FORT BONIFACIO DEVELOPMENT CORPORATION vs. CIR GR No. 158885 & GR No. 170680, April 2, 2009 Elements: I.

Parties Petitioner: Fort Bonifacio Development Corporation Respondents: 1. Commissioner of Internal Revenue, Regional Director, Revenue Region No. 8 and Chief, Assessment Division Revenue Region No. 8 (GR 158885) 2. Commissioner of Internal Revenue and Revenue District Officer, Revenue District No. 44, Taguig and Pateros, Bureau of Internal Revenue (GR 170680) Prior Proceedings Fort Bonifacio Development Corporation initiated the proceedings by filing a petition for review before the court. But before the case reached the Supreme Court, it went through the Court of Tax Appeals and Court of Appeals. COURT OF TAX APPEALS The court rendered a decision affirming the assessment made by the respondents. FBDC has to pay an amount of Php 45,188,708.08 representing deficiency tax for the 4th quarter of 1996, including surcharge, interest, and penalty. The CTA sustained the BIRs application of Section 4.105-1 of RR 7-95 that the basis of the transitional tax for real estate dealers shall be the improvements constructed on or after the effectivity of EO 273. Moreover, FBDC is precluded from availing of transitional input tax credit because in 1995, sale of real properties was still exempt from VAT. (first petition) The court denied the FBDCs claim for refund. The government, which is a tax exempt entity, did not pass on any VAT or business tax upon FBDC. To allow FBDC 8% transitional input tax to offset its output VAT liability without having paid any previous taxes has the net effect of granting FBDC an outright bonus equivalent to 10% VAT it may tack on the goods it would sell to its subsequent purchasers. The inventory under Section 105 of the NIRC is limited to improvements. (second petition) COURT OF APPEALS It affirmed the decision of the Court of Tax Appeals, but removing the surcharge, interest, and penalties, thus reducing the amount due to Php 28,413,783. The regulations embodied in RR 7-95 were a valid exercise of the BIRs delegated rulemaking power and were consistent with the letter and spirit of substantive laws establishing the VAT system. A first

II.

time taxpayer who becomes liable for VAT is entitled to a transitional input tax under Section 105 of the NIRC. (first petition) The Court affirmed the CTA decision. It ruled that the grant of transitional input tax presupposes that the VAT taxpayer had previously paid some form of business tax on his inventory of goods. III. Theories of the Parties G. R. No. 158885 Petitioner On September 19, 1996, in order to avail itself of the transitional input tax credit, FBDC submitted to the BIR, Revenue District No. 44, Taguig and Pateros, an inventory of its real properties with a Book Value of Php 71,227,503,200 on which it claims a transitional input tax credit of Php 5,698,200,256. It also registered itself as a VAT taxpayer. On October 14, 1996, two contracts to sell were executed in favor of Metro Pacific Corporation. Sales Output Tax Payable Cash Paid Transitional Input Tax Credit Regular Input Tax Credit on Purchases of goods and services Php 3,498,888,713.60 318,080,792.14 269,340,469.45 28,413,783.00 20,326,539.69

FBDC submitted two letters to BIR informing it of the transaction and computation of its VAT payments and requesting for a ruling on whether its transitional input VAT on the land inventory was in order. The BIR Commissioner sent a letter to the petitioner disallowing the presumptive input tax arising from land inventory on the ground that the basis of the 8% presumptive input tax of the real estate dealer shall be limited to the book value of improvements, in addition to its inventory of supplies and materials for use in its business. FBDC requested for the computation of surcharges, interest and penalties and for the issuance of assessment notice to enable it to pursue its remedy under the NIRC. Respondents: The BIR Commissioner cited RR No. 7-95 and RMC No. 3-96. Specifically, the BIR Commissioner referred to Sec. 4.105-1 and the Transitory Provisions of RR 7-95 issued in implementations of the amendments made by RA 7716, which provides in case of real estate dealers, the basis of the presumptive input tax shall be the improvements. BIR Commissioner directed petitioner to pay VAT equivalent to the disallowed presumptive input tax on land improvements.

Acting Assistant Chief Pascual De Leon sent a letter informing the total amount due and Regional Director Ortega ruled that petitioners request for reconsideration/protest was barred by thte statute of limitations because it was filed more than 30 days.

G. R. No. 170680 Petitioner For the third quarter of 1997: Sales and Lease of Land Output VAT payable Cash paid Regular Input Tax Php 3,591,726,328.11 359,172,623.81 347,741,695.74 19,743,565.73

On May 11, 1999, petitioner filed with the BIR a claim for the tax refund of its output VAT cash payments for the third quarter of 1997 for the reason that it was illegally collected because the BIR didi not take into account its transitional input tax credit. It alleged that its input tax credit was more than enough to offset the VAT paid for the third quarter and as such, it was entitled to a refund.

Respondents FBDC is not automatically entitled to 8% transitional input tax allowed under Sec. 105 of the NIRC because it purchased the land at the Global City from the government under a VAT free sale.

IV.

Objectives of the Parties Petitioner 1. To restrain the respondents from collecting the transitional input tax credit due for the 4th Quarter of 1996. 2. To refund the amount it had paid for the 3rd quarter of 1997 in the light of transitional input tax credit entitled to it. Respondents: 1. To sustain their decision to collect and not to give refund to the petitioner in the light of the RRs.

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Key Facts