PICPA 2013 National Accountancy Week

Tax Updates: Latest Court Decisions

July 17, 2013

Atty. Lea L. Roque
Head, P&A Tax Division

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Tax assessments

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Proof of Unutilized CWT

(Jardine Lloyd Thompson Insurance Brokers Inc., v CIR, CTA
EB 861 June 5, 2013)

Facts:
The Company seeks for a refund of its alleged unutilized CWT
and submitted its annual income tax return for the following year
to prove that it did not carry forward the refunded amount.
Issue:
Whether the Company is entitled to a refund of its unutilized
CWT

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Proof of Unutilized CWT

Held:
Sec. 76 of 1997 NIRC states that the option to carryover is exercised against the quarterly income taxes to
the taxable quarters of the succeeding taxable years.

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Assessment based on Letter Notice

(CIR v Fax N Parcel, Inc., CTA EB 883 re CTA Case 7415,
February 14, 2013)

Facts:
A company engaged in transmission of information was
assessed for undeclared sales. The assessment of the BIR
arose from the matching of computer records using the
summary list of purchases submitted by the taxpayers
customers.

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Assessment based on Letter Notice

Ruling:
While tax assessments are presumed correct and made in good
faith, the assessments should not, however, be based on
presumptions no matter how reasonable or logical the
presumption might be.
In order to withstand the test of judicial scrutiny, the assessment
must be based on actual facts.

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Piercing the Corporate Veil

(People of the Philippines v Wong Yan Tak, Geralyn Bobier
and Pic N' Pac Mart, Inc., CTA Criminal Case 0-090, January
8, 2013)
Facts:
After having affirmed the deficiency tax assessment
against the company, the CTA ordered the companys
president (who was likewise found guilty for failure to
file return and supply information under Section 255 of
the Tax Code) to pay for the civil liability of the
company arising from its tax assessment.

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Piercing the Corporate Veil

Ruling:
Considering that no allegation was made that the corporation
was used by its president in the aforementioned circumstances,
the fiction that the stockholders and/or officers are separate and
distinct entities from the corporation cannot be disregarded.
Hence, the CTA held that the company president cannot be
made personally liable.

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Tax Treaty Relief Application

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Prior ITAD Ruling Requirement

Facts:
The taxpayer filed for a TTRA for dividends.
The BIR denied the application.
TP appealed to the Secretary of Finance who denied the taxpayers
appeal.
TP appealed to the CTA.

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Prior ITAD Ruling Requirement

Ruling:
Jurisdiction of the CTA to resolve tax disputes in general does not
include cases where the validity or constitutionality of a law, or a rule or
regulation issued by the administrative agency in the performance of its
quasi-legislative function is challenged.
The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within
the jurisdiction of the regular courts.

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Tax Refund / Tax Credit of Unutilized Input VAT

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Taxpayer must be VAT registered

(Crescent Park 14-678 Property Holdings, Inc. v CIR,
CTA Case 8326, June 13, 2013)
Facts:
Company purchased parcels of land on August 3, 2009.
Companys Certificate of VAT registration was dated
August 4, 2009.

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VAT registered
Ruling:
Company is not entitled to refund or issuance of tax credit
certificate since at the time the transactions were made, TP
was not yet a VAT registered entity.
VAT registration is indispensable to VAT refund.

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Proof of Export Sales

(Phil. Gold Processing & Refining Corp. v CIR, CTA Case
8270, June 11, 2013)

Facts:
A VAT-registered company exported 100% of its mineral
products to Switzerland, and was paid through inward
remittance in accordance with BSP rules.
The Company posits that such export sales are subject to
0% VAT under the 1997 Tax Code.
The Company then seeks the refund or issuance of tax
credit certificate allegedly representing TPs unutilized input
VAT.
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Proof of Export Sales

Ruling:
Any VAT-registered person claiming VAT zero-rated direct export sales must
present at least 3 types of documents, to wit:
1. The sales invoice as proof of sale of goods;
2. The export declaration and bill of lading or airway bill as proof of actual
shipment of goods from the Philippines to a foreign country, and
3. The bank credit advice, certificate of bank remittance or any other
document proving payment for the goods in acceptable foreign currency
or its equivalent in goods and services.

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Undeclared Input Taxes

(Coca Cola Bottlers Philippines, Inc. v CIR CTA Case 8136,
May 15, 2013)
Facts:
TP claimed a refund of the VAT it paid on its purchases, which
it recorded in its books of account but failed to declare in its
quarterly VAT returns due to inadvertence.
TP was unable to amend its VAT return to include its
undeclared input taxes since the BIR has issued a LOA
covering said return.

