TAX Week2 Digests

MACEDA V MACARAIG (June 8, 1993) Facts: On November 3, 1936, Commonwealth Act No.
o. 120 was enacted creating the National Power Corporation On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans. The loans shall be exempted from taxes, duties, fees, imposts, charges and restrictions of the national and local governments. On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. The law also exempted the NAPOCOR from all taxes, duties, fees, imposts, charges and restrictions of the national and local governments. On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes. On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a stock corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares having a par value of P100.00 each, with said capital stock wholly subscribed to by the Government. No tax exemption was incorporated in said Act. On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role. Also states that NPC shall be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions previously and presently imposed by the national and local governments. On May 27, 1976 P.D. No. 938 was issued. integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30June 1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24June 1987) restoring NAPOCORs exemption, which was approved by the President on 5 October 1987. Since 1976, oil firms never paid excise or specific and advalorem taxes for petroleum products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984.NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released byway of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, stating that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery.
Issues: Ratio:
What kind of tax exemption privileges did NPC have? For what periods in time were these privileges being enjoyed? If there are taxes to be paid, who shall pay for these taxes? Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No. 380, does not expressly include "indirect taxes." A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to be completely tax exempt from all forms of taxes direct and indirect NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No. 987, as above stated. The exemption was, however, restored by R.A. No. 6395. One common theme in all these laws is that the NPC must be enable to pay its indebtedness which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved. It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and indirect taxes under P.D. No. 938. P.D. No. 882 had already repealed NPC's tax-free importation privileges. It allowed, however, NPC to appeal said repeal with the Office of the President and to avail of tax-free importation privileges under its Section 1, subject to the prior approval of an Inter-Agency Committed created by virtue of said P.D. No. 882. It is presumed that the NPC, being the special creation of the State, was allowed to continue its tax-free importations. There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly found themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that the Secretary of Finance and the Commissioner of the Budget had to establish the necessary procedure to accomplish the tax payment/tax subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any tax as it got from the General Fund the amounts necessary to pay different revenue collectors for the taxes it had to pay. The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa" does not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment No. 6 power. In the case of the tax exemption restoration of NPC, there is no other comparable entity not even a single public or private corporation whose rights would be violated if NPC's tax exemption privileges were to be restored. While there might have been a MERALCO before Martial Law, it is of public knowledge that the MERALCO generating plants were sold to the NPC in line with the State policy that NPC was to be the State implementing arm for the electrification of the entire country. Besides, MERALCO was
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limited to Manila and its environs. And as of 1984, there was no more MERALCO as a producer of electricity which could have objected to the restoration of NPC's tax exemption privileges. While FIRB Resolution No. 17-87 was approved by President Aquino on October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the legislature, the power delegated to her thereunder. When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers. Thus, there was no power delegated to her, rather it was she who was delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not sub-delegating her power. And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be carried out and it fixed the standard to which the delegate had to conform in the performance of his functions, both qualities having been enunciated by this Court in Pelaez vs. Auditor General. Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from June 11, 1984 up to the present. The Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. However, the NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation. It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of which the ad valoremtax rate on bunker fuel oil was reduced to Zero (0%) per centum. The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going to bear the economic burden of the ad valorem taxes. What this Court will now dispose of are petitioner's complaints that some indirect tax money has been illegally refunded by the Bureau of Internal Revenue to the NPC and that more claims for refunds by the NPC are being processed for payment by the BIR. Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption.
Facts: Petitioner Maceda seeks nullification of the Energy Regulatory Board Orders dated Dec. 5 and 6, 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow him substantial crossexamination, in effect, a denial of due process Aug. 2, 1990: outbreak of Persian Gulf conflict o Private respondents (Shell, Caltex, and Petrophil Corp.) filed with the ERB their respective applications on oil price increases Sept. 21, 1990: ERB issued an order granting a provisional increase of P1.42 per liter o ERB set the applications for hearing with due notice to all interested parties on Oct. 16, 1990 o Pet. Maceda failed to appear at said hearing as well as on the second hearing Petitioner Maceda filed a petition for Prohibition o Dismissed by SC, reaffirming ERBs authority to grant provisional increase even without prior hearing, pursuant to Sec. 8 of EO 172 ERB set the continuation of the hearing to Oct. 24, 1990 which was postponed to Nov. 5 on written notice of petitioner Maceda ERB admitted the respective supplemental/amended petitions on November 6, 1990 at the same time requiring applicants to publish the corresponding Notices of Public Hearing in two newspapers of general circulation ERB ruled that the testimonies of witnesses were to be in the form of Affidavits and subsequently outlined the procedure to be observed, which basically deferred the cross-examinations of the oil companies witnesses Petitioner Maceda maintains that this order of proof deprived him of his right to finish his cross-examination of Petrons witnesses and denied him his right to cross-examine each of the witnesses of Caltex and Shell. o This relaxed procedure resulted in the denial of due process
Issue: W/N the procedure outlined by the ERB amounted to a denial of due process W/N the orders of ERB were valid Held: No. Ratio/Ruling: The order of testimony with respect to the examination of the particular witness and to the general course of the trial is within the discretion of the court o Such a relaxed procedure is especially true in administrative bodies, such as the ERB which in matters of rate or price fixing is considered as exercising a quasi-legislative, not quasi-judicial function Petitioner: there is no substantial evidence on record to support the provisional relief Court took judicial notice of matters and events related to the oil industry such as the OPSF deficit, exchange rate, etc. Petitioners: the provisional increase amounts over and above that sought by the petitioning oil companies
*the highlighted portion I believe is the relevant issue under the heading Delegation to administrative agencies. -Ivan Maceda v. ERB (July 18, 1991) Doctrine: