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TAX CASE DIGEST

FEBRUARY 4, 2017

1. SPOUSES EMMANUEL D. PACQUIAO AND JINKEE J. PACQUIAO,

Petitioners, v. THE COURT OF TAX APPEALS - FIRST DIVISION AND
THE COMMISSION OF INTERNAL REVENUE, Respondents.

FACTS: Spouses Pacquiao and family relied primarily from his income from
his boxing matches earnings primarily from abroad. Prior to entering
politics, they already amassed wealth both intentionally and locally, not just
from boxing but also from endorsements, advertising, commercial and
television appearances.

As a responsible citizen and a large taxpayer at that, he always pays

his income tax returns yearly, until the BIR, however, doubts as to the
correctness of the income and VAT paid by him and his spouse. So, the
BIR issued a Letter of Authority (LA) to inspect and/or examine their books
of accounts and other accounting records on March 2010, for the period
covering January 2008 to December 2008. The BIR, not satisfied, issued
another LA which covers accounting and book records of Spouses for the
last 15 years (1995-2009). Petitioners questioned the propriety of the CIRs
investigation. They contend that they were already subjected to an earlier
investigation by the BIR for the years prior to 2007 and no fraud was found.
The CIR contends that the second LA superseded the first LA it issued.
That the reinvestigation of years prior to 2007 was justified because the
assessment thereof was pursuant to a fraud investigation against
petitioners.

Petitioners complied. After conducting the investigation, CIR found

that the petitioners was unable to fully pay their deficiency tax and VAT
liabilities amounting to P4,104,245,360.01. After the tax assessment
process, and still adverse to the petitioners, they filed a petition for review
with the CTA, contending that the assessment of the CIR was defective
because they were not afforded due process, and it was merely based on
mere allegations of fraud. Pending resolution, the petitioners, sought for the
suspension of the issuance of warrants of distraint/levy and garnishment.
CTA granted the urgent motion of the petitioners. The CTA, however
required the petitioners to deposit the deficiency tax as a bond or the
amount of P4,947,514,894.35, when the net worth of the petitioner is
P1,189, 984, 697.00, which would render him incapable to pay the security
bond which was ordered by the tax court. Hence this petition.
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ISSUE: Whether the CTA committed grave abuse of discretion when it
applied Sec. 11, RA 1125 when they should be exempted from its
application, since the tax collection is arbitrary and jeopardized them as a
taxpayer.

2. PILIPINAS TOTAL GAS, INC., Petitioner, v. COMMISSIONER OF

INTERNAL REVENUE, Respondent.

FACTS: Petitioner is engaged in the business of selling, transporting,

distributing industrial gas, sale of gas equipment and other related
businesses. For this purpose, petitioner registered itself with the Bureau of
Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer. Petitioner
filed an administrative claim for refund of unutilized input VAT for the first
two quarters of taxable year 2007, inclusive of supporting documents with
the BIR. Due to its inaction it elevated the matter to the CTA in view of the
inaction of the Commissioner of Internal Revenue (CIR).

The CTA Division dismissed the petition for being prematurely filed. It
explained that petitioner failed to complete the necessary documents to
substantiate a claim for refund of unutilized input VAT on purchases of
goods and services enumerated under Revenue Memorandum Order
(RMO) No. 53-98. Believing that petitioner failed to complete the necessary
documents to substantiate its claim for refund, the CTA Division was of the
view that the 120-day period allowed to the CIR to decide its claim under
Section 112 (C) of the National Internal Revenue Code (NIRC), had not
even started to run. With this, the CTA Division opined that the petition for
review was prematurely filed because petitioner failed to exhaust the
appropriate administrative remedies. Petitioner filed a motion for
reconsideration, but was denied, hence the appeal to the CTA en banc.

CTA En Banc likewise denied the petition for review of petitioner for
lack of merit. It condensed its arguments into two core issues, to wit:
(1) whether Total Gas seasonably filed its judicial claim for refund; and
(2) whether it was unable to substantiate its administrative claim for refund
by failing to submit the required documents that would allow respondent
to act on it.