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Undeclared Input Taxes

Ruling:
CTA denied the Company's claim. There are 2 instances when
excess input taxes may be claimed for refund:
(1) zero-rated or effectively zero rated sales; and
(2) upon cancellation of VAT registration due to retirement from or
cessation of business.

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Exception to Irrevocability Rule Sec 76 Tax Code

(Sankyu Construction Philippines, Inc. v CIR, CTA
Case 8079, May 31, 2013)
Facts:
Despite previously choosing to carry over its excess credits,
a Corporation filed a claim for refund due to cessation of
business
Issue:
Whether the Company should be allowed to choose refund

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Exception to Irrevocability Rule Sec 76 Tax Code

Ruling:
Absent the tax clearance certificate issued by the BIR and
certificate of dissolution issued by the SEC, the CTA held that
it cannot consider the taxpayer as already dissolved or has
permanently ceased its operations to remove it from the
application of the irrevocability rule under Section 76 of the
Tax Code.

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VAT

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Exception to the 120-30 day rule

(CIR v San Roque Power Corporation, Taganito
Mining Corporation and Philex Mining Corporation,
GR 187485, February 12, 2013)
Facts:
San Roque filed an amended claim for refund or issuance of
tax credit certificate representing unutilized input VAT for TY
2001 on purchases of goods and services and importation of
goods attributable to zero-rated sales with the BIR on March
28, 2003.
Company filed its Petition for Review before the CTA on April
10, 2003.
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Exception to the 120-30 day rule

Issue:
Whether TPs judicial claim was timely filed.
Held:
120+30 day rule is manadatory and jurisdictional. Claim for
refund was denied for being premature.

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Exception to the 120-30 day rule

FACTS:
Taganito filed BIR claim on Nov 13, 2006 for input VAT for
TY2004 and 2005.
CTA claim was filed on February 17, 2007.
Issue: Whether TPs judicial claim was timely filed.
Held: Taganitos claim fall within the exception period between
Dec 10, 2003 and October 5, 2010.

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Exception to the 120-30 day rule

Held:
BIR Ruling No. DA 489-03 dated Dec 10, 2003 expressly
stated that taxpayer need not wait for the lapse of the 120
day before before it could seek judicial relief with the CTA.
The ruling was a general interpretative rule no specific to a
TP.
Aichi Doctrine was adopted on October 6, 2010.

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Exception to the 120-30 day rule

FACTS:
Philex Mining filed with BIR on 20 March 2006 for refund for
Q3 2005.
CTA cas filed on 17 October 2007.
ISSUE: Whether TPs judicial claim was timely filed.
HELD: This is not a case of premature filing but one of late
filing.

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Exception to 120-30 day rule

(Sony Ericsson Mobile Communications International
AB v CIR, CTA Case 8059, June 11, 2013)
Facts: TP filed with RDO on March 30, 2010 for input VAT for
TY 2008.
CTA case was filed on March 31, 2010.
Held:
The Company filed its judicial claim within the exception
provided in the San Roque case(Dec 10, 2003 and October 5,
2010).

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VAT treatment on Isolated Transaction

(Mindanao II Geothermal Partnership v CIR, GR
193301, March 11, 2013)
Facts:
In the course of its business, a power generating company
bought a motor vehicle which formed part of its assets used
in its business operations.
When the motor vehicle was already fully depreciated, the
company sold the motor vehicle.

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VAT treatment on Isolated Transaction

Ruling:
The SC held that while the sale of the motor vehicle is an isolated
transaction, it may be deemed an incidental transaction which is
subject to 12% VAT. It does not follow that an isolated transaction
cannot be an incidental transaction for VAT purposes. Section 105
of the Tax Code which provides that a transaction in the course of
trade or business includes transactions incidental thereto.
Hence, the sale of motor vehicle is considered an incidental
transaction made in the course of trade or business which should
be subject to the 12% VAT.

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Tax Evasion

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Willful Blindness
(PP v. Judy Anne Santos, CTA Crim Case No o-012,
Jan 16, 2013)
Facts:

A local celebrity was accused of filing a false and fraudulent

income tax return before the CTA and a Warrant of Arrest has
been issued against her. She denied the allegations stating
that it is her manager who is in charge of filing the relevant
returns and paying the corresponding taxes since she started
working, handling all her transactions and that out of trust,
respect and confidence on her Manager, she signed
contracts and other documents without reading the same.
And that her manager hired an accountant to handle her tax
obligations.
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Willful Blindness

Recall:
People v Kintanar (CTA EB Crim 006, May 27, 2010, affirmed by
SC Resolution January 2012) Kintanar claimed that she did not
actively participate in the filing of her joint ITRs with her husband
and entrusted the fulfillment of such duty to her husband and that
her husband hired an accountant tasked to handle the filing and
payment of their tax obligations. But CTA found her guilty of
supplying BIR with incorrect and inaccurate information on the
ground of Willful Blindness Doctrine. SC upheld the CTA's ruling.

