Professional Documents
Culture Documents
-The transfer of the burden of tax by the original payer or the one on
whom the tax was assessed or imposed to another or someone else
without violating the law
-It applies to indirect taxes since the law allows the burden of the
tax to be transferred. In case of direct tax, the shifting of burden
can only be via a contractual provision. Note: Examples of taxes
when shifting may apply are VAT, percentage tax, excise tax on
excisable articles, ad valorem tax that oil company pays to BIR
upon removal of petroleum products from its refinery.
ARGUMENTS:
Eduardo Neria, a CPA and son-in-law of the late Pelagia Pacheco
testified that Delpher Trades Corporation is a family corporation
and that the corporation was organized by the children of the two
spouses (spouses Pelagia Pacheco and Benjamin Hernandez and
spouses Delfin Pacheco and Pilar Angeles in order to perpetuate
their control over the property through the corporation and as a
means to avoid taxes.
Under this factual backdrop, the petitioners contend that there was
actually no transfer of ownership of the subject parcel of land since
the Pachecos remained in control of the property. Thus, the
petitioners allege: "Considering that the beneficial ownership and
control of Petitioner Corporation remained in the hands of the
original co-owners, there was no transfer of actual ownership
interests over the land when the same was transferred to Petitioner
Corporation in exchange for the latter's shares of stock. The
transfer of ownership, if anything, was merely in form but not in
substance. In reality, Petitioner Corporation is a mere alter ego or
conduit of the Pacheco co-owners
On the other hand, the private respondent argues that Delpher
Trades Corporation is a corporate entity separate and distinct from
the Pachecosn and that there was actual transfer of ownership
interests over the leased property when the same was transferred
to Delpher Trades Corporation in exchange for the latter's shares of
stock.
RULING:
No, it was not meant to be a contract of sale.
After incorporation, one becomes a stockholder of a corporation by
subscription or by purchasing stock directly from the corporation or
from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47
Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at
bar, in exchange for their properties, the Pachecos acquired 2,500
original unissued no par value shares of stocks of the Delpher
Trades Corporation. Consequently, the Pachecos became
stockholders of the corporation by subscription "The essence of the
stock subscription is an agreement to take and pay for original
unissued shares of a corporation, formed or to be formed.
It is to be stressed that 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 invest their 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 records do not point to anything wrong or objectionable about
this "estate planning" scheme resorted to by the Pachecos. "The
legal right of a taxpayer to decrease the amount of what otherwise
could be his taxes or altogether avoid them, by means which the
law permits, cannot be doubted.
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 under the lease contract.
c) Tax evasion
- It is the scheme where the taxpayer uses illegal or fraudulent means
to defeat or lessen payment of a tax. Note: Tax evasion is a scheme
used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal
liabilities.
Tax evasion is somestimes referred to as Tax Dodging.
CIR vs. Estate of Benigno P. Toda, Jr., G.R. No. 147188, 14
Sept. 2004
Facts:
Cebiles Insurance Corporation authorized Benigno P. Toda, Jr., President
and owner of 99.991% of its issued and outstanding capital stock, to sell the
Cibeles Building and the two parcels of land on which the building stands for
an amount of not less than P90 million.
Toda purportedly sold the property for P100 million to Rafael A. Altonaga.
However, Altonaga in turn, sold the same property on the same day to Royal
Match Inc. for P200 million. These two transactions were evidenced by
Deeds of Absolute Sale notarized on the same day by the same notary public.
For the sale of the property to Royal Dutch, Altonaga paid capital gains tax
[6%] in the amount of P10 million.
Issue:
Whether or not the scheme employed by Cibelis Insurance Company
constitutes tax evasion.
Ruling:
Yes! The scheme, explained the Court, 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.
It is obvious that the objective of the sale to Altonaga was to reduce the
amount of tax to be paid especially that the transfer from him to RMI would
then subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax. Altonagas sole purpose of acquiring and
transferring title of the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. 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.
To allow a taxpayer to deny tax liability on the ground that the sale was
made through another and distinct entity when it is proved that the latter was
merely a conduit is to sanction a circumvention of our tax laws. Hence, the
sale to Altonaga should be disregarded for income tax purposes. The two sale
transactions should be treated as a single direct sale by CIC to RMI.
1. Personal in nature and covers only taxes for which the grantee is
directly liable. Note: It cannot be transferred or assigned by the person to
whom it is given without the consent of the State.
2. Strictly construed against the taxpayer.
3. Exemptions are not presumed. But when public property is involved,
exemption is the rule, and taxation, the exception.