As to the first issue, it ruled that the CTA Division had no jurisdiction
over the case because petitioner failed to seasonably file its petition. The
CTA En Banc explained that the CIR had 120 days to act on the claim (until
September 12, 2008), and petitioner had 30 days from then, or until
October 12, 2008, to question the inaction before the CTA. Considering that
Total Gas only filed its petition on January 23, 2009, the CTA En Banc
concluded that the petition for review was belatedly filed. For the tax court,
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the 120-day period could not commence on the day petitioner filed its last
supporting document on August 28, 2008, because to allow such would
give the taxpayer unlimited discretion to indefinitely extend the 120-day
period by simply filing the required documents piecemeal.

As to the second issue, it affirmed the CTA Division that petitioner failed
to submit the complete supporting documents to warrant the grant of its
application for refund. Petitioner filed an MR but was denied, hence this
petition.

ISSUES:

(A) Whether the judicial claim for refund was belatedly filed on 23 January
2009, or way beyond the 30-day period to appeal as provided in Section
112(c) of the Tax Code, as amended; and

(B) Whether the submission of incomplete documents at the administrative

level (BIR) renders the judicial claim premature and dismissible for lack of
jurisdiction.
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3. COMMISSIONER OF INTERNAL REVENUE VS. NEXT MOBILE INC.

FACTS: Respondent filed its annual income tax return, as well as final
income taxes withheld, monthly remittance of expanded withholding tax
and monthly remittance return of income taxes withheld on compensation.
for 2001 on April 15, 2002. The respondent received a Letter of Authority
from the BIR to examine records of book of accounts and other returns for
the period of January 2001 to December 2001. Sarmiento, the finance
director of the respondent subsequently executed a waivers of the statute
of limitation to extend period of prescription of assessment for taxes due in
taxable year December 2001. In 2005, respondent received PAN and FAN/
FLD to pay the deficiency tax dues. In the CTA, respondent filed a petition
for review. The CTA granted the petition ruling that based from the time of
the annual income tax return filing and the issuance of the final letter of
demand, that it was issued beyond the 3-years prescriptive period. The
waivers executed by Sarmiento were not valid as it was not in conformity
by the rules issued by the BIR.

ISSUE: Whether the CIRs right to assess the deficiency taxes had already
prescribed.
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4. ING BANK N.V., ENGAGED IN BANKING OPERATIONS IN THE

PHILIPPINES AS ING BANK N.V. MANILA BRANCH, Petitioner, v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS: ING Bank, "the Philippine branch of Internationale Nederlanden

Bank N.V., a foreign banking corporation incorporated in the Netherlands is
duly authorized by the Bangko Sentral ng Pilipinas to operate as a branch
with full banking authority in the Philippines. On January 3, 2000, ING Bank
received a Final Assessment Notice dated December 3, 1999. On February
2000, it petitioner paid its deficiency taxes on protest. In the CTA en banc,
the petitioner ING Bank, N.V. Manila Branch (ING Bank) was held liable for
(a) deficiency documentary stamp tax for the taxable years 1996 and 1997
in the total amount of P238,545,052.38 inclusive of surcharges; (b)
deficiency onshore tax for the taxable year 1996 in the total amount of
P997,333.89 inclusive of surcharges and interest; and (c) deficiency
withholding tax on compensation for the taxable years 1996 and 1997 in
the total amount of P564,542.67 inclusive of interest. The Resolution
denied ING Bank's Motion for Reconsideration. While the case was
pending, ING Bank filed a Manifestation and Motion stating that it availed
itself of the government's tax amnesty program under Republic Act No.
9480 with respect to its deficiency documentary stamp tax and deficiency
onshore tax liabilities.

