97J.2J." Notably, all of these
verbal requests for additional documents and Zuellig-PH's corresponding submissions
in response thereto were well-documented and al l confirmed by the BIR; hence, there
is no danger of losing track of when to reckon the 120-day period.

As a final note, the Court clarifies that the above disquisition only tinds application to
those claims for a refund made prior to June 11 , 2014 (i.e., the date that RMC No. 54-
2014 was issued). Under thi s new circu lar, the taxpayer is now required to submit
complete documents upon its filing of an administrative claim for a V A T refund/tax
credit, as no other documents shall be accepted thereafter. For this purpose, the taxpayer
shall also execute a statement under oath attesting to the completeness of said
documents which shall also be submitted upon such filing. Thus, under the auspices of
RMC No. 54-20 14, there is no more need to delineate between verbal or written
requests for add itional documents because the subm ission thereof is not anymore

Diges/ a/Selec/ Slipreme Caliri Cases on Taxa/ion. C Y 2020

I NTRC Tax Re search Journal Vol. XXXIV .2 March - April 2022 I
allowed. To r.eiterate, the prevailing rule now is that all complete documents are to be
submitted upon the filing of the taxpayer's admi ni strative claim for a refund.

G. REAL PROPERTY TAX

I . MUNICIPALITY OF CAINTA, RlZAL, PETITIONER, V. SPOUSES ERNESTO

E. BRANA AND EDNA C. BRANA AND CITY OF' PASIG, RESPONDENTS.
[G.R. No. 199290, February 03 , 2020]

The LGU where th~ property is located has the authority to assess or appraise the
current and fair market value of the propelty and to collect the taxes due thereon .

Facts:
Spouses Braiia are the registered owners of six (6) parcels ofland located at Pasig Green
Park, Cainta Rizal. They religiously paid real estate taxes on the subject properties to
the Municipality of Cainta fro m 1994 to 1996. In 1997, the Ci ty of Pasig filed a civil
case for the collection of unpaid taxes against Spouses Braiia. It claimed that the subject
properties were all geographically located in Pasig City. However, the Municipality of
Cainta continued to demand that Spouses Braiia pay real estate taxes over the same
properties. As such, Spouses Brafia filed an action for interpleader to compel the two
local government units (LGUs) to litigate with each other; as a pre-emptive measure to
another possible tax collection case that the Municipality of Ca inta might fi le against
Spouses Braiia. Meanwhile, on January 30, 1994, the Municipality of Ca inta filed a
petition for the settlement of a boundary di spute against the City of Pasig with the
Regional Tria l Court (RTC) of Antipolo City.

In the action for interpleader, the Munici pality of Cainta claims that it is entitled to the
payment of real estate tax on the ground that the subj ect properties are within the
geographical jurisdiction of Cainta under the Cainta-Taytay Cadastral Survey. Further,
the subject properties have long been registered for tax purposes in Cainta, before the
City ofPasig assessed the same in 1997. For its part, the City ofPasig claims that the
locational entries in the Transfer Certificate of Titles (TCTs) state that the properties
are located in Barangay Santolan, Mun icipality of Pasig. Further, the Department of
Finance (DOF) has consistently rul ed that the location of the property, as indicated in
the certificate of title, is contro lling as to the venue of payment of real estate taxes.

Issue:
Whether real estate taxes due upon the subj ect properties owned by Spouses Braiia
should be paid to the City of Pasig or the Municipality of Cai nta?

Ruling:
Still to be determined. Under the Real Property Tax Code, it is providcd that the LGU
where the property is located has the authority to assess or appraise the current and fair
market value of the property and to collect the taxes due thereon. Thus, to determine
who has the right to collect taxes from Spouses Bnula, it is necessary to determine the
locati on of the property. However, this Court cannot make any definitive ruLing on the
location of the property due to the pending boundary dispute case.

Digest a/Select Supreme COllrt Cases on Taxation, C Y 2020 I

I NTRC Tax Research 10urnal Vol. XXXI V.2 March - April 2022 I
While the TCTs state that the location is in Pas ig, the same cannot be reli ed on in this
case because the location of the property is precisely in di spute. The RTC of Antipolo,
which bas jurisdiction over the boundary di spute case, would be the best forum to
determine the precise metes and bound s of the LG Us with respect to their territorial
jurisdiction, as well as the extent of each LG U's authority, such as its power to assess
and collect real estate taxes. Thus, it would be more prudent to avo id any further
animosity between the two LG Us, Spouses Brana are ordered to deposit the succeeding
payment of real estate taxes due on the subject properties in an account with the Land
Bank of the Phi li ppines in escrow for the City ofPasig/the Muni cipality of Cainta. The
proceeds of the same will be released to the local government adjud ged by virtue of a
fin al judgment on the issue of territori al jurisdiction over the di sputed areas.

2. P R OVI NC IAL GOVERNMENT OF CAV ITE AND P ROVINCIAL

TREASURER O F CAVTTE, PETITIONERS, VS. CQM MANAGEMENT, INC.,
[AS SUCCESSOR-JN-INTE REST OF THE PHI LIPPI NE INVESTMENT ONE
(SPV-AMC), JNC], RESPONDENT.
[G.R. No . 24803 3, Jul y 15,2020]

Unpaid real property taxes attached to the property and are chargeable against the
taxable person who had actual or beneficial use and possess ion of it regardless of
whether or not he is the owner.

Facts :
In 2014, respondent CQM Management, Inc., became the new owner of Maxon and
Ultimate properties, which it acq uired through Deed of Assigrunents and auction sale,
respectively. Both pro perties are located at Main Avenue, Philippine Economic Zone
Authori ty (PEZA), Rosario, Cavite.

Respondent, tried to consolidate its tax decl arations over the two properti es after the
lapse of the redemption periods. From the records of the Provincial Treasurer ofCavite,
Maxon, and Ultimate have unpaid real propelt y taxes in the fo llowi ng amounts: (1)
Maxon - P I 5,888,089.09 (for the years 2000-201 3); and (2) Ultimate -
P6,238,407.76 (for the years 1997-2013 ). Because of the unpaid real property taxes, the
respondent could not obtain the necessary tax clearance from petitioners in order to
transfer the tax declarations over the properties under its name. Worse, the Provincial
Treasurer of Cavite issued a tax assessment and a warrant of levy against Maxon and
Ultimate after having d ec l ar~d the properties as delinquent. [t also set the same for
public auction on December 10, 20 14, in order to satisfy the unpaid real property taxes
assessed against them .

Respondent filed a petition for inj unction with prayer fo r a temporary restrain ing order
and preliminary injuncti on against the Provincial Government of Cav ite and the
Provincial Treasurer of Cavi te (coll ecti vely, peti tioners) in connection with Maxon' s
and Ultimate' s unpaid real property taxes and the impendin g tax delinquency sale of
their properties.

Digest olSelect SlIpreme COllrt Cases 0 11 Taxation, C Y 2020 31

I NTRC Tax Research Journal Vol. XXXIV.2 March - April 2022 I

The Regional Trial Court (RTC) ruled in favor of respondent CQM Management, Inc.
holding that the respondent is not liable for the real property tax since the Maxon and
Ultimate properties, which are located in a special economic zone under the PEZA in
Cavite, are exempt from any local or national tax , save for a 5% tax on their gross
IIlcome.

The case was elevated to the Court of Appeals (CA), but the petition was also denied,
inasmuch as the respondent was nei ther the owner nor did it have actual or beneficial
use or possession of the subject properties at the time of accrual of the taxes sought to
be col lected . The CA also ruled that the properties invol ved were exempt from real
estate taxation pW'suant to Section 24 of RA No. 7916, as amended. The CA further
ruled that some of the unpaid realty taxes sought to be collected were already prescribed
and can no longer be collected under Section 270 of RA No. 7160, also known as the
Local Government Code (LGC), which provides that the basic real property tax (RPT)
shall be collected within five (5) years from the date they become due and that no action
for the collection of the tax , whether administrative or judicial, shall be instituted after
the expiration of such period.

