SUMMARY OF SIGNIFICANT SC TAX DECISIONS (SEPTEMBER TO DECEMBER 2013)

1. Philippine Airlines, Inc. cannot be subject to the minimum corporate income tax.

Taxpayer received from the BIR deficiency tax assessment for minimum corporate income tax
(MCIT). The taxpayer filed a protest arguing, among others, that it is exempt from, or is not
subject to, the 2% MCIT by virtue of its Charter, Presidential Decree No. 1590. As no action was
taken by the BIR on its protest, taxpayer filed a petition for review before the CTA. Both the CTA
Division and CTA En Banc agreed with taxpayer that it is not subject to the MCIT.

The Supreme Court affirmed the decision of the CTA. According to the Supreme Court, during
the lifetime of the franchise of PAL, its taxation shall be governed by two fundamental rules, to
wit: (1) it shall pay the government either the basic corporate income tax or franchise tax,
whichever is lower; and (2) the tax paid, under either of these alternatives, shall be in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges, except only real
property tax. Citing earlier decisions on the same issue, the Supreme Court ruled that PAL
cannot be subject to the MCIT because the “basic corporate income tax” referred to under
Section 13(a) of PD 1590 relates to the rate of 35% (now 30%) as provided in Section 27(A) of
the NIRC of 1997. Because of the fundamental difference between the basic corporate income
tax and the MCIT, PAL is subject to first tax yet exempted from the second. (Commissioner of
Internal Revenue vs. Philippine Airlines, Inc., G.R. No. 179259, September 25, 2013)

2. The 120+30 day periods provide in Section 112 of the NIRC are mandatory and
jurisdictional.

Taxpayer filed its VAT returns showing unutilized VAT attributable to its zero-rated sales.
Taxpayer then subsequently filed an administrative claim for refund for the said unutilized input
taxes. The relevant filing periods are as follows:

Period Covered Filing of VAT Return Filing of the Administrative

Claim
1st quarter 2004 April 16, 2004 June 9, 2004
2nd quarter 2004 July 15, 2004 August 12, 2004
3rd quarter 2004 October 15, 2004 February 18, 2005
4th quarter 2004 January 11, 2005 February 18, 2005
1st quarter 2005 April 25, 2005 May 11, 2005
2nd quarter 2005 July 19, 2005 November 18, 2005
3rd quarter 2005 October 26, 2005 November 18, 2005
For failure of the BIR to act on the administrative claims, the taxpayer filed a petition for review
before the CTA on March 17, 2006. The BIR contends that the taxpayer’s action for refund has
not compliant with the prescriptive periods under the Tax Code.

Citing the earlier cases of CIR vs. Aichi Forging Company of Asia, Inc.1 (Aichi Case) and CIR
vs. San Roque Power Corporation2, the Supreme Court ruled that the two-year prescriptive
period applies only to the administrative claims and not to the judicial claims. Moreover, the 120-
day and 30-day periods are not merely directory but mandatory. The taxpayer will always have
30 days to file the judicial claim even if the Commissioner acts only on the 120th day, or does
not act at all during the 120-day period. With the 30-day period always available to the taxpayer,
the taxpayer can no longer file judicial claim for refund or tax credit of unutilized excess input
VAT without waiting for the Commissioner to decide until the expiration of the 120-day period.
Failure to comply with the 120-day waiting period violates the doctrine of exhaustion of
administrative remedies and renders the petition premature and thus without a cause of action,
with the effect that the CTA does not acquire jurisdiction over the taxpayer’s petition. The only
exception is the period from December 10, 2003 when BIR Ruling No. DA-489-03 was issued
up to its reversal in the Aichi Case on October 6, 2010. BIR Ruling DA-489-03 provides a valid
claim for equitable estoppel when the BIR ruled that the “taxpayer-claimant need not wait for the
lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for
Review.

Thus, the taxpayer can benefit from BIR Ruling No. DA-489-03 with respect to its claims for
refund for unutilized excess input VAT for the 2nd and 3rd quarters of 2005 which were filed
before the BIR on November 18, 2005 but elevated to the CTA on March 17, 2006 before the
expiration of the 120-day period. However, the claims for the 4 quarters of the 2004 and the 1st
quarter of 2005 are denied for late filing of the petition for review before the CTA. (Republic of
the Philippines vs. GST Philippines, Inc., G.R. No. 190872, October 17, 20133)

3. A taxpayer is not liable for the tax liability of another taxpayer in the absence of a
merger.

On November 9, 2001, the Bank of Commerce (BOC) and Traders Royal Bank (TRB) executed
a Purchase and Sale Agreement whereby it stipulated TRB’s desire to sell and BOC’s desire to
purchase identified assets of TRB in consideration for BOC assuming identified liabilities. Under
the Agreement, BOC and TRB shall continue to exist as separate corporations with distinct
corporate personalities. On September 27, 2002, BOC received assessment demanding
payment of deficiency DST of TRB for the year 1999. After its unsuccessful protest, BOC filed a
petition for review before the CTA raising, among others, the issue as to whether BOC can be
held liable for TRB’s alleged deficiency DST liability.