ISSUES:

1. Whether petitioner ING Bank may validly avail itself of the tax amnesty
granted by Republic Act No. 9480; and

2. Whether petitioner ING Bank is liable for deficiency withholding tax on

accrued bonuses for the taxable years 1996 and 1997.
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5. BANCO DE ORO, ET AL VS. REPUBLIC OF THE PHILIPPINES, ET

AL

FACTS: By letter dated March 23, 2001, the Caucus of Development NGO
Networks (CODE-NGO) with the assistance of its financial advisors, Rizal
Commercial Banking Corp. (RCBC),RCBC Capital Corp. (RCBC
Capital), CAPEX Finance and Investment Corp. (CAPEX) and SEED
Capital Ventures, Inc. (SEED), requested an approval from the Department
of Finance for the issuance by the Bureau of Treasury of 10-year zero-
coupon Treasury Certificates (T-notes). The T-notes would initially be
purchased by a special purpose vehicle on behalf of CODE-NGO,
repackaged and sold at a premium to investors as the PEACe Bonds.The
net proceeds from the sale of the Bonds will be used to endow a
permanent fund (Hanapbuhay Fund) to finance meritorious activities and
projects of accredited non-government organizations (NGOs) throughout
the country. On May 31, 2001, the Bureau of Internal Revenue (BIR), in
reply to CODE-NGOs Letters dated May 10,15 and 25, 2001, issued BIR
Ruling no. 020-2001 on the tax treatment of the proposed PEACe bonds. It
confirmed that the PEACe bonds would not be classified as deposit
substitutes and would not be subject to the corresponding withholding tax:
To be classified as Deposit Substitute: the borrowing of funds must be
obtained from twenty (20) or more individuals or corporate lenders at any
one time. In the light of your representation that the PEACe Bonds will be
issued only to one entity, the same shall not be considered as deposit
substitute falling within the purview of the above definition. Hence, the
withholding tax on deposit substitute will not apply.
The tax treatment of the proposed PEACe bonds was subsequently
reiterated in BIR Ruling no. 035-2001(2001) and BIR Ruling No.DA-175-01
(2001). The determination of the phrase at any one time for purposes of
determining the 20 or more lenders is to be determined at the time of the
original issuance. Meanwhile, Former Treasurer Eduardo Sergio G. Edeza
questioned the propriety of issuing the bonds directly to a special purpose
vehicle considering that the latter was not a Government Securities Eligible
Dealer (GSED). Former Treasurer Edeza recommended that the issuance
of the Bonds be done through the Automated Debt Auction Processing
System (ADAPS) and that CODE-NGO should get a GSED to bid in its
behalf. Subsequently, in the notice to all GSEDs entitled Public Offering of
Treasury Bonds, the Bureau of Treasury announced that P30.0B worth of
10-year Zero-Coupon Bonds would be auctioned. The notice stated that the
Bonds shall be issued to not more than 19 buyers/lenders hence, the
necessity of a manual auction for this maiden issue. On October 16, 2001,
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the Bureau of Treasury held an auction for the 10-year zero-coupon bonds.
Also on the same date, the Bureau of Treasury issued another
memorandum quoting excerpts of the ruling issued by the Bureau of
Internal Revenue concerning the Bonds exemption from 20% final
withholding tax and the opinion of the Monetary Board on reserve eligibility.
During the auction, there were 45 bids from 15 GSEDs. After the auction,
RCBC which participated on behalf of CODE-NGO was declared as the
winning bidder having tendered the lowest bids. Accordingly, on October
18, 2001, the Bureau of Treasury issued P35 billion worth of Bonds at yield-
to-maturity of 12.75% to RCBC for approximately P10.17 billion, resulting in
a discount of approximately P24.83 billion. Also on October 16, 2001,
RCBC Capital entered into an underwriting agreement with CODE-NGO,
whereby RCBC Capital was appointed as the Issue Manager and Lead
Underwriter for the offering of the PEACe Bonds. RCBC Capital agreed to
underwrite on a firm basis the offering, distribution and sale of the P35
billion Bonds at the price of P11,995,513,716.51.47 In Section 7(r) of the
underwriting agreement, CODE-NGO represented that all income derived
from the Bonds, inclusive of premium on redemption and gains on the
trading of the same, are exempt from all forms of taxation as confirmed by
BIR letter rulings. RCBC Capital sold the Government Bonds in the
secondary market for an issue price of P11,995,513,716.51. Petitioners
purchased the PEACe Bonds on different dates. On October 7, 2011, the
BIR issued the assailed 2011 BIR Ruling imposing a 20% FWT on the
Government Bonds and directing the BIR to withhold said final tax at the
maturity thereof, [allegedly without] consultation with Petitioners as
bondholders, and without conducting any hearing. On October 17, 2011,
replying to an urgent query from the Bureau of Treasury, the Bureau of
Internal Revenue issued BIR Ruling No. DA 378-2011 clarifying that the
final withholding tax due on the discount or interest earned on the PEACe
Bonds should be imposed and withheld not only on RCBC/CODE NGO but
also [on] all subsequent holders of the Bonds. On October 18, 2011, SC
court issued a temporary restraining order (TRO) enjoining the
implementation of BIR Ruling No. 370-2011 against the [PEACe Bonds,
subject to the condition that the 20% final withholding tax on interest
income therefrom shall be withheld by the petitioner banks and placed in
escrow pending resolution of [the] petition.