Issue:
Whether respondent CQM is liable fo r any unpaid RPT?

Ruling:
No. Respondent CQM was not yet the owner or entity with the actual or beneficial use
of the properties during the years for wilich petitioners sought to collect RPT.
Specifically, petitioners sought to collect from respondent RPT due on the Maxon
property for the years 2000-2013 and on the Ultimate property for the years 1997-201 3.
However, the respondent became the owner of the Maxon property and the Ultimate
property only in March 2014, and August 20 14, respecti vely. To impose the RPT on
the respondent, which was nei ther the owner nor the beneficial user of the property
during the designated periods would not only be contrary to the law but also unjust.

Moreover, a contractual assumpti on of the obligation to pay RPT, by itself, is

insufficient to make one liable for taxes. The contractual assumption of the tax liability
must be supplemen\ed by an interest that the paliy assuming the liability had on the
property; the person from whom payment is sought must have also acquired the
beneficial use of the property taxed . In other words, he must have the use and possession
of the property.

Parenthetically, the respondent is exempt from paying RPT over the Maxon and
Ultimate properties from the time it had acquired ownership and/or actual or beneficial
use of the properties pursuant to Section 24 of RA No. 7916, as amended by RA No.
8748. As correctly ruled by the CA, there is nothing in Section 24 which requires prior
concurrence from the local govemment unit before the respondent can avail himself of
the exemptioil provided under the law. In fact , under Section 35 of RA No . 7916, the
only requirement for business enterprises within a designated ECOZONE to avail
them selves of all incenti ves and benefits provided for under RA No. 7916 is to register
with the PEZA . This requirement was satisfied by the respondent. Lastly, as conectIy
ruled by the CA, the collection of some of the unpai d real property taxes sought by the

Digest a/Seleci Supreme Courl Cases on Taxation, CY 2020 I

I NTRC Tax Research Journal Vol. XXX I V.2 March - Apr i1 2022 I
petitioner is already prescribed under Section 270 ofRA No. 7160, whi ch provides tbat
"the basic RPT shall be co llected within five (5) years from the date they become due,"
and that "no action for the collection oftbe tax, whether administrative or judicial, shall
be instituted after the expiration of such peri od" .

3. PHILIPPINE HEART C ENTER (PHC), PETITIONER V. THE LOCAL

GOVERNMENT OF QUEZON CITY, CITY MAYOR OF QUEZON CITY,
C ITY TREASURER OF QUEZON CITY, AN D CITY ASSESSOR OF Q UEZON
CITY RESPONDENTS.
[G .R. No. 225409, March 11 ,2020]

Government properties leased out to private persons onl y lose the ir exemption from
bein g taxed , but it did not lose their exemption from the means to collect such taxes,
such as levies. In such cases, the only recourse of LGUs is to institute judicial action
for the collection of RPT against private indi viduals with beneficial use of government
properties.

Facts: In 1975, the PHC was establi shed under Presidential Decree (PD) No. 673 as a
specialty hospital mandated to provide expert comprehensive cardiovascular care to the
general public, especially the poor and less fortunate in life. PD No. 673 authori zed the
PHC to acquire propert ies; enter into contracts; and mortgage, encumber, lease, sell ,
convey, or dispose of its properties. Moreover, it exempted the PHC from "the payment
of all taxes, charges, fees imposed by the Government or any political subdivision or
instrumentality thereof' for a period of ten (10) years. In 1985, then President Ferd inand
E. Marcos issued a Letter of Instruction (LOl) 1455 extending the tax exemption
"without interrupti on."

Among the properties owned by the PHC were land and buildings in Quezon City (QC).
In 2004, respondent QC Goverrullent issued final Notices of Delinquency for unpaid
RPT pertaining to the afore-c ited properties of the PH C. The notices were unheeded,
thus, the respondent QC Treasurer levied on the PHC's properties. Aggrieved, the PH C
wrote to then President Gloria M. Macapagal-Arroyo for condonation or reducti on of
the taxes assessed on its properti es, but said the letter was not acted upon. Si nce its
letter was not acted upon, the PHC entered into a Memorandum of Agreement (MOA)
with the QC Government as a means to sett le its tax liabilities.

