TAX 1 DIGEST

ATTY. VICENTE VILLA CAONEO

COMMISSIONER OF INTERNAL REVENUEvs.CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS
G.R. No. L-29059 December 15, 1987
FACTS: By virtue of a decision of the CTA, as modified on appeal by the Supreme Court, the CIR was ordered to refund to Cebu
Portland Cement Company the amount of P 359,408.98, representing overpayments of ad valorem taxes on cement produced and
sold by it. When respondent moved for a writ of execution, petitioner opposed on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance
owing on the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge. The CTA granted the CIRs motion.
The CIR claims that the refund should be charged against the tax deficiency of the private respondent on the sales of cement
under Section 186 of the Tax Code. His position is that cement is a manufactured and not a mineral product and therefore not
exempt from sales taxes. The petitioner also denies that the sales tax assessments have already prescribed because the prescriptive
period should be counted from the filing of the sales tax returns, which had not yet been done by the private respondent.
Meanwhile, the private respondent disclaims liability for the sales taxes, on the ground that cement is not a manufactured
product but a mineral product. As such, it was exempted from sales taxes. Also, the alleged sales tax deficiency could not as yet be
enforced against it because the tax assessment was not yet final, the same being still under protest and still to be definitely resolved
on the merits. Besides, the assessment had already prescribed, not having been made within the reglementary five-year period from
the filing of the tax returns.
ISSUE: WON sales tax was properly imposed upon private respondent.
HELD: Yes, because cement has always been considered a manufactured product and not a mineral product. This matter was
extensively discussed and categorically resolved in Commissioner of Internal Revenue v. Republic Cement Corporation, decided on
August 10, 1983, stating that cement qua cement was never considered as a mineral product within the meaning of Section 246 of
the Tax Code, notwithstanding that at least 80% of its components are minerals, for the simple reason that cement is the product of
amanufacturing process and is no longer the mineral product contemplated in the Tax Code (i.e.; minerals subjected to simple
treatments) for the purpose of imposing the ad valorem tax.
The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the
need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all government functions would be paralyzed.
MUNICIPALITY OF MAKATI V. COURT OF APPEALS
GR 89898-9 October 1, 1990
FACTS: An expropriation proceeding for a piece of land filed by the Municipality of Makati against Admiral Financial and Credit Corp
resulted with the Municipality having to pay P 5,291,666.00 less initial payments by the municipality. After that, private respondent
filed a writ for execution for the balance. Regional Trial Court granted the motion and directed the bank to deliver the said
balance. Subsequent motions for reconsideration and appeal to the respondent Court of Appeals by the municipality in order to
stop the garnishment.
ISSUE: WON the court can validly subject government accounts/property to garnishment.
HELD: The court ruled that the Municipality of Makati's accounts or property cannot be held for garnishment as government's fund,
held for public use, cannot be held for garnishment. However, the court still held the Municipality liable for the assessed value of
the land and improvements because the private respondent should be entitled to just compensation.
CIR V. ALGUE, INC., & CTA
G.R. NO. L-28896 FEBRUARY 17, 1988
FACTS: Algue, Inc., a domestic corporation engaged in engineering, construction and other allied activities. Philippine Sugar Estate
Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process. [There was a sale for which] Algue received as agent a commission of P126,000.00, and it was from this commission that
the P75,000.00 promotional fees were paid to the aforenamed individuals. The payees duly reported their respective shares of the

fees in their income tax returns and paid the corresponding taxes thereon, and there was no distribution of dividends was
involved.[Algue claimed the 75,000 to be deductible from their tax, to which the CIR disallowed.]
ISSUE: WON the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent
Algue as legitimate business expenses in its income tax returns.
HELD: NO CIR is not correct. The burden is on the taxpayer to prove the validity of the claimed deduction. In the present case,
however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees
was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to
venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat
and should be, as it was, sufficiently recompensed.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the
taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance
their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it
is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the
courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed
BPI FAMILY SAVINGS BANK V. CA, ET AL.
GR 122480; APRIL 12, 2000
FACTS: Petitioner BPI Family Savings Bank had an excess withholding taxes for the year 1989 amounting to P112,491.90. It indicated
in its 1989 Income Tax Return that it would apply the said amount as a tax credit for the succeeding taxable year, 1990. However
because of business losses, petitioner informed the Bureau of Internal Revenue (BIR) that it would claim the amount as a tax refund,
instead of applying it as a tax credit. When no action from the BIR was forthcoming, petitioner filed its claim with the Court of Tax
Appeals.
The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its 1989 Income Tax Return that it
would apply the excess withholding tax as a tax credit for the following year, the Tax Court held that petitioner was presumed to
have done so. The CTA and the CA ruled that petitioner failed to overcome this presumption because it did not present its 1990
Return, which would have shown that the amount in dispute was not applied as a tax credit. Hence, the CA concluded that petitioner
was not entitled to a tax refund.
ISSUE: WON petitioner is entitled to the refund of P112,491.90, representing excess creditable withholding tax paid for the
taxable year 1989.
HELD: It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled to a refund amounting to
P112,491. Pursuant to Section 69 of the 1986 Tax Code which states that a corporation entitled to a refund may opt either (1) to
obtain such refund or (2) to credit said amount for the succeeding taxable year.Petitioner presented evidence to prove its claim that
it did not apply the amount as a tax credit.
A copy of the Final Adjustment Return for 1990 was attached to petitioner's Motion for Reconsideration filed before the CTA. A
final adjustment return shows whether a corporation incurred a loss or gained a profit during the taxable year. In this case, that
Return clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not have applied the amount in
dispute as a tax credit.
The BIR did not controvert the veracity of the said return. It did not even file an opposition to petitioner's Motion and the 1990
Final Adjustment Return attached thereto.

Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision rendered by the Tax Court in CTA
Case No. 4897, involving its claim for refund for the year 1990. In that case, the Tax Court held that "petitioner suffered a net loss for
the taxable year 1990 . . . ." Respondent, however, urges this Court not to take judicial notice of the said case.
Respondents' reasoning underscores the weakness of their case. For if they had really believed that petitioner is not entitled to
a tax refund, they could have easily proved that it did not suffer any loss in 1990. Indeed, it is noteworthy that respondents opted
not to assail the fact appearing therein that petitioner suffered a net loss in 1990 in the same way that it refused to controvert
the same fact established by petitioner's other documentary exhibits
Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and
thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in
paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State
must lead by its own example of honor, dignity and uprightness
COMMISSIONER OF INTERNAL REVENUE V. MISTUBISHI METAL CORPORATION
181 SCRA 214
FACTS: Atlas Consolidated Mining andDevelopment Corporation, a domestic corporation, entered into a Loan and Sales Contract with
Mitsubishi Metal Corporation, a Japanese corporation licensed to engage in business in the Philippines. To be able to extend the loan to
Atlas, Mitsubishi entered into another loan agreement with Export-Import Bank (Eximbank), a financing institution owned, controlled,
and financed by the Japanese government. After making interest payments to Mitsubishi, with the corresponding 15% tax thereon
remitted to the Government of the Philippines, Altas claimed for tax credit with the Commissioner of Internal Revenue based on Section
29(b)(7) (A) of the National Internal Revenue Code, stating that since Eximbank, and not Mitsubishi, is where the money for the loan
originated from Eximbank, then it should be exempt from paying taxes on its loan thereon.
ISSUE: WON the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income taxation.
HELD: NO. Mitsubishi secured the loan from Eximbank in its own independent capacity as a private entity and not as a conduit of
Eximbank. Therefore, what the subject of the 15% withholding tax is not the interest income paid by Mitsubishi to Eximbank, but the
interest income earned by Mitsubishi from the loan to Atlas. Thus, it does not come within the ambit of Section 29(b)(7)(A), and it is not
exempt from the payment of taxes. (Note: Findings of fact of the Court of Tax Appeals are entitled to the highest respect and can only
be disturbed on appeal if they are not supported by substantial evidence or if there is a showing of gross error or abuse on the part of
the tax court. Laws granting exemption from tax are construed strictissimijuris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception.)
PHIL BANK OF COMMUNICATIONS V. CIR, ET. AL.
302 SCRA 241 JANUARY 28, 1999
FACTS: Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine
laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax
of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos.Subsequently, however, PBCom suffered losses
so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net
loss of P14,129,602.00, and thus declared no tax payable for the year.But during these two years, PBCom earned rental income from
leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986.Subsequently, Petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of
P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.Thereafter, on July 25, 1988,
petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in
1986 for P234,077.69.Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition
for Review on November 18, 1988 before the Court of Tax Appeals (CTA).The CTA rendered a decision which, as stated on the
outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was
filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986 amounting to
P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the
succeeding year.
ISSUE: WON the CA erred in denying the plea for tax refund or tax credits on the ground of prescription
HELD: No. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require
judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain

the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible.
From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.Sec.
230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing
a court proceeding for the recovery of tax erroneously or illegally collected.The rule states that the taxpayer may file a claim for
refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is
commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final
payment of the tax for the year.
SISON V. ANCHETA
GR L-59431; 25 JULY 1984
FACTS: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him
by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses
against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation.
ISSUE: WON BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation.
HELD: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due
process and equal protection clauses. Absent such showing, the presumption of validity must prevail. Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of taxation. Where the differentiation conforms to the
practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the
clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients of compensation income as
against professionals. Recipients of compensation income are not entitled to make deductions for income tax purposes as there is
no practically overhead expense, while professionals and businessmen have no uniform costs or expenses necessary to produce
their income. There is ample justification to adopt the gross system of income taxation to compensation income, while continuing
the system of net income taxation as regards professional and business income.
ARTURO M. TOLENTINOvs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. 115455 August 25, 1994
FACTS: Herein various petitioners seek to declare RA 7166 as unconstitutional as it seeks to widen the tax base of the existing VAT
system and enhance its administration by amending the National Internal Revenue Code. The value-added tax (VAT) is levied on the
sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross
selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or
exchange of services.
CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt
without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a
progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real property
by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of
the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the
contract. It is next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products,
food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is equally
essential. The sale of real property for socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be exempted.
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, Section 28(1) which provides that
"The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."
ISSUE: WON RA 7166 violates the principle of progressive system of taxation.
HELD: No, there is no justification for passing upon the claims that the law also violates the rule that taxation must be progressive
and that it denies petitioners' right to due process and that equal protection of the laws. The reason for this different treatment has

been cogently stated by an eminent authority on constitutional law thus: "When freedom of the mind is imperiled by law, it is
freedom that commands a momentum of respect; when property is imperiled it is the lawmakers' judgment that commands respect.
This dual standard may not precisely reverse the presumption of constitutionality in civil liberties cases, but obviously it does set up
a hierarchy of values within the due process clause."
Petitioners contend that as a result of the uniform 10% VAT, the tax on consumption goods of those who are in the higherincome bracket, which before were taxed at a rate higher than 10%, has been reduced, while basic commodities, which before were
taxed at rates ranging from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by respondents that in fact it
distributes the tax burden to as many goods and services as possible particularly to those which are within the reach of higherincome groups, even as the law exempts basic goods and services. It is thus equitable. The goods and properties subject to the VAT
are those used or consumed by higher-income groups. These include real properties held primarily for sale to customers or held for
lease in the ordinary course of business, the right or privilege to use industrial, commercial or scientific equipment, hotels,
restaurants and similar places, tourist buses, and the like. On the other hand, small business establishments, with annual gross sales
of less than P500,000, are exempted. This, according to respondents, removes from the coverage of the law some 30,000 business
establishments. On the other hand, an occasional paper of the Center for Research and Communication cities a NEDA study that the
VAT has minimal impact on inflation and income distribution and that while additional expenditure for the lowest income class is
only P301 or 1.49% a year, that for a family earning P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion regarding these arguments, any discussion whether the VAT is
regressive in the sense that it will hit the "poor" and middle-income group in society harder than it will the "rich," is largely an
academic exercise. On the other hand, the CUP's contention that Congress' withdrawal of exemption of producers cooperatives,
marketing cooperatives, and service cooperatives, while maintaining that granted to electric cooperatives, not only goes against the
constitutional policy to promote cooperatives as instruments of social justice (Art. XII, 15) but also denies such cooperatives the
equal protection of the law is actually a policy argument. The legislature is not required to adhere to a policy of "all or none" in
choosing the subject of taxation.
Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner in G.R. 115754, that the VAT
will reduce the mark up of its members by as much as 85% to 90% any more concrete. It is a mere allegation. On the other hand, the
claim of the Philippine Press Institute, petitioner in G.R. No. 115544, that the VAT will drive some of its members out of circulation
because their profits from advertisements will not be enough to pay for their tax liability, while purporting to be based on the
financial statements of the newspapers in question, still falls short of the establishment of facts by evidence so necessary for
adjudicating the question whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to
"evolve a progressive system of taxation." This is a directive to Congress, just like the directive to it to give priority to the enactment
of laws for the enhancement of human dignity and the reduction of social, economic and political inequalities (Art. XIII, 1), or for
the promotion of the right to "quality education" (Art. XIV, 1). These provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
ABAKADA V. ERMITA (DELEGATION TO THE PRESIDENT)
469 SCRA 1: SEPTEMBER 1, 2005
FACTS: RA 9337: VAT Reform Act enacted on May 24, 2005. Sec. 4 (sales of goods and properties), Sec. 5 (importation of goods) and
Sec. 6 (services and lease of property) of RA 9337, in collective, granted the Secretary of Finance the authority to ascertain: (a)
whether by 12/31/05, the VAT collection as a percentage of the 2004 GDP exceeds 2.8% or (b)the national government deficit as a
percentage of the 2004 GDP exceeds 1.5%. If either condition is met, the Sec of Finance must inform the President who, in turn,
must impose the 12% VAT rate (from 10%) effective January 1, 2006.ABAKADA maintained that Congress abandoned its exclusive
authority to fix taxes and that RA 9337 contained a uniform proviso authorizing the President upon recommendation by the DOF
Secretary to rasie VAT to 12%.Sen Pimentel maintained that RA 9337 constituted undue delegation of legislative powers and a
violation of due process since the law was ambiguous and arbitrary. Same with Rep. Escudero.Pilipinas Shell dealers argued that the
VAT reform was arbitrary, oppressive and confiscatory.Respondents countered that the law was complete, that it left no discretion
to the President, and that it merely charged the President with carrying out the rate increase once any of the two conditions arise.
ISSUE: WON there was undue delegation.

HELD: No delegation but mere implementation of the law. Constitution allows as under exempted delegation the delegation of
tariffs, customs duties, and other tolls, levies on goods imported and exported. VAT is tax levied on sales of goods and services which
could not fall under this exemption. Hence, its delegation if unqualified is unconstitutional.
Legislative power is authority to make a complete law. Thus, to be valid, a law must be complete in itself, setting forth therein
the policy and it must fix a standard, limits of which are sufficiently determinate and determinable.No undue delegation when
congress describes what job must be done who must do it and the scope of the authority given. (Edu v Ericta)Sec of Finance was
merely tasked to ascertain the existence of facts. All else was laid out. Mainly ministerial for the Secretary to ascertain the facts and
for the president to carry out the implementation for the VAT. They were agents of the legislative dept
MACEDA vs. MACARAIG, JR (Classification of Taxes According to Burden or Incidence (Direct or Indirect))
223 SCRA 217 June 8, 1993
FACTS: This matter of indirect tax exemption of the private respondent National Power Corporation (NPC) is brought to this Court a
second time. Unfazed by the Decision We promulgated on May 31, 1991 petitioner Ernesto Maceda asks this Court to reconsider
said Decision.
A Chronological review of the relevant NPC laws, specially with respect to its tax exemption provisions.
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On November 3, 1936, Commonwealth Act No. 120: creating the National Power Corporation. The main source of funds for
the NPC was the flotation of bonds in the capital marketsand these bonds...issued under the authority of this Act shall be
exempt from the payment of all taxes by the Commonwealth of the Philippines
On June 24, 1938, C.A. No. 344, the provision on tax exemption in relation to the issuance of the NPC bonds was neither
amended nor deleted.
On September 30, 1939, C.A. No. 495, the provision on tax exemption in relation to the issuance of the NPC bonds was
neither amended nor deleted.
On June 4, 1949, Republic Act No. 357, any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines
On the same date, R.A. No. 358, to facilitate payment of its indebtedness, the National Power Corporation shall be exempt
from all taxes.
On July 10, 1952, R.A. No. 813 amended R.A. No. 357. The tax provision as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes.
On September 8, 1955, R.A. No. 1397, the tax exemption provision related to the payment of this total indebtedness was
not amended nor deleted.
On June 13, 1958, R.A. No. 2055, the tax provision related to the repayment of loans was not amended nor deleted.
On June 18, 1960, R.A. No 2641 converted the NPC from a public corporation into a stock corporation. No tax exemption
was incorporated in said Act.
On June 17, 1961, R.A. No. 3043. No tax provision was incorporated in said Act.
On June 17, 1967, R.A. No 4897. No tax provision was incorporated in said Act.
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC. The bonds issued shall be exempt from
the payment of all taxes. As to the foreign loans the NPC was authorized to contract, shall also be exempt from all taxes,
On January 22, 1974, P.D. No. 380shall also be exempt from all direct and indirect taxes,
On February 26, 1970, P.D. No. 395, no tax exemption provision was amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated annually to cover the
unpaid subscription of the Government in the NPC authorized capital stock, which amount would be taken from taxes
accruing to the General Funds of the Government, proceeds from loans, issuance of bonds, treasury bills or notes to be
issued
On May 27, 1976 P.D. No. 938, declared exempt from the payment of all forms of taxes
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to imports
On July 30, 1977, P.D. 1177, All units of government, including government-owned or controlled corporations, shall pay
income taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that organizations
otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the General Fund
On July 11, 1984, P.D. No. 1931, all exemptions from the payment of duties, taxes, fees, imposts and other charges
heretofore granted in favor of government-owned or controlled corporations including their subsidiaries, are hereby
withdrawn.
On December 17, 1986, E.O. No. 93 was issued with a view to correct presidential restoration or grant of tax exemption to
other government and private entities without benefit of review by the Fiscal Incentives Review Board, WHEREAS, in
addition to those tax and duty exemption privileges were restored by the Fiscal Incentives Review Board (FIRB), a number
of affected entities, government and private, had their tax and duty exemption privileges restored

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC.
ISSUE: WON NPC is exempted to pay Indirect Income Tax
HELD: Yes. Classifications or kinds of Taxes: According to Persons who pay or who bear the burden:
a. Direct Tax that where the person supposed to pay the tax really pays it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes (estate tax, donor's tax), residence tax, immigration tax
b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the consumer who ultimately pays for it, not as a tax,
but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT) and the tariff and customs indirect taxes (import
duties, special import tax and other dues)
A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to be completely
tax exempt from all forms of taxes direct and indirect P.D. No. 380 added phrase "directly or indirectly,"P.D. No. 938 amended
into exempt from the payment of ALL FORMS OF taxes.President Marcos must have considered all the NPC statutes from C.A. No.
120 up to P.D. No. 938.One common theme in all these laws is that the NPC must be enable to pay its indebtedness which, as of P.D.
No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at any one time. The
NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved. The tax exemption stood as is with the
express mention of "direct and indirect" tax exemptions. Lawmakers wanted the NPC to be exempt from ALL FORMS of taxes
direct and indirect.Therefore, that NPC had been granted tax exemption privileges for both direct and indirect taxes under PD 938.
The Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the taxes imposed upon
said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the economic burden of such taxation is expected to be
passed on through the channels of commerce to the user or consumer of the goods sold. Because, however, the NPC has been
exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect
taxation
PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION vs. THE MUNICIPALITY OF JAGNA, PROVINCE OF BOHOL
GR L-24265 December 28, 1979
FACTS: Plaintiff-appellant is a domestic corporation with principal offices in Manila. lt is a consolidated corporation of Procter &
Gamble Trading Company and Philippine Manufacturing Company, which later became Procter & Gamble Trading Company,
Philippines. It is engaged in the manufacture of soap, edible oil, margarine and other similar products, and for this purpose maintains
a "bodega" in defendant Municipality where it stores copra purchased in the municipality and therefrom ships the same for its
manufacturing and other operations.
On December 13, 1957, the Municipal Council of Jagna enacted Municipal Ordinance No. 4, Series of 1957 or An Ordinance
imposing storage fees of all exportable copra deposited in the bodega within the jurisdlcti0n of the municipality of jagnabohol. For a
period of six years, from 1958 to 1963, plaintiff paid defendant Municipality, allegedly under protest, storage fees in the total sum of
P42,265.13.
On March 3, 1964, plaintiff filed this suit in the Court of First Instance of Manila, Branch VI, wherein it prayed that 1) Ordinance
No. 4 be declared inapplicable to it, or in the alter. native, that it be pronounced ultra-vires and void for being beyond the power of
the Municipality to enact; and 2) that defendant Municipality be ordered to refund to it the amount of P42,265.13 which it had paid
under protest; and costs.
The trial Court upheld its jurisdiction as well as defendant Municipality's power to enact the Ordinance in question under
section 2238 of the Revised Administrative Code, otherwise known as the general welfare clause.
ISSUES:WON defendant Municipality was authorized to impose and collect the storage fee provided for in the challenged
Ordinance under the laws then prevailing. WON the imposition of P0.10 per 100 kilos of copra stored in a bodega within the
municipality ofJagnas' territory is beyond the cost of regulation and surveillance

HELD: The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon municipalities by
Commonwealth Act No. 472, which was the prevailing law when the Ordinance was enacted.
A municipality is authorized to impose three kinds of licenses: (1) a license for regulation of useful occupation or enterprises; (2)
license for restriction or regulation of non-useful occupations or enterprises; and (3) license for revenue. 4 It is thus unnecessary, as
plaintiff would have us do, to determine whether the subject storage fee is a tax for revenue purposes or a license fee to reimburse
defendant Municipality for service of supervision because defendant Municipality is authorized not only to impose a license fee but
also to tax for revenue purposes.
The storage fee imposed under the question Ordinance is actually a municipal license tax or fee on persons, firms and
corporations, like plaintiff, exercising the privilege of storing copra in a bodega within the Municipality's territorial jurisdiction. For
the term "license tax" has not acquired a fixed meaning. It is often used indiscriminately to designate impositions exacted for the
exercise of various privileges. In many instances, it refers to revenue-raising exactions on privileges or activities.Municipal
corporations are allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power
measures. In the absence of proof as to municipal conditions and the nature of the business being taxed as well as other factors
relevant to the issue of arbitrariness or unreasonableness of the questioned rates, Courts will go slow in writing off an Ordinance. In
the case at bar, appellant has not sufficiently shown that the rate imposed by the questioned Ordinance is oppressive, excessive and
prohibitive.
CIR v. CA, CTA, AdMU
GR No.115349; 18 April 1997
FACTS: Private respondent, Ateneo de Manila University, is a non-stock, non-profit educational institution with auxiliary units and
branches all over the country. The Institute of Philippine Culture (IPC) is an auxiliary unit with no legal personality separate and
distinct from private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture.
Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government
agencies.
On 8 July 1983, private respondent received from CIR a demand letter dated 3 June 1983, assessing private respondent the sum
of P174,043.97 for alleged deficiency contractors tax, and an assessment dated 27 June 1983 in the sum of P1,141,837 for alleged
deficiency income tax, both for the fiscal year ended 31 March 1978. Denying said tax liabilities, private respondent sent petitioner a
letter-protest and subsequently filed with the latter a memorandum contesting the validity of the assessments.
After some time petitioner issued a final decision dated 3 August 1988 reducing the assessment for deficiency contractors tax
from P193,475.55 to P46,516.41, exclusive of surcharge and interest.The lower courts ruled in favor of respondent. Hence this
petition.
Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de Manila University "falls within the
definition" of an independent contractor and "is not one of those mentioned as excepted"; hence, it is properly a subject of the
three percent contractor's tax levied by the foregoing provision of law. Petitioner states that the "term 'independent contractor' is
not specifically defined so as to delimit the scope thereof, so much so that any person who . . . renders physical and mental service
for a fee, is now indubitably considered an independent contractor liable to 3% contractor's tax."
ISSUE: WON private respondent falls under the purview of independent contractor pursuant to Section 205 of the Tax Code and is
subject to a 3% contractors tax.
HELD: The petition is unmeritorious.
The term "independent contractors" include persons (juridical or natural) not enumerated above (but not including individuals
subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental
faculties of such contractors or their employees.
Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption without first applying the wellsettled doctrine of strict interpretation in the imposition of taxes. It is obviously both illogical and impractical to determine who are
exempted without first determining who are covered by the aforesaid provision. The Commissioner should have determined first if
private respondent was covered by Section 205, applying the rule of strict interpretation of laws imposing taxes and other burdens
on the populace, before asking Ateneo to prove its exemption therefrom.

Interpretation of Tax Laws. The doctrine in the interpretation of tax laws is that (a) statute will not be construed as imposing a
tax unless it does so clearly, expressly, and unambiguously. . . . (A) tax cannot be imposed without clear and express words for that
purpose. Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to
tax laws and the provisions of a taxing act are not to be extended by implication. In case of doubt, such statutes are to be
construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor
presumed to be imposed beyond what statutes expressly and clearly import.
Ateneos Institute of Philippine Culture never sold its services for a fee to anyone or was ever engaged in a business apart from
and independently of the academic purposes of the university. Funds received by the Ateneo de Manila University are technically
not a fee. They may however fall as gifts or donations which are tax-exempt as shown by private respondents compliance with the
requirement of Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to an educational
institution.
Transaction of IPC not a contract of sale nor a contract for a piece of work. The transactions of Ateneos Institute of Philippine
Culture cannot be deemed either as a contract of sale or a contract for a piece of work. By the contract of sale, one of the
contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent. In the case of a contract for a piece of work, the contractor binds himself to execute a piece
of work for the employer, in consideration of a certain price or compensation. . . . If the contractor agrees to produce the work from
materials furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. . . . In the
case at bench, it is clear from the evidence on record that there was no sale either of objects or services because, as adverted to
earlier, there was no transfer of ownership over the research data obtained or the results of research projects undertaken by the
Institute of Philippine Culture.
HYDRO RESOURCES V. COURT OF TAX APPEALS ET AL.
GR 80276; December 21, 1990
FACTS: Hydro Resources Contractors Corporation entered into a contract of sale with the National Irrigation Authority (NIA) for the
construction of Magat River Multipurpose Project in Isabella in August 1978. The contract provided that Hydro will import parts,
construction equipment and tools and taxes and duties to be paid by NIA. Tools and equipment arrived during 1978 and 1979. NIA
reneged on the contract. Therefore causing the transfer its sale to Hydro in seperate dates in December 6, 1982 and March 24,
1983. Executive Order 860 took effect during December 21, 1982 provided for 3% ad valorem tax on importations and it specifically
provided that it should have no retroactive effect. During the contract of sale execution, Hydro was assessed and paid the said 3%
ad valorem tax worth P 281,591 under protest. The Hydro when filing for refund with Customs Commissioner who indorsed the
approval of the refund but was denied by the Secretary of Finance and motion was denied by the Court of Tax Appeals.
ISSUE: WON should the Executive Order 860 should have a retroactive effect.
HELD: The Court of Tax Appeals erred in applying a retroactive effect for the Executive Order therefore should not have been subject
to the additional 3% ad valorem tax. In general tax laws are not retroactive in nature. Not only that Executive Order 860 specifically
provides that it is not retroactive in nature, but also when the conditional contract of sale was executed, its had a suspensive
condition contemplated in the Civil Code (Article 1187) where it returned ownership to the seller Hydro because NIA was not able to
comply with its part of the contract, it was deemed executed as if during the constitution of the obligation which was in 1978 and
not in 1982.
CIR V. BENGUET CORP
G.R. NOS. 134587 AND 134588; JANUARY 8, 2005
FACTS:Benguet Corporation is a domestic corporation engaged in the exploration, development and operation of mineral resources,
and the sale or marketing thereof to various entities. It is a VAT registered enterprise.
The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of NIRC as amended by E.O. 273
s. 1987 then in effect, any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who imports goods is liable for output VAT at rates of either 10% or 0% (zero-rated)
depending on the classification of the transaction under Sec. 100 of the NIRC.
In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on its sale of gold to Central Bank. On 28
August 1988 VAT Ruling No. 3788-88 was issued which declared that the sale of gold to Central Bank is considered as export sale
subject to zero-rate pursuant toSection 100 of the Tax Code, as amended by EO 273.

Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central Bank during the period of 1 August
1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject sales of gold. It then
filed applications for tax refunds/creditscorresponding to input VAT.
However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January 1992 that was issued subsequent to
the consummation of the subject sales of gold to the Central Ban`k which provides that sales of gold to the Central Bank shall not be
considered as export sales and thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all
inconsistent BIR issuances.Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid only if
such application would not be prejudicial to the Benguet pursuant Sec. 246 of the NIRC.
ISSUE: (1) WON Benguets sale of gold to the Central Bank during theperiod when such was classified by BIR issuances as
zerorated could be taxed validly at a 10% rate after the consummation of the transactions involved; (2) WON there was prejudice
to Benguet Corp due to the new BIR VAT Ruling.
HELD: (1) NO. At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by Benguet
ordained that gold sales to the Central Bank were zero-rated. Benguet should not be faulted for relying on the BIRs interpretation of
the said laws and regulations.
While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain unpaid on account of the
errors or mistakes of its agents and/or officials and there could be no vested right arising from an erroneous interpretation of law,
these principles must give way toexceptions based on and in keeping with the interest of justice and fair play. (then the Court cited
the ABS-CBN case).
(2) YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR of the amount
equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a zero-rated scenario or
at least passed on to the Central Bank had it known it would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered
economic prejudice when it consummated sales of gold to the Central Bank were taken out of the zero-rated category. The change
in the VAT rating of Benguets transactions with the Central Bank resulted in the twin loss of its exemption from payment of output
VAT and its opportunity to recover input VAT, and at the same time subjected it to the 10% VAT sans the option to pass on this cost
to the Central Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the
Central Bank.
Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed, this relief would only
address Benguets overpayment of income tax but not the other burdens discussed above. Verily, this remedy is not a feasible
option for Benguet because the very reason why it was issued a deficiency tax assessment is that its input VATwas not enough to
offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary and cumbersome refund process is
prejudice enough.
CIR V. BURSMEITERS & WAIN SCANDINAVIAN
GR 153205; JANUARY 22, 2007
FACTS: A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The foreign entity then
subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a mixture of currencies while the consortium, in
turn, paid Burmeister foreign currency inwardly remitted into the Philippines. BIR did not want to grant refund since the services are
not destined for consumption abroad (or the destination principle).
ISSUE: Are the receipts of Burmeister entitled to VAT zero-rated status?
HELD: PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior to the filing of CIRs
Answer in the CTA.The claim has no merit since the consortium, which was the recipient of services rendered by Burmeister, was
deemed doing business within the Philippines since its 15-year O&M with NPC can not be interpreted as an isolated transaction.In
addition, the services referring to processing, manufacturing, repacking and services other than those in (1) of Sec. 102 both
require (i) payment in foreign currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is
doing business outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating
payment in foreign currency.The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating of
its sales to foreign consortium. However, the ruling is only valid until the time that CIR filed its Answer in the CTA which is deemed
revocation of the previously-issued ruling. The Court said the revocation cannot retroact since none of the instances in Section 246
(bad faith, omission of facts, etc.) are present.

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. V. MUNICIPALITY OF TANAUAN

GR L-31156; FEBRUARY 27, 1976
Facts: In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264 (Local Autonomy Act)
unconstitutional as an undue delegation of taxing power and to declare Ordinance Nos. 23 and 27 issued by the Municipality of
Tanauan, Leyte as null and void.
Municipal Ordinance No. 23 levies and collects from soft drinks producers and manufacturers one-sixteenth (1/16) of a centavo for
every bottle of soft drink corked. On the other hand, Municipal Ordinance No. 27 levies and collects on soft drinks produced or
manufactured within the territorial jurisdiction of the municipality a tax of one centavo (P0.01) on each gallon of volume capacity.
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.
Issues: (1) Is Section 2 of R.A. 2264 an undue delegation of the power of taxation? (2) Do Ordinance Nos. 23 and 24 constitute
double taxation and impose percentage or specific taxes?
Held: (1) NO. The power of taxation is purely legislative and cannot be delegated to the executive or judicial department of the
government without infringing upon the theory of separation of powers. But as an exception, the theory does not apply to municipal
corporations. Legislative powers may be delegated to local governments in respect of matters of local concern. (2) NO. The
Municipality of Tanauan discovered that manufacturers could increase the volume contents of each bottle and still pay the same tax
rate since tax is imposed on every bottle corked. To combat this scheme, Municipal Ordinance No. 27 was enacted. As such, it was a
repeal of Municipal Ordinance No. 23. In the stipulation of facts, the parties admitted that the Municipal Treasurer was enforcing
Municipal Ordinance No. 27 only. Hence, there was no case of double taxation.

COMMISSIONER OF INTERNAL REVENUE vs. S.C. JOHNSON AND SON, INC., and COURT OF APPEALS
309 SCRA 87; June 25, 1999 (Topic: Double Taxation)
Facts: SC. JOHNSON AND SON, INC., a domestic corporation organized and operating under the Philippine laws, entered into a
license agreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation was granted the
right to use the trademark, patents and technology owned by the latter including the right to manufacture, package and distribute
the products. License Agreement was duly registered with the Technology Transfer Board of the Bureau of Patents, Trade Marks and
Technology Transfer under Certificate of Registration No. 8064.SC. JOHNSON AND SON, INC was obliged to pay SC Johnson and Son,
USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which
[respondent] paid from July 1992 to May 1993. Respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim
for refund of overpaid withholding tax on royalties arguing that Since the agreement was approved by the Technology Transfer
Board, the preferential tax rate of 10% should apply hence royalties paid by the [respondent] to SC Johnson and Son, USA is only
subject to 10% withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty.
The Commissioner did not act on said claim for refund. Respondent filed a petition for review before the CTA to claim a refund of the
overpaid withholding tax on royalty payments. CTA decided for Respondent and ordered CIR to issue a tax credit certificate in the
amount of P963,266.00 representing overpaid withholding tax on royalty payments, beginning July, 1992 to May, 1993. CIR filed a
petition for review with CA. CA upheld CTA.
CIR contends that under RP-US Tax Treaty, which is known as the "most favored nation" clause, the lowest rate of the Philippine tax
at 10% may be imposed on royalties derived by a resident of the United States from sources within the Philippines only if the
circumstances of the resident of the United States are similar to those of the resident of West Germany. Since the RP-US Tax Treaty
contains no "matching credit" provision as that provided in RP-West Germany Tax Treaty, the tax on royalties under the RP-US Tax
Treaty is not paid under similar circumstances as those obtaining in the RP-West Germany Tax Treaty. Also petitioner argues that
since S.C. Johnson's invocation of the "most favored nation" clause is in the nature of a claim for exemption from the application of
the regular tax rate of 25% for royalties, the provisions of the treaty must be construed strictly against it.
Respondent countered that the "most favored nation" clause under the RP-US Tax Treaty refers to royalties paid under similar
circumstances as those royalties subject to tax in other treaties; that the phrase "paid under similar circumstances" does not refer to
payment of the tax but to the subject matter of the tax, that is, royalties, because the "most favored nation" clause is intended to
allow the taxpayer in one state to avail of more liberal provisions contained in another tax treaty wherein the country of residence
of such taxpayer is also a party thereto, subject to the basic condition that the subject matter of taxation in that other tax treaty is
the same as that in the original tax treaty under which the taxpayer is liable; thus, the RP-US Tax Treaty speaks of "royalties of the
same kind paid under similar circumstances".

Issue: WON SC Johnson can refund.

Ruling: NO. The tax rates on royalties and the circumstances of payment thereof are the same for all the recipients of such royalties
and there is no disparity based on nationality in the circumstances of such payment.On the other hand, a cursory reading of the
various tax treaties will show that there is no similarity in the provisions on relief from or avoidance of double taxationas this is a
matter of negotiation between the contracting parties. This dissimilarity is true particularly in the treaties between the Philippines
and the United States and between the Philippines and West Germany.
The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for the avoidance of double
taxation. The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in
order to help the taxpayer avoid simultaneous taxation in two different jurisdictions.More precisely, the tax conventions are drafted
with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable
taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. The apparent
rationale for doing away with double taxation is of encourage the free flow of goods and services and the movement of capital,
technology and persons between countries, conditions deemed vital in creating robust and dynamic economies.
Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in, the
other contracting state and both states impose tax on that income or capital. In order to eliminate double taxation, a tax treaty
resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of residence
with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be
imposed by the state of source is limited.
Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in, the
other contracting state and both states impose tax on that income or capital. In order to eliminate double taxation, a tax treaty
resorts to several methods. First, it sets out the respective rights to tax of the state of source or situs and of the state of residence
with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be
imposed by the state of source is limited. On the other hand, in the credit method, although the income or capital which is taxed in
the state of source is still taxable in the state of residence, the tax paid in the former is credited against the tax levied in the latter.
The basic difference between the two methods is that in the exemption method, the focus is on the income or capital itself, whereas
the credit method focuses upon the tax. The phrase "royalties paid under similar circumstances" in the most favored nation clause
of the US-RP Tax Treaty necessarily contemplated "circumstances that are tax-related".
In the case at bar, the state of source is the Philippines because the royalties are paid for the right to use property or rights, i.e.
trademarks, patents and technology, located within the Philippines. The United States is the state of residence since the taxpayer, S.
C. Johnson and Son, U. S. A., is based there. Under the RP-US Tax Treaty, the state of residence and the state of source are both
permitted to tax the royalties, with a restraint on the tax that may be collected by the state of source. The concessional tax rate of
10 percent provided for in the RP-Germany Tax Treaty should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty
and in the RP-Germany Tax Treaty are paid under similar circumstances. This would mean that private respondent must prove that
the RP-US Tax Treaty grants similar tax reliefs to residents of the United States in respect of the taxes imposable upon royalties
earned from sources within the Philippines as those allowed to their German counterparts under the RP-Germany Tax Treaty. The
RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting.
If the rates of tax are lowered by the state of source, in this case, by the Philippines, there should be a concomitant commitment on
the part of the state of residence to grant some form of tax relief, whether this be in the form of a tax credit or exemption.
Otherwise, the tax which could have been collected by the Philippine government will simply be collected by another state,
defeating the object of the tax treaty since the tax burden imposed upon the investor would remain unrelieved. If the state of
residence does not grant some form of tax relief to the investor, no benefit would redound to the Philippines, i.e., increased
investment resulting from a favorable tax regime, should it impose a lower tax rate on the royalty earnings of the investor, and it
would be better to impose the regular rate rather than lose much-needed revenues to another country.The entitlement of the 10%
rate by U.S. firms despite the absence of a matching credit (20% for royalties) would derogate from the design behind the most
grant equality of international treatment since the tax burden laid upon the income of the investor is not the same in the two
countries. The similarity in the circumstances of payment of taxes is a condition for the enjoyment of most favored nation treatment
precisely to underscore the need for equality of treatment.Respondent cannot be deemed entitled to the 10 percent rate granted
under the RP-West Germany Tax Treaty for the reason that there is no payment of taxes on royalties under similar circumstances in
RP-US treaty.

DELPHER TRADES CORPORATIONvs. IAC

G.R. No. L-69259 January 26, 1988
Facts: Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (now Valenzuela). On April 3, 1974, they leased
to Construction Components International Inc. the property and providing for a right of first refusal should it decide to buy the said
property.
Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes
Philippines, Inc. with the signed conformity and consent of Delfin and Pelagia. In 1976, a deed of exchange was executed between
lessors Delfin and Pelagia Pacheco and defendant DelpherTradesCorporation whereby the Pachecos conveyed to the latter the
leased property together with another parcel of land also located in Malinta Estate, Valenzuela for 2,500 shares of stock of
defendant corporation with a total value of P1.5M.
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement,
respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the lot.
Issue: WON the Deed of Exchange of the properties executed by the Pachecos and the Delpher Trades Corporation on the other was
meant to be a contract of sale which, in effect, prejudiced the Hydro Phil's right of first refusal over the leased property included in
the "deed of exchange,"
Held: No, by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is
55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation
is a business conduit of the Pachecos. What they really did was to investtheir properties and change the nature of their ownership
from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the
same time save on inheritance taxes.
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of
sale.There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their
ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its
claim of a light of first refusal

CIR v. Toda, Jr.

GR No. 147188; 14 September 2004
FACTS: On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its outstanding capital stock, to sell
the Cibeles Building. On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn,
sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. Three and a half years later Toda died. On 29
March 1994, the BIR sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989. On 27
January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and Mario Luza Bautista,
received a Notice of Assessment from the CIR for deficiency income tax for the year 1989. The Estate thereafter filed a letter of
protest. The Commissioner dismissed the protest. On 15 February 1996, the Estate filed a petition for review with the CTA. In its
decision the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it.
It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion. Hence, the CTA declared that the Estate is not liable for deficiency of income tax. The Commissioner filed a petition for
review with the Court of Appeals. The Court of Appeals affirmed the decision of the CTA, hence, this recourse.
ISSUE: Whether or not this is a case of tax evasion or tax avoidance.
HELD: Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e. the payment of less than that known by
the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind
which is described as being evil, in bad faith, willfull, or deliberate and not accidental; and (3) a course of action or failure of
action which is unlawful. All these factors are present in the instant case. The scheme resorted to by CIC in making it appear that
there were two sales of the subject properties, i.e. from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud. Altonagas sole purpose of acquiring and transferring title of the subject
properties on the same day was to create a tax shelter. The sale to him was merely a tax ploy, a sham, and without business purpose
and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of
reducing the consequent income tax liability.

Domingo vs. Garlitos [GR L-18994, 29 June 1963.]

En Banc, Labrador (J):8 concurring, 1 concurring in result, 1 took no part
Facts:In Melecio R. Domingo vs. Hon. Judge S. C. Moscoso (106 Phil. 1138), the Supreme Court declared as final and executory the
order for the payment by the estate of the estate and inheritance taxes, charges andpenalties amounting to P40,058.55, issued by
the CFI Leyte in special proceedings 14 entitled In the Matterof the Intestate Estate of the Late Walter Scott Price. In order to
enforce the claims against the estate the fiscal presented a petition dated 21 June 1961, to the CFI for the execution of the
judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is
indebted to the estate under administration in the amount of P262,200. The lower court ordered on 20 August 1960 that the
payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by said Court on 5 July
1960 in accordance with the order of the Supreme Court promulgated 30 July 1960 in 106 Phil. 1138, be deducted from the amount
of P262,200.00 due and payable to the administratrixSimeona K. Price, in the estate, the balance to be paid by the Government to
her without further delay. The lower court ordered on 28 September 1960 that the payment of the claim of the Collector of Internal
Revenue be deferred until the Government shall have paid its accounts to the administratrix amounting to P262,200.00. The court
ruled that it is only fair for the Government, as a debtor, to pay its accounts to its citizens-creditors before it can insist in the prompt
payment of the latters account to it, specially taking into consideration that the amount due the Government draws interests while
the credit due to the present estate does not accrue any interest. Thus, the petition for certiorari and madamus filed by Melecio R.
Domingo, as Commissioner of Internal Revenue, against the Judge of the Court of First Instance of Leyte, Hon. Lorenzo C. Garlitos,
presiding, seeking to annul the orders of the court and for an order in the Supreme Court directing the lower court to execute the
judgment in favor of the Government against the estate of alter Scott Price for internal revenue taxes.
Issue: WON a tax and debt may be compensated
Held:The court having jurisdiction of the estate had found that the claim of the estate against theGovernment has been recognized
and an amount of P262,200 has already been appropriated for the purposeby a corresponding law (RA 2700). Under the
circumstances, both the claim of the Government forinheritance taxes and the claim of the intestate for services rendered have
already become overdue anddemandable as well as fully liquidated. Compensation, therefore, takes place by operation of law,
inaccordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguishedto the concurrent
amount. Article 1200 provides that when all the requisites mentioned in article 1279 arepresent, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of
the compensation.
CIR V. PASCOR REALTY & DEVT CORP et. al.
GR No. 128315, June 29, 1999
Facts: The CIR authorized certain BIR officers to examine the books of accounts and other accounting records of Pascor Realty and
Development Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted inrecommendation for the issuance of
an assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. The Commissioner filed
acriminal complaint for tax evasion against PRDC, its president and treasurer before the DOJ. Private respondents filed immediately
an urgent request for reconsideration on reinvestigation disputing the tax assessment and tax liability. The Commissioner denied
private respondents request for reconsideration/reinvestigation on the ground that no formal assessment has been issued which
the latter elevated to the CTA on a petition for review. The Commissioners motion to dismiss on the ground of the CTAs lack of
jurisdiction denied by CTA and ordered the Commissioner to file an answer. Instead of complying with the order of CTA,
Commissioner filed a petition with the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for
considering the affidavit/report of the revenue officers and the endorsement of said report as assessment which may be appealed to
the CTA. The CA sustained the CTA decision and dismissed the petition.
Issues: (1) Whether or not the criminal complaint for tax evasion can be construed as an assessment. (2) Whether or not an
assessment is necessary before criminal charges for tax evasion may be instituted.
Held: The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment. Neither the Tax Code nor the
revenue regulations governing the protest assessments provide a specific definition or form of an assessment.An assessment must
be sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period. The
revenue officers affidavit merely contained a computation of respondents tax liability. It did not state a demand or period for
payment. It was addressed to the Secretary of Justice not to the taxpayer. They joint affidavit was meant to support the criminal
complaint for tax evasion; it was not meant to be a notice of tax due and a demand to private respondents for the payment thereof.
The fact that the complaint was sent to the DOJ, and not to private respondent, shows that commissioner intended to file a criminal
complaint for tax evasion, not to issue an assessment.

An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a prima facie
showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or
to file a criminal caseagainst the taxpayer, or to do both.

Marcos II vs. CA
273 SCRA 47 1997
Facts: Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income tax assessments and
estate tax assessments upon the estate and properties of his late father despite the pendency of the probate proceedings of the will
of the late President. On the other hand, the BIR argued that the States authority to collect internal revenue taxes is paramount.
Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several
properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and
sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were
filed by the government to question the ownership and interests of the late President in real and personal properties located within
and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of
estate taxes upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the
court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases
involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate.
Issue: Is the contention of Marcos correct?
Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceaseds estate, is not a mandatory
requirement in the collection of estate taxes.There is nothing in the Tax Code, and in the pertinent remedial laws that implies the
necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced
and collected. The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of
government. Taxes are the lifeblood of government and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will negate the existence of government itself.
It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject
estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed correct and made in good faith.
The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear
to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In
this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to
the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of
impropriety of the assessments made.
MERALCO SECURITIES CORPORATION VS. SAVELLANO
GR NO. L-36181; OCTOBER 23, 1982
Facts: On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and children) submitted to
petitioner Commissioner of Internal Revenue confidential denunciation against the Meralco Securities Corporation for tax evasion
for having paid income tax only on 25 % of the dividends it received from the Manila Electric Co. for the years 1962-1966, thereby
allegedly shortchanging the government of income tax due from 75% of the said dividends.
Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after which he found and held that no
deficiency corporate income tax was due from the Meralco Securities Corporation on the dividends it received from the Manila
Electric Co. and accordingly denied Maniago's claim for informer's reward on a non-existent deficiency.On August 28, 1970, Maniago
filed a petition for mandamus, and subsequently an amended petition for mandamus, in the Court of First Instance of Manila,
docketed therein as Civil Case No. 80830, against the Commissioner of Internal Revenue and the Meralco Securities Corporation to
compel the Commissioner to impose the alleged deficiency tax assessment on the Meralco Securities Corporation and to award to
him the corresponding informer's reward under the provisions of R.A. 2338. Respondent judge granted the said petition and
thereafter, denied the motions for reconsideration filed by all the parties.

Issues: (1) Whether or not respondent judge has jurisdiction over the subject matter of the case; (2) Whether or not respondent
heirs of Maniago are entitled to informers reward.
Held: (1) Respondent judge has no jurisdiction to take cognizance of the case because the subject matter thereof clearly falls within
the scope of cases now exclusively within the jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted
June 16, 1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of
the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or
part of law administered by the Bureau of Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all
cases involving said assessments previously cognizable by courts of first instance, and even those already pending in said courts. The
question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the
purview of the words "disputed assessments" or of "other matters arising under the National Internal Revenue Code . . . .In the case
of Blaquera vs. Rodriguez, et al, this Court ruled that "the determination of the correctness or incorrectness of a tax assessment to
which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for
under the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review, on
appeal, any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under
the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue."
(2) Considering then that respondent judge may not order by mandamus the Commissioner to issue the assessment against Meralco
Securities Corporation when no such assessment has been found to be due, no deficiency taxes may therefore be assessed and
collected against the said corporation. Since no taxes are to be collected, no informer's reward is due to private respondents as the
informer's heirs. Informer's reward is contingent upon the payment and collection of unpaid or deficiency taxes. An informer is
entitled by way of reward only to a percentage of the taxes actually assessed and collected. Since no assessment, much less any
collection, has been made in the instant case, respondent judge's writ for the Commissioner to pay respondents 25% informer's
reward is gross error and without factual nor legal basis.Petitions granted and the questioned decision of respondent judge and
order reversed and set aside.

SY PO VS. CTA
G.R. NO. 81446; AUGUST 18, 1988
Facts: Po Bien Sing, the sole proprietor of Silver Cup Wine Factory (SCWF), engaged in the business of manufacture and sale of
compounded liquors. On the basis of a denunciation against SCWF allegedly "for tax evasion amounting to millions of pesos,
Secretary of Finance directed the Finance-BIR--NBI team to investigate.
On the basis of the team's report of investigation, the respondent Commissioner of Internal Revenue assessed Mr. Po Bien Sing
deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16 and for deficiency specific tax for January 2,1964 to January
19, 1972 in the amount of P5,595,003.68
Petitioner protested the deficiency assessments. The BIR recommended the reiteration of the assessments in view of the taxpayer's
persistent failure to present the books of accounts for examination.
Issue: WON the assessments have valid and legal basis.
Held: The law is specific and clear. The rule on The Best Evidence Obtainable applies when a tax report required by law for the
purpose of assessment is not available or when tax report is incomplete or fraudulent.The tax assessment by tax examiners are
presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of irregularities in
the performance of duties, an assessment duly made by the BIR examiner and approved by his superior officers will not be
disturbed. All presumptions are in favour of the correctness of tax assessments.
BACHE AND CO V. RUIZ
37 SCRA 823
Facts:Misael Vera, Commissioner of Internal Revenue, wrote a letter seeking issuance for a search warrant against Bache & Co. for
the violation of Section 46(a) of the NIRC and authorizing Revenue Examiner Rodolfo de Leon to make ad file the application for
search warrant. The respondent judge, Judge Vivencio Ruiz requested his deputy clerk of court to take the depositions of deLeon
and his witness because he was hearing a certain case when de Leon arrived. After his hearing of the case, the stenographer read
the depositions to him and Logronia (the witness) was asked to take the oath. Three days later, the agents of BIR served the warrant
and seized 6 boxes of documents.

Issue: WON the search warrant was properly issued

Held: No. The requirements for the issuance of a search warrant are: (1) issued for not more than 1 specific offense; (2) probable
cause determined by the personal examination of the Judge of the complainant and witnesses under oath (depositions must have
already be written); (3) it must particularly describe the things to be seized. In the case at bar, no personal examination was made by
the judge of the complainant and witness since it was the deputy clerk of court who made the depositions.
CIR vs. CA, CTA and FORTUNE TOBACCO CORP.
G.R. No. 119761; August 29, 1996
Facts: Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different brands of cigarettes, registered
"Champion," "Hope," and "More" cigarettes. BIR classified them as foreign brands since they were listed in the World Tobacco
Directory as belonging to foreign companies. However, Fortun changed the names of 'Hope' to 'Hope Luxury'and 'More' to
'Premium More,' thereby removing the said brands from the foreign brand category.
A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654 was enacted 55% for locally
manufactured foreign brand while 45% for locally manufactured brands. 2 days before the effectivity of RA 7654, Revenue
Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR saying since there is no showing who the real owner/s are of
Champion, Hope and More, it follows that the same shall be considered locally manufactured foreign brand for purposes of
determining the ad valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco addressed to no one in
particular. CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.Fortune Tobacco filed a petition
for review with the CTA. CTA upheld the position of Fortune. CA affirmed.
Issue: WON it was necessary for BIR to follow the legal requirements when it issued its RMC
Held. YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers which publication, filing, and prior
hearing.
When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it
gives no real consequence more than what the law itself has already prescribed. BUT when, upon the other hand, the administrative
rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but
substantially increases the burden of those governed, the agency must accord, at least to those directly affected, a chance to be
heard, before that new issuance is given the force and effect of law.
RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly,
been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured
cigarettes bearing foreign brands and to thereby have them covered by RA 7654 which subjects mentioned brands to 55% the BIR
not simply interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of
notice, of hearing, and of publication should not have been then ignored.
CIR VS.BURROUGHS LTD. [G.R. NO.L-66653. JUNE 19, 1986.]
SECOND DIVISION, PARAS (J): 4 CONCURRING
Facts:Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a branch office
located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila. Sometime in March 1979, said branch office
applied with the Central Bank for authority to remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus,
on 14 March 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the
amount ofP6,499,999.30. Claiming that the 15% profit remittance tax should have been computed on the basis of the amount
actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), Burroughs Ltd. filed on 24
December 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch
profit remittance tax. On 24 February 1981, Burroughs Ltd. filed with the Court of Tax Appeals, a petition for review (CTA Case) 3204
for the recovery of the amount of P172,058.81. On 27 June 1983, the tax court rendered its Decision, ordering the Commission of
Internal Revenue to grant a tax credit in favor of Burroughs Ltd. the said amount claimed; without pronouncement as to costs.
Unable to obtain reconsideration from the decision, the Commissioner filed the petition for certiorari before the Supreme Court. The
Supreme Court affirmed the assailed decision of the Court of Tax Appeals; without pronouncement as to costs.
Issue: WON Memorandum Circular 8-22, revoking Revenue Ruling of January 21, 1980, may be applied retroactively

Held: No.What is applicable in the present case is still the Revenue Ruling of 21 January 1980 because Burroughs Limited paid the
branch profit remittance tax in question on 14 March 1979. Memorandum Circular 8-82 dated 17 March 1982, which states that
considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the
amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad, cannot be given
retroactive effect in the light of Section 327 of the National Internal Revenue Code.
Section 327 (Non-retroactivity of rulings) of the National Internal Revenue Code provides any revocation, modification, or reversal
of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be
prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from
his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered\ by the
Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in
bad faith.
ABS CBN BROADCASTING V. CTA [G.R. NO.L-52306. OCTOBER 12, 1981.]
FIRST DIVISION, MELENCIO-HERRERA (J): 4 CONCURRING
Facts:ABS-CBN Broadcasting Corporation was engaged in the business of telecasting local as well asforeign films acquired from
foreign corporations not engaged in trade or business within the Philippines, forwhich it paid rentals after withholding income tax of
30% of one-half of the film rentals. On 12 April 1961, in implementation of Section 24 (b) of the National Internal Revenue Code, the
Commissioner of Internal Revenue issued General Circular V-334. Pursuant to the foregoing, the company dutifully withheld and
turned over to the Bureau of Internal Revenue the amount of 30% of one-half of the film rentals paid by it to foreign corporations
not engaged in trade or business within the Philippines. The last year that the company withheld taxes pursuant to the foregoing
Circular was in 1968. On 27 June 1968, RA 5431 amended Section 24(b) of the Tax Code increasing the tax rate from 30% to 35% and
revising the tax basis from such amountreferring to rents. etc. to gross income. On 8 February 1971, the Commissioner of
Internal Revenue issued Revenue Memorandum Circular 4-71, revoking General Circular V-334, and holding that the latter was
erroneous for lack of legal basis, because the tax therein prescribed should be based on gross income without deduction
whatever. On the basis of the new Circular, the Commissioner issued against the company a letter of assessment and demand
dated 16 April 1971, but allegedly released by it and received by the Commissioner on 12 April 1971, requiring them to pay
deficiency withholding income tax on the remitted film rentals for the years 1965 through 1968 and film royalty as of the end of
1968 in the total amount of P525,897.06. On 5 May 1971, the company requested for a reconsideration and withdrawal of the
assessment.
However, without acting thereon, the Commissioner, on 6 April 1976, issued a warrant of distraint and levy over the companys
personal as well as real properties. The company then filed its Petition for Review with the Court of Tax Appeals (CTA Case 2809)
whose Decision, dated 29 November 1979, affirmed the assessment by the Commissioner of Internal Revenue of a deficiency
withholding income tax against the company for the years 1965 to 1968 for a total amount of P525,897.06 (P75,895.24, P99,239.18,
P128,502.00 and P222,260.64), plus the surcharge and interest which have accrued thereon incident to delinquency, pursuant to
Section 51(e) of the National Internal Revenue Code, as amended; with the costs against the company. Hence, the Petition for
Review on Certiorari.The Supreme Court reversed the judgment of the Court of Tax Appeals, and set aside the questioned
assessment; without costs.
Issue: WON Revenue Memorandum Circular 4-71, revoking General Circular V-344, may be retroactively applied
Held:Rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive application where to so apply
them would be prejudicial to taxpayers. In the present case, the prejudice to the company of the retroactive application of
Memorandum Circular 4-71 is beyond question. It was issued only in 1971, or 3 years after 1968, the last year that the company had
withheld taxes under General Circular V-334. The assessment and demand on company to pay deficiency withholding income tax
was also made 3 years after 1968 for a period of time commencing in 1965. The company was no longer in a position to withhold
taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control over them when
the new Circular was issued. And in so far as the enumerated exceptions are concerned, admittedly, the company does not fall
under any of them.