The CTA En Banc was affirmed by the Supreme Court in ruling that the BOC cannot be held
liable for the alleged DST liability of TRB, in the absence of a merger, and the DST liability was
not among the liabilities assumed by BOC under the Purchase and Sale Agreement.
(Commissioner of Internal Revenue vs. Bank of Commerce, G.R. No. 180529, November
13, 2013)

1
G.R. No. 184823, October 6, 2010
2
G.R. Nos. 187485, 196113 and 197156, February 12, 2013
3
The same decision was made in The Commissioner of Internal Revenue vs. Visayas Geothermal Power Company,
Inc., G.R. No. 181276, November 11, 2013
4. To be able to claim refund on the basis of zero-rated sales, taxpayer must prove the
existence of zero-rated sales though its VAT returns and receipts issued for such
zero-rated sales.

Taxpayer is a producer of electricity. Pursuant to its Power Purchase Agreement with National
Power Corporation (NPC), the electricity produced was to be sold to NPC. And relative to its
sales to NPC, taxpayer was granted by the BIR certificates for zero-rate for VAT purposes in
the periods from January 1, 2000 to December 31, 2001. Taxpayer incurred input taxes on its
domestic purchases of goods and services used in generation and sale of electricity to NPC for
the 4 quarters of 2001, which it had declared in its VAT returns. Subsequently, it filed a claim for
refund for the unutilized input taxes. The Commissioner did not act on taxpayer’s claim despite
the favorable recommendation of the revenue officer. Hence, taxpayer filed a petition before the
CTA praying for the refund of input taxes for the 4 quarters of 2001.

The claim was denied by the CTA on the ground that in the VAT returns for the 4 quarters of
2001, no amount of zero-rated sales was declared. Likewise, taxpayer did not submit any VAT
official receipts for services rendered to NPC. Thus, it had not established that it had zero-rated
sales for the 4 quarters of 2001. In its petition for review before the Supreme Court, the
taxpayer argued, among others, that the sale of electricity to NPC is automatically zero-rated
pursuant to RA 9136 (EPIRA Law). Hence, it need not prove that it had zero-rated sales. In
denying the claim of the taxpayer, the Supreme Court agreed with the CTA’s decision that the
taxpayer did no produce evidence showing that it had zero-rated sales for the 4 quarters of
2001. Its assertion that it need not prove its having actually made zero-rated sales of electricity
by presenting the VAT official receipts and VAT returns cannot be upheld. (Luzon Hydro
Corporation vs. Commissioner of Internal Revenue, G.R. No. 188260, November 13, 2013)

5. The CTA does not acquire jurisdiction over a petition for review seeking the refund of
unutilized input taxes that is belatedly filed.

On August 9, 2004, taxpayer filed a claim for tax credit or refund of input taxes related to zero-
rated sales covering the period January 1, 2003 to June 30, 2003. Because the BIR failed to act
upon the claim, the taxpayer filed a petition for review with the CTA on May 5, 2005.

In denying the claim of the taxpayer, the Supreme Court ruled that the judicial claim was filed
out of time. In accordance with the San Roque Case4, taxpayer’s judicial claim for refund must
be denied for having been filed late. Although the taxpayer filed its administrative claim with the
BIR on August 9, 2004 before the expiration of the 2-year period in Section 112(A), it failed to
comply with the 120+30-day period in Section 112(D) (now subparagraph C) of the NIRC which
requires that upon the inaction of the Commissioner for 120 days after the submission of the
documents in support of the claim, the taxpayer has to file its judicial claim within 30 days after
the lapse of the said period. The 120 days granted to the Commissioner to decide the case
ended on December 7, 2004. Thus, the taxpayer had 30 days therefrom or until January 6, 2005
to file a petition for review with the CTA. But it belatedly filed the petition for review on May 5,
2005. As a consequence, the CTA did not acquire jurisdiction. (Commissioner of Internal
Revenue vs. Das Engineering Philippines, Inc., G.R. No. 184145, December 11, 2013)

4
G.R. No. 187485, February 12, 2013