Meanwhile, the Office of the Government Corporate Cowlsel (OGCC) informed the
PHC that government entiti es are exempt from taxes, fees, or charges of any kind that
may be imposed by any local governm ent unit (LGU). The QC Government,
nonetheless, stood firm on its position that the PH C was and still remained liab le for
RPT since a major portion of its properties were being leased to private indi viduals.
Thus, the respondent QC Treasurer issued a Warrant of Levy for the PHC 's fa ilure to
pay RPT despite due notice, and after due publ ication, all the properties were sold to
the QC .Govenunent, the lone bidder durin g the public auction.

Issue: Whether PH C's properties leased out to private indi vidual s loses thei r tax-
exempt status and are consequently subject to levy for coll ection of unpaid taxes?

Digest a/Select SlIpreme COllrt Cases on Taxation. CY 2020 33

I NTRC Tax Research Journal Vol. XXXIV.2 March - April 2022 I
Ruling: No, the Republic and its instrumentalities, including the PHC, retain their
exempt status despite leasing out their properties to private individuals. The fact tbat
PHC was short of alienating its properties to private parties in relation to the
establishment, operation, maintenance, and viability of a fully functional speciali zed
hospital does not divest them of their exemption from levy; the properties only lost the
exemption from being taxed, but they did not lose their exemption from the means to
collect such taxes.

Although LGUs have the power to collect RPT, such power can only be exercised when
the subject property 's beneficial use has been granted to a "taxable person." It is the
"taxable person" with beneficial use who shall be responsible for payment of RPT due
on government properties. Any remedy for the collection of taxes should then be
directed against the "taxable person," the same being an action in personanl.

Otherwise stated, LGUs are precl uded from availing of the remedy of levy against
properties owned by government instrumentalities, whether or not vested with
corporate powers, such as the PHC. This leaves the QC Government with on ly one
recourse - judicial 1)ction for the co llection of RPT against private individuals with
beneficial use of the PHC's properti es.

Section 234(a) of Republic Act (RA) No . 7160 exempts real property owned by the
Republic from real property taxes except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person. Thus, the Court has
invariably held that a government in strumentality, though vested with corporate
powers, is exempt from real property tax , but the exemption shall not extend to taxable
private entities to whom the beneficial use of the government instrumentality 's
properties has been vested.

H. LOCAL BUSINESS TAX

I. THE CITY OF MAKATI, PETITIONER, VS. THE MUNICIPALITY OF

BAKUN AND LUZON HYDRO CORPORATION, RESPONDENTS.
[G.R. No. 225226, July 07, 2020)

The mere label of a project office does not convert a mere adm ini strative office into
one, if the term is used in such a way that carries tax implications. Thus, to be
considered a "project office" for local business tax purposes, an office needs to be
directly involved in the production or operati ons of a business.

Facts: Luzon Hydro Corporation (LHC) operates a hydroelectric power plant

harnessing the Bakun River that runs through the Provinces of !locos Sur and Benguet.
The major components of its plant facility, such as the power station and switch yard,
are situated in Ali lem, !locos Sur. Other structures, such as the conveyance tunnel,
penstock, wier, intakes, and desander, are located in Bakun, Benguet. LHC also
maintains an office in Makati City.

Digest a/Select Supreme Callrt Cases on Taxation, C Y 2020 I

I NTRC Tax Research Journal Vol. XXX IV.2 March - Apri l 2022 I
In 2004, LHC'began paying local business taxes (LBT) to Alil em, Bakun, and Makati.
LHC pays Alil em the 30% porti on of its LBT a llocated for the site of the principal
office, conformably with Section 150 of RA No. 7160 or the Local Govenmlent Code
(LGC) of 1991, as amended , given that Alilem is specified as the location of LHC's
principal office in its Articles of Incorporation. For three years since 2004, the 70%
portion of the LBT was equally apportioned among Alilem, Bakun, and Makati, such
that each local government unit (LGU) received 23.33% -Al il em and Bakun as power
plant sites and Makati as a "proj ect office" site. It is the sharing in the 70% portion that
became the bone of contention among the three LGU s.

