TAX ALERT

June 30, 2011

Court of Tax Appeals

COURT OF TAX APPEALS (CTA) REITERATES THAT THE PROPER PARTY TO

QUESTION, OR CLAIM A REFUND OR TAX CREDIT OF, AN INDIRECT TAX IS
THE STATUTORY TAXPAYER.
In the case of Silkair (Singapore) Pte., Ltd. v. Commissioner of Internal Revenue, 544 SCRA 100
(2008), the Supreme Court had ruled that the proper party to question, or to seek a refund of, an
indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who
paid the same, even if he shifts the burden thereof to another. Phil. Airlines, Inc. v.
Commissioner of Internal Revenue, CTA EB Case No. 588 dated May 9, 2011.

CTA HOLDS THAT FAILURE OF RESPONDENT COMMISSIONER OF INTERNAL

REVENUE (CIR) TO RAISE AS ISSUES PREMATURITY OF THE JUDICIAL
FILING AND LACK OF CAUSE OF ACTION IN THE ANSWER CONSTITUTES
WAIVER OF SAID DEFENSES.
The judicial claim for refund/credit of unutilized input VAT must be filed within 30 days from
the receipt of the decision of the CIR or after the expiration of the 120-day period provided for
the CIR to act on the claim. The failure of the taxpayer to await for the decision of the CIR or the
lapse of the 120-day period amounts to premature filing of the judicial claim. However, failure to
ventilate the prematurity of the judicial filing and lack of cause of action in the Answer
constitutes waiver of said defense, such that, the judicial claim for refund/credit of unutilized
input VAT is cognizable by the CTA. Takasago Phil., Inc. v. Commissioner of Internal
Revenue, CTA Case No. 7825 dated May 19, 2011.

OPTION TO CARRY OVER EXCESS QUARTERLY INCOME TAX PAYMENTS

ONCE CHOSEN BY TAXPAYER IS IRREVOCABLE (IRREVOCABLITY RULE)
SUBJECT TO CERTAIN EXCEPTIONS, SUCH AS, BUSINESS TRANSFORMATION.
Settled is the rule that once a taxpayer opted for the carry over option, actually or constructively,
the same shall be considered irrevocable for that taxable period until fully utilized. Philam Asset
Management, Inc. v. Commissioner of Internal Revenue, 477 SCRA 761. However, Section 76 of
the National Internal Revenue Code of 1997, as amended (Tax Code), allows certain
exceptions on the application of the irrevocability rule. The exceptions include business
transformation, such as a corporation contemplating dissolution, under Section 52(C) of the Tax
Code. In the event of cessation of business, the taxpayer may opt to claim for refund even if it
previously chose the irrevocable option to carry-over since there is no more opportunity for it to
utilize such excess credits. However, in order to exclude the taxpayer from the application of the
irrevocability rule, the termination of business operation must be permanent in nature, and not
merely temporary. The taxpayer must establish by sufficient proof that it has been legally
dissolved through the presentation of certificate of dissolution and tax clearance. IMPSA

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Telephone: (632) 633-9418 Facsimile: (632) 633-1911 E-mail: mail.baniquedlaw.com
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Construction Corp. v. Commissioner of Internal Revenue, CTA EB No. 685 dated May 24,
2011.

BIR Regulations and Other Issuances

DEPARTMENT OF FINANCE (DOF) CLARIFIES TREATMENT OF EXCESS

CAMPAIGN FUNDS FOR TAX PURPOSES.
Unutilized or excess campaign funds, that is, campaign contributions net of the candidates
campaign expenditures, shall be considered as subject to income tax, and as such, must be
included in the candidates taxable income. Revenue Regulation No. 7-2011 dated February 16,
2011.

BUREAU OF INTERNAL REVENUE (BIR) ISSUES REVISED RULES OF

PROCEDURE IN THE INVESTIGATION/HEARING OF ADMINISTRATIVE CASES
FILED AGAINST REVENUE OFFICIALS/EMPLOYEES. Revenue Memorandum Order
No. 19-2011 dated May 16, 2011.

BIR AMENDS AUDIT CRITERIA FOR TAXABLE YEAR 2009 AND 2010.
To be entitled to the Last Priority for audit status, the following conditions must concur: a)
effective income tax rate of 18%; b) increase in income tax payment by at least 20% from the
immediately preceding year; c) full compliance with all the submission and reportorial
requirements; and d) no letter notice issued against the taxpayer. Revenue Memorandum Order
No. 22-2011 dated June 1, 2011.