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Willful Blindness

Recall:
Elements of violation of Section 255 of the 1997 Tax Code:
1. the accused is a person required to make or file a return;
2. the accused failed to make or file the return at the time
required by law, and
3. that failure to make or file the return was willful

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Willful Blindness

Ruling:
CTA acquitted and found the local celebrity only negligent, which is
not equivalent to fraud with intent to evade tax, due to insufficient
evidence to prove fraud and the celebrity's intention to settle the
case.
This ruling was upheld by the SC Resolution issued last April 17,
2013.

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DST

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DST on Assignment of Promissory Notes(Philacor

Credit Corporation v CIR, GR 169899, February 6,
2013)
Facts:

A domestic corporation was assessed by the BIR for

deficiency DST on the promissory notes executed by the
buyers of appliances on installment basis in favor of
appliance dealers, and also, on the subsequent assignment
of the same promissory notes in favor of the company.
The BIR contends that the finance company is subject to
DST on the issuance of promissory notes as the transferee
which accepted the promissory notes from the appliance
dealer.
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VAT treatment on Isolated Transaction

Ruling:

The financing company is not liable to DST.

The person who made, signed, issued, accepted or
transferred the promissory notes is the buyer and not the
financing company.
The financing company is not also liable for the DST on the
assignment of promissory notes since the transaction is not
taxed under the law.
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Local Government Taxes

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Re-Classification for purposes of tax

(Super Grocers, Inc. v The Municipality of San Pedro
Laguna, CTA AC 86, February 25, 2013)
Facts:
A company was subjected to LBT as owners or operators of
privately-owned supermarket, shopping centers and minimarts, a classification which was introduced by the host
municipality in 2006 via a municipal ordinance.
Prior to this, it was classified as retailer of grocery items
selling both essential and non-essential commodities which
are subject to differentiated LBT rate.

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Re-Classification for purposes of tax

Ruling:
The re-classification of the company from a retailer of essential
goods into an owner or operator of privately-owned
supermarkets, shopping centers, and mini-marts is invalid
since it failed to consider the limitation imposed under par (h) of
Sec 143 of the LGC, stating that the power of the municipality to
impose business tax on any other business which it may deem
proper is limited to those businesses that are not otherwise
specified in the preceding paragraph of Section 143 of the
LGC.

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Re-Classification for purposes of tax

Ruling:

Considering that the phrase retailers of essential commodities

under Section 143(C) of the LGC and on retailers under
Section 143(d) of the same Code, as adopted by the subject
municipal ordinance is broad enough to include the business
activities of operating privately-owned supermarkets, shopping
centers, including mini-marts, the additional classification being
already within the scope of retailers of essential commodities
and retailers is deemed invalid.

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Protesting an LBT Assessment

(Benguet Electric Cooperative v Municipality of La Trinidad,
CTA AC 85, June 7, 2013)
Facts:
The Company received notices of assessment and later, amended
notices of assessment LG for LBT. The Company protested on
both notices, arguing that it is not engaged in business for being
non-stock nonprofit cooperative.
LG denied the protest and issued a Notice of Seizure or
Confiscation of TPs personal properties and copies Notices of
Garnishment and Warrant of Levy, representing Companys LBT.
Company filed a Petition for Prohibition, which the RTC denied
since there was another remedy of appeal under Sec. 195 of LGC
that lapsed without TP availing of it, therefore became
unappealable and conclusive.
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Protesting an LBT Assessment

Ruling:
Since no appeal was filed by Company within the 30day period
provided under Sec. 195 of LGC, the assessments for LBT
became conclusive and unappealable. Consequently, Company is
precluded from questioning the validity of the assessments even
through a Petition for Prohibition. If Company has timely availed of
this remedy of appeal to the RTC when LG denied its protest, then
RTC would have acquired jurisdiction to determine the legality or
validity of the Notices of Assessment/Amended Notices of
Assessment issued by respondents.

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Protesting an LBT Assessment

Special civil actions of certiorari and prohibition do not lie
where the remedy by appeal has been lost because said
special civil actions cannot take the place of an appeal.

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Thank you.

Contact:
lea.roque@ph.gt.com

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