ISSUE: Whether the several BIR Rulings are void and inconsistent with the
law, and Whether the PEACe Bonds are deposit substitutes and thus
subject to 20% final withholding tax under the NIRC. Related to this
question is the interpretation of the phrase borrowing from twenty (20) or
more individual or corporate lenders at any one time under Section 22(Y)
of the NIRC, particularly on whether the reckoning of the 20 lenders
includes trading of the bonds in the secondary market.
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6. THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE

COMPANY, Petitioner, vs.THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, Respondents.

FACTS: PhilamLife used to own a share in PhilamCare. In a bid to divest

itself of its interests in the health maintenance organization industry, offered
to sell its shareholdings to PhilamCare through competitive bidding. Thus,
on September 24, 2009, petitioner's Class A shares were sold for USD
2,190,000, or PhP 104,259,330 based on the prevailing exchange rate at
the time of the sale, to STI Investments, Inc., who emerged as the highest
bidder. After the sale was completed and the necessary documentary
stamp and capital gains taxes were paid, Philamlife filed an application for
a certificate authorizing registration/tax clearance with the Bureau of
Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the
transfer of the shares. Months later, petitioner was informed that it needed
to secure a BIR ruling in connection with its application due to potential
donors tax liability. In compliance, petitioner requested a ruling to confirm
that the sale was not subject to donors tax liability pointing out, in its
request, the following: that the transaction cannot attract donors tax liability
since there was no donative intent and, ergo, no taxable donation, citing
BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009; that the
shares were sold at their actual fair market value and at arms length; that
as long as the transaction conducted is at arms lengthsuch that a bona
fide business arrangement of the dealings is done in the ordinary course of
businessa sale for less than an adequate consideration is not subject to
donors tax; and that donors tax does not apply to sale of shares sold in an
open bidding process. CIR denied Philamlifes request through BIR Ruling
No. 015-12. As determined by the Commissioner, the selling price of the
shares thus sold was lower than their book value based on the financial
statements of PhilamCare as of the end of 2008. As such, the
Commissioner held, donors tax became imposable on the price difference
pursuant to Sec. 100 of the National Internal Revenue Code (NIRC).

ISSUE: Whether the shares sold for less than an adequate consideration
be subject to donors tax?
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7. COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. SAN

ROQUE POWER CORPORATION, Respondent.

FACTS: Petitioner is a domestic corporation duly organized and existing

under and by virtue of the laws of the Philippines with principal office at
Barangay San Roque, San Manuel, Pangasinan. It was incorporated in
October 1997 to design, construct, erect, assemble, own, commission and
operate power-generating plants and related facilities pursuant to and
under contract with the Government of the Republic of the Philippines, or
any subdivision, instrumentality or agency thereof, or any government
owned or controlled corporation, or other entity engaged in the
development, supply, or distribution of energy. On the construction and
development of the San Roque Multi- Purpose Project which comprises of
the dam, spillway and power plant, [San Roque] allegedly incurred, excess
input VAT in the amount of 559,709,337.54 for taxable year 2001 which it
declared in its Quarterly VAT Returns filed for the same year. [San Roque]
duly filed with the BIR separate claims for refund, in the total amount of
559,709,337.54, representing unutilized input taxes as declared in its VAT
returns for taxable year 2001. However, on March 28, 2003, San Roque
filed amended Quarterly VAT Returns for the year 2001 since it increased
its unutilized input VAT to the amount of 560,200,283.14. Consequently,
San Roque filed with the BIR on even date, separate amended claims for
refund in the aggregate amount of 560,200,283.14. CIRs inaction on the
subject claims led to the filing by San Roque of the Petition for Review with
the Court of Tax Appeals in Division on April 10, 2003.

The Court of Tax Appeals Ruling: Division

The CTA Second Division initially denied San Roques claim. In its
Decision dated 8 March 2006, it cited the following as bases for the denial
of San Roques claim: lack of recorded zero-rated or effectively zero-rated
sales; failure to submit documents specifically identifying the purchased
goods/services related to the claimed input VAT which were included in its
Property, Plant and Equipment account; and failure to prove that the related
construction costs were capitalized in its books of account and subjected to
depreciation.

The CTA Second Division required San Roque to show that it

complied with the following requirements of Section 112(B) of Republic Act
No. 8424 (RA 8424)17 to be entitled to a tax refund or credit of input VAT
attributable to capital goods imported or locally purchased: (1) it is a VAT-
registered entity; (2) its input taxes claimed were paid on capital goods duly
supported by VAT invoices and/or official receipts; (3) it did not offset or
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apply the claimed input VAT payments on capital goods against any output
VAT liability; and (4) its claim for refund was filed within the two-year
prescriptive period both in the administrative and judicial levels.

The CTA Second Division found that San Roque complied with the
first, third, and fourth requirements. The CTA Second Division ORDERED
the CIR to REFUND or in the alternative, to ISSUE A TAX CREDIT
CERTIFICATE in favor of San Roque in the reduced amount of Four
Hundred Eighty Three Million Seven Hundred Ninety Seven Thousand Five
Hundred Ninety Nine Pesos and Sixty Five Centavos (483,797,599.65)
representing unutilized input VAT on purchases of capital goods and
services for the taxable year 2001.

The Court of Tax Appeals Ruling: En Banc

The CTA EB dismissed the CIRs petition for review and affirmed the
challenged decision and resolution. The CTA EB cited Commissioner of
Internal Revenue v. Toledo Power, Inc. and Revenue Memorandum
Circular No. 49-03,22 as its bases for ruling that San Roques judicial claim
was not prematurely filed. The pertinent portions of the Decision state:
It is true that Section 112(D) of the abovementioned provision applies
to the present case. However, what the petitioner failed to consider is
Section 112(A) of the same provision. The respondent is also covered by
the two (2) year prescriptive period. We have repeatedly held that the claim
for refund with the BIR and the subsequent appeal to the Court of Tax
Appeals must be filed within the two-year period. In cases where the
taxpayer has filed a "Petition for Review" with the Court of Tax Appeals
involving a claim for refund/TCC that is pending at the administrative
agency (Bureau of Internal Revenue or OSS-DOF), the administrative
agency and the tax court may act on the case separately. While the case is
pending in the tax court and at the same time is still under process by the
administrative agency, the litigation lawyer of the BIR, upon receipt of the
summons from the tax court, shall request from the head of the
investigating/processing office for the docket containing certified true
copies of all the documents pertinent to the claim. The docket shall be
presented to the court as evidence for the BIR in its defense on the tax
credit/refund case filed by the taxpayer. In the meantime, the investigating/
processing office of the administrative agency shall continue processing the
refund/TCC case until such time that a final decision has been reached by
either the CTA or the administrative agency. If the CTA is able to release its
decision ahead of the evaluation of the administrative agency, the latter
shall cease from processing the claim. On the other hand, if the
administrative agency is able to process the claim of the taxpayer ahead of
the CTA and the taxpayer is amenable to the findings thereof, the
concerned taxpayer must file a motion to withdraw the claim with the CTA.

ISSUE: Whether respondent is entitled to a tax refund.