BIR ISSUES GUIDELINES IN SEEKING CONFIRMATION OF TAX TREATMENT OF

SEPARATION BENEFITS RECEIVED BY OFFICIALS AND EMPLOYEES ON
ACCOUNT OF THEIR SEPARATION FROM EMPLOYMENT DUE TO DEATH,
SICKNESS OR OTHER PHYSICAL DISABILITY.
The processing of requests for ruling, seeking confirmation that the amounts received by
employees or by his heirs from the employer because of death, sickness or other physical
disability are tax exempt, is devolved upon the Revenue Regions. Instead of a confirmatory
ruling, a Certificate of Tax Exemption shall be issued by the Regional Director. However, the
processing of requests for ruling providing that amounts received by an official or employee
from his employer for any other causes beyond the control of the said official or employee are
tax exempt shall continue to be processed at the Law Division in the National Office. Revenue
Memorandum Order No. 26-2011 dated June 13, 2011.

BIR Rulings

REAL PROPERTY TREATED AS ORDINARY ASSETS, WHICH REMAINED IDLE

AND ABANDONED, WILL NOT CONVERT THE SAID ORDINARY ASSETS INTO
CAPITAL ASSETS.
WS Corporation, primarily engaged in general construction and other allied businesses, and
secondarily, in the sale and conveyance of real property, inquired whether the five parcels of
land, originally intended to be utilized for biddings of big construction projects but was later on
abandoned and became idle, are converted to capital assets. BIR ruled that, pursuant to Section
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3(4)(e) of Revenue Regulations No. 7-2003, the subject properties are deemed ordinary assets.
The fact that the said properties remained idle and abandoned for more than two years will not
convert the said ordinary assets into capital assets. BIR Ruling No. 142-2011 dated May 4,
2011.

A NON-STOCK, NON-PROFIT CORPORATION MUST PROVE BY ACTUAL

OPERATION FOR AT LEAST THREE YEARS THAT IT IS REALLY AN
ORGANIZATION/ASSOCIATION EXEMPT FROM INCOME TAX UNDER SECTION
30 OF THE TAX CODE.
A non-stock, non-profit corporation requesting for tax exemption pursuant to Section 30(C) of
the Tax Code has to prove by actual operation for at least three years that it is really an
organization/association exempt from income tax. It can file the necessary annual information
return instead of an income tax return on or before the 15th day of the fourth month of the
preceding accounting period following the start of its operation as an exempt organization. Based
on such information, BIR shall conduct the necessary investigation on the activities undertaken
during the period. The letter of exemption shall thereafter be issued depending upon the result of
investigation. BIR Ruling No. 173-2011 dated May 25, 2011.

TAX CODE GRANTS BENEFITS OF EXCLUSION FROM GROSS INCOME OF

PENSION PAYMENTS FOR ALIENS WHO COME TO RESIDE PERMANENTLY IN
THE COUNTRY. A MERE INTENT TO LIVE LONGER OR FOR THE
FORESEEABLE FUTURE IN THE PHILIPPINES WOULD NOT SUFFICE. BIR Ruling
No. 176-2011 dated May 27, 2011.

Note: The information provided herein is general and may not be applicable in all situations. It
should not be acted upon without specific legal advice based on particular situations. If you have
any questions, please feel free to contact any of the following at telephone number (632) 633-
9418, facsimile number (632) 633-1911, or at the indicated e-mail address:

Atty. Carlos G. Baniqued cgbaniqued@baniquedlaw.com

Atty. Laura Victoria A.S. Yuson-Layug lvyusonlayug@baniquedlaw.com
Atty. Terence Conrad H. Bello thbello@baniquedlaw.com
Atty. Suzette A. Celicious-Sy sacelicious@baniquedlaw.com
Atty. Madeline L. Zialcita-Villapando mlzvillapando@baniquedlaw.com
Atty. Excelsis V. Antolin evantolin@baniquedlaw.com
Atty. Bernadette V. Quiroz bvquiroz@baniquedlaw.com
Atty. Luis Martin V. Tan lvtan@baniquedlaw.com
Atty. Emma Malou U. Lim eulim@baniquedlaw.com

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