Bakun questioned the sharing scheme, thus, the matter was submitted to the Bureau of
Local Govenmlent and Finance (BLGF) fo r determination . The BLGF opined that onl y
Bakun and Alilem should share in the 70% portion of LHC's LBT because LHC's
Makati office was a mere "admi ni strative offi ce" and thus, Makati can only collect the
mayor's permit fee and other regul atory fees under its existing local tax ordinances.

Notwithstanding the BLGF opin ion, Makati informed LHC that it would still assess the
latter's LBT. To resolve the ensuing uncertainty, LHC fi led the action for interpleader.
The Regional Trial Court (RTC) of Makati City found that LHC's Makati office was a
"project office," which entitled Makati to an eq ual share with LHC's power plant sites
from the 70% portion of LHC's business tax. On appeal, the Court of Tax Appeals
(CTA) reversed the RTC decision and ru led that the City of Makati was not entitled to
an equal share in the 70% allocati on.

Issue:
Whether LHC's Makati office was a mere "admini strative office," not entitl ed to the
70% local business tax allocation?

Ruling:
Yes. LHC's Makati office was not a proj ect office that wou ld have entitl ed the City of
Makati to an equal share in the 70% di sputed 3JnOWlt. In tackling what constitutes a
proj ect office, it was not erroneo us for the CTA to cite Department of Fi nance-Local
Finance Circular No. 3-95 dated May 22, 1995. On the situs of tax , Section 5(a)(3) of
the said Circular defines a proj ect office as "equivalent to the factory of a
manufacturer."

The rules on tax allocation in relation to tax situs under Section 150 of Republic Act
No. 7 160 come into play when a business subj ect to it does not operate a branch or sales
office outside ,of its principal office where all sa les are recorded, but has a factory,
project office, plant, or plantation situated in different localiti es, whether or not sales
are made in these localities. Thus, even ifno sales were recorded or undertaken at LHC's
Makati offi ce, Makati would have been entitled to share with LHC's power plant sites
in the 70% portion of tbe busi ness tax if it cou ld be shown that the Makati office was a
project office ofLHC akin to a factory. The enumeration itself - factory, project office,
plant, or plantation - reveals the character of the office contemplated by the provi sion.
These are offices directl y in volved in production or operations; hence, the inescapable
conclusion that LHC's Makati offic e was a mere admini strative office.

Digest v/Select Supreme COlirt Cases on Tuxation, C Y 2020 35

I NTRC Tax Research Journal Vol. XXXIV.2 March - April 2022 I

What constitutes a project office in relation to the rules on business tax situs was central
to the tax court's re~olution of the controversy. It was not reversible error for it to set
aside the trial court's erroneous conclusion. The RTC made a conclusion of fact based
on loose reference to the Makati offi ce as a project office in various communications
and in LH C's pleadings, as well as prior treatment of it as a project office. These are
immaterial , given LHC's willingness to pay the business tax in full to any or all of the
claimants. The obligat ion to pay taxes is one that arises from law and not from the
agreement or acquiescence of the patties or contending claimants. The mere label of a
project office does not convert a mere administrative office into one, if the term is used
in such a way that carries tax implications. 1lle question was submitted to the tax court,
which ruled on the matter based on its technical expertise. We find no reversible error
in its application of the laws and rules within its competence

2. CITY OF DAVAO AND MR. ERWIN ALPARAQUE, IN HIS OFFICIAL

CAPACITY AS ACTING CITY TREASURER OF THE CITY OF DAVAO,
PETITIONERS, VS. AP HOLDINGS, INC. (APRI), RESPONDENT.
[G.R. No. 245887, January 22, 2020]

A holding company of govermnent funds and assets, such as the API-II, camlOt be
considered a non-bank financial intermediary. As such, it is not liable to pay local
business taxes on the dividends earned from its preferred shares, as the same shares are
govermnent assets owned by the national government to benefit the coconut industry.