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TAGANITO MINING CORPORATION,

vs. COMMISSIONER OF INTERNAL REVENUE

FACTS: Taganito is a duly-registered Philippine corporation and a VAT-

registered entity primarily engaged in the business of exploring, extracting,
mining, selling, and exporting precious metals and their byproducts. For the
1st, 2nd, 3rd, and 4th quarters of the year 2004, Taganito filed its Quarterly
VAT Returns. Taganito filed before the Bureau of Internal Revenue (BIR) an
administrative claim for the refund of input VAT paid on its domestic
purchases of taxable goods and services and importation of goods during
the entire year of 2004, in accordance with Section 112, subsections (A)
and (B) of the National Internal Revenue Code (NIRC). Thereafter, fearing
that the period for filing a judicial claim for refund was about to expire,
Taganito proceeded to file a petition for review before the CTA Division.

The CTA Division partially granted Taganitos claim for refund of the
amount representing its unutilized input VAT for the period January 1, 2004
to March 9, 2004. It found that Taganitos export sales qualified as VAT
zero-rated sales. However, the amount claimed for excess input VAT was
disallowed by the CTA Division for being based on non-VAT official receipts.
The CIR filed a motion for reconsideration praying for the reversal of the
partial refund granted in Taganitos favor, which was, however, denied.

Taganito did not appeal the CTA Division's partial denial of its claim
for refund. The CIR elevated the matter to the CTA En Banc which reversed
and set aside the Decision of the CTA Division, and ordered that Taganitos
claim of refund be denied in its entire amount. It found that Taganito filed its
judicial claim for refund 93 days after it filed its administrative claim.
Explaining that the observance of the 120-day period provided under
Section 112(D) of the NIRC is mandatory and jurisdictional to the filing of a
judicial claim for. It held that Taganitos filing of a judicial claim was
premature, and, thus, the CTA Division had yet to acquire jurisdiction over
the same. Taganito moved for reconsideration, which was, however,
denied. Hence, this petition.

ISSUE: Whether petitioners judicial claim for refund of excess input VAT
should be allowed.

PHILEX MINING CORPORATION

vs. COMMISSIONER OF INTERNAL REVENUE

FACTS: Philex is a corporation duly organized and existing under the laws
of the Republic of the Philippines, which is principally engaged in the
mining business, which includes the exploration and operation of mine
properties and commercial production and marketing of mine products.
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On October 21, 2005, Philex filed its Original VAT Return for the third
quarter of taxable year 2005 and Amended VAT Return for the same
quarter on December 1, 2005.

On March 20, 2006, Philex filed its claim for refund/tax credit of the
amount of 23,956,732.44 with the One Stop Shop Center of the
Department of Finance. However, due to [the CIRs] failure to act on such
claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC
of 1997, as amended, Philex filed a Petition for Review, docketed as C.T.A.
Case No. 7687.

In [her] Answer, respondent CIR alleged the following special and

affirmative defenses:

4. Claims for refund are strictly construed against the taxpayer as the same
partake the nature of an exemption;

5. The taxpayer has the burden to show that the taxes were erroneously or
illegally paid. Failure on the part of Philex to prove the same is fatal to its
cause of action;

6. Philex]should prove its legal basis for claiming for the amount being
refunded.37

The Court of Tax Appeals Ruling: Division

The CTA Second Division, in its Decision dated 20 July 2009, denied
Philexs claim due to prescription. The CTA Second Division ruled that the
two-year prescriptive period specified in Section 112(A) of RA 8424, as
amended, applies not only to the filing of the administrative claim with the
BIR, but also to the filing of the judicial claim with the CTA. Since Philexs
claim covered the 3rd quarter of 2005, its administrative claim filed on 20
March 2006 was timely filed, while its judicial claim filed on 17 October
2007 was filed late and therefore barred by prescription. On 10 November
2009, the CTA Second Division denied Philexs Motion for Reconsideration.

The Court of Tax Appeals Ruling: En Banc

The CTA EB, in its Decision dated 3 December 2010, denied Philexs
petition and affirmed the CTA Second Divisions Decision and Resolution.

It held that the Petition for Review in CTA Case No. 7687 was filed
426 days late. Thus, the Petition for Review in CTA Case No. 7687 should
have been dismissed on the ground that the Petition for Review was filed
way beyond the 30-day prescribed period; thus, no jurisdiction was
acquired by the CTA in Division; and not due to prescription.
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ISSUE: Whether the CTA En Banc erred in denying the petition due to
alleged prescription.