(ii) Implied
For equipment, machineries and spare parts it imported from October 1, 1992 to May 31, 1994, PLDT
paid the BIR the amount of P164,510,953.00, broken down as follows: (a) compensating tax of
P126,713,037.00; (b) advance sales tax of P12,460,219.00 and (c) other internal revenue taxes of
P25,337,697.00. For similar importations made between March 1994 to May 31, 1994, PLDT paid
P116,041,333.00 value-added tax (VAT). (Note: PLDT did not necessarily pay VAT directly to the BIR.)
After a ruling was handed down by the BIR to the effect that the PLDT is exempt from paying all taxes
on its franchise and earnings including the VAT because of the 3% franchise tax imposed on it by Section
12 of RA 7082, the PLDT claimed from the BIR a tax credit/refund of the VAT, compensating taxes,
advance sales taxes and other taxes it had been paying. When its claim was not acted upon by the BIR,
PLDT went to the CTA. The CTA ruled for PLDT, but made deductions (refundable amounts which
period to claim had already prescribed) from the total tax refund prayed for by PLDT. The CIR appealed
to the CA. The CA affirmed the CTAs decision. The CIR appealed to the SC, saying that the CA erred in
ruling that because of the 3% franchise tax the PLDT is exempt from paying all taxes, including indirect
taxes.
Issue:
WON the 3% franchise tax exempts the PLDT from paying all other taxes, including indirect taxes.
Held:
No.
1. Direct taxes are those exacted from the very person who, it is intended or desired, should pay
them. They are impositions for which a taxpayer is directly liable on the transaction or business
he is engaged in.
2. Indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in
the expectation and intention that he can shift the burden to someone else. In other words, indirect
taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden
thereof can be shifted or passed on to another person, such as when the tax is imposed upon
goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax
to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part
of the price of goods sold or services rendered.
3. The NIRC classifies VAT as an indirect tax the amount of [which] may be shifted or passed
on to the buyer, transferee or lessee of the goods. The 10% VAT on importation of goods is in
the nature of an excise tax levied on the privilege of importing articles. It is imposed on all
taxpayers who import goods. It is not a tax on the franchise of a business enterprise or on its
earnings, as stated in Section 2 of RA 7082.
4. Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods
for sale or of raw materials to be processed into merchandise can shift the tax or lay the
economic burden of the tax on the purchaser by subsequently adding the tax to the selling price
of the imported article or finished product.
(iii) Contractual
Facts: Cagayan Electric Power and light Co, Inc. (CEPALCO) was granted
a franchise in 1961 under RA 3247 to install, operate and maintain an
electric light, heat and power system in Cagayan de Oro and its suburbs. In
1973, the Local Tax Code (PD 231) was promulgated, where Section 9
thereof providing for a franchise tax. Pursuant thereto, the province of
Misamis Oriental enacted Provincial Revenue Ordinance 19, whose Section
12 also provides for a franchise tax. The Provincial Treasurer demanded
payment of the provincial franchise tax from CEPALCO. CEPALCO paid
under protest.
1.Tax exemption may be based on contract in which case the public represented
by the government is supposed to receive a full equivalent therefor. Ordinarily,
the provisions of a contract of exemption from taxation are contained in the
charter of the corporation (law under which is organized) to which the exemption
is granted.
2.It may be based on some ground of public policy.(supra), such as, for example
to encourage new and necessary industries, or to poster charitable and
other benevolent institutions; or such as, at least makes the public at large
interested in encouraging or favoring the class or interest in whose behalf the
exemption is made. In this case, the government need not receive any
consideration in return for tax exemption.
3.It may be created in a treaty on grounds of reciprocity, or to
4.lessen the rigors of international double or multiple taxation which occurs
where there are many taxing jurisdictions, as in the taxation of income and
intangible personal property.
5.States that taxes are not subject to set-off or legal compensation because the
government and the taxpayer are not mutual creditor and debtor of each other.
6.A person cannot refuse to pay tax on the basis that the government owes him an
amount equal to or greater than the tax being collected. The collection of tax
cannot await the results of a lawsuit against the government.
7.An exception to this rule is where both claims of the government
and the taxpayer against each other have already become due, demandable and
fully liquidated.
a. Forfeiture of Refund- A refund check or warrant issued in accordance with the pertinent provisions of
this Code, which shall remain unclaimed or uncashed within 5 (five) years from the date the said
warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the
amount thereof shall revert to the general fund.
b. A tax credit Certificate issued in accordance with the pertinent provisions of the Tax Code, which
shall remain unutilized after five 5 years from the date of issuance, shall unless revalidated, be
considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer
and the amountcovered y the certificate shall revert to the general fund.