Facts:
The Coconut Industry Investment Fund (CIIF) under Presidential Decree (PD) No. 582
is a fund from part of the levy imposed on the inilial sale by coconut farmers of copra
and other coconut products. Pursuant to PD No . 582, the CIIF has invested in six (6)
oil mills, the CIIF Oil Mill s Group (CIIP OMG).

Respondent APHI was established by CIIF OMG as a holding company and, over time,
received di vidends from shares in San Miguel Corporation (SMC). These di vidends
were deposited in a trust account which earned interest from money market placements.

In 2011 , the petitioner City ofDavao, through its City Treasurer, issued a Business Tax
Order of Payment directing APHI to pay local business tax (LBT). Pursuant to Section
69(1) of the 2005 Revenue Code of the City of Davao, the tax was assessed on the
dividend s and interests APHI earned from its SMC preferred shares and money market
placements. APHI paid the assessment under protest. Subsequently, it filed an
administrative claim for a refund or tax credit with the City Treasurer. Claiming that
the City Treasurer failed to act on the protest, APHI filed a petition for review with the
Regional Trial Court (RTC), which ruled in favor of the petitioner City of Davao. On
appeal , the Court of Tax Appeals (CTA) reversed the RTC decision and ruled in favor
of APHI entitling it to a tax refund or credit.

Issue:
Whether as a CllF holding company, respondent APHI is liable to pay LBT on its
dividend earn ings from its SMC prefe rred shares?

Digest o/Select SlIpreme COllrl Cases on Taxation, CY 2020 I

I NTRC Tax Resea rch lournal Vol. XXX IV.2 March - April 2022 I

Ruling:
No. CIIF holding companies, including APHI itself and the entire CTTF block of SMC
shares, are public assets owned by the Republic of the Philippines. Consequently,
dividends and·any income from these shares are also owned by the Republic. On this
score, APHI cannot be considered a non-bank financial intermediary since its
investment and placement of funds are not done in a regular or recurring manner for
the purpose of earning profit. Rather, its management of dividends from the SMC shares
is onl y in furtherance of its purpose as a C II F holding company for the benefit of the
Republic.

The SMC preferred shares held by it are considered goverrunent assets owned by the
Nati onal Goverrunent for the coconut industry. As held in the same case, these SMC
shares, flS well as any resulting dividends or increments from sa id shares, are owned by
the National Govenunent and shall be used only for the benefit of the coconut farmers
and for the development of the coconut industry. Consequently, the local government
ofDavao cannot tax a National Goverrunent pro perty.

l. UNCONSTITUTIONALITY OF TAX PROVISIONS

FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, PETITIONER,

VS. COLON HERITAG E REALTY CORPORATION, OPERATOR OF
ORIENTE GROUP OF THEATERS, REPRESENTED BY ISlDORO A.
CANIZARESIFILM DEVELOPMENT COUNCIL OF THE PHILIPP[NES VS.
CITY OF CEBU AND SM PRIME HOLDINGS, INC. (SMPHI),
RESPONDENTS.
[G .R. No . 203754/G.R. No. 204418, November 03, 2020]

With the unconstitutionality of Sections 13 and 14 of Republic Act (RA) No. 9 167,
proprietors, operators, or lessees of theatres or cinemas are no longer under any
obli gation to remit to FOCP the amusement taxes on graded films from October 15,
20 19, or the finality of this case.

Facts:
On June 7, 2002, Congress passed RA No . 9167, creating the Fi lm Devel opment
Council of the Philippines (FOCP). Sections' 13 and 14 thereof provide that the
amusement tax on certain graded films which would otherwi se accrue to the cities and
municipalities in Metropolitan Manila and highly urbanized and independent
component cities in the Phili ppines pursuant to Section 140 of RA No. 7160 or the
Local Government Code (LGC) of 1991 during the period the graded film is exhibited,
should be deducted and withheld by the proprietors, operators or lessees of theaters or
ci nemas and remitted to the FOCP, which shall reward the same to the producers of the
graded film s . .

In the June 16, 2015 Decision, the Court struck down as invalid and unconstitutional
Sections 13 and 14 of RA No. 9167, essentially holding that these provisions violated
the principle of local fi scal autonomy because they authorized the FDCP to earmark,
and hence, effecti vely confi scate the amusement taxes which should have otherwise

Digesl a/Seleel Supreme Courl Cases on Tax ation. C Y 2020

I NTRC Tax Research Journal Vol. XXXIV .2 March - Apri l 2022 I
inured to the benefit of the local goverrunent units CLGUs). However, recognizing tbe
ex istence of these statutory provi sions and the reliance of the public thereto prior to
their being declared unconstituti onal, the Court applied the doctrine of operative fact.

In the October 15, ,20 19 Resoluti on, the Court denied with finality the motion for
reconsideration of the FDCP, which hence, rendered the issue anent the
unconstitutionality of Sections 13 and 14 ofRA No. 9167 final and executory.

This notwithstand ing, SMPHI, in the present Urgent Motion, had drawn the Court's
attention to the fact that it received a Memorandum dated December 11,2019, wherein
FDCP's Chairperson and CEO, Mary Liza B. Dino, directed all theater owners to
process all amusement tax remittances accorded to films graded before December 10,
20 19, i.e. , the date it received the Court's October 15, 2019 Resolution, with a further
warning that non-compliance therewith will result in legal action. In the foregoing
regard, SMPHl, avers that the amusement taxes collected from the exhibition of the
graded film s during the Metro Mani la Fi lm Festival were not yet due to FDC P. It claim s
that the screening of the films started on December 25, 2019, and most of them stopped
on January 7, 2020. Thus, the amusement taxes would have been due for remittance to
FDCP thirty (30) days after or on February 6, 2020, by virtue of Section 14 of RA No.
9 167. Accordingly, SMPHI seeks clarification from the Court.

Issue:
Whether SM PHl should remit to FDC P amusement taxes withheld or which were due
for remittance after December 10, 20 19, specifically for the graded films exhibited
during the Metro Manila Fi lm Festi val?

Ruling: No . With the unconstitutional ity of Sections 13 and 14 of RA No. 9 167,

proprietors, operators, or lessees of theatres or cinemas are no longer under any
obl igation to remit to FDCP the amusement taxes on graded film s, which should have
accrued to the LGUs. Conversely, FDCP no longer had any legal right to receive or
demand the same. The Court clarifies that pursuant to the operative fact doctrine,
FDCP's right to claim all taxes withheld by proprietors, operators, or lessees of theatres
or cinemas, which may otherwise accrue to the cities and mWlicipalities in Metropolitan
Manila and hi ghl y urbani zed and independent component cities in the Philippines
pursuant to Section 140 ofRA No. 7160 during the period the graded film is exhibited,
is only recognized from the date of effectivity of RA No. 9 167 up until October 15.
20 19 (finality of this case).

Hence, in response to the query in the Urgent Motion, SMPHI should no longer remit
to FDCP am usement taxes withhel d or which were due for remittance after December
10, 2019, specifically for the graded films exhibited during the Metro Mani la Film
Festival.

As a final point, it must be reiterated that Sections 13 and 14 limited recognition is only
premised on the appli cation of the operative fact doctrine . Sections 13 and 14 are void
statutory provisions that should not have prod uced legal effects were it not for the
operative fact doctrine. Indeed, to allow FDCP to claim revenue from amusement taxes
at the point of sale, although the fil m is to be ex hibited post-October 15, 20 19, would

Digest o/Select Supreme COllrt Cases on Taxation, C Y 2020 I

I NTRC Tax Research lournal Vo l. XXX IV.2 March - April 2022 I

not only defy the express language of Section 14, which caps FDCP's right to revenues
from amusement taxes "during the period the graded fi lm is exhibited" , it would also
deprive the LGUs of revenue that should have, beginning October 15 ,2019, ri ghtfull y
redounded to their benefit.

Digest a/Select Supreme Court Cases on Taxation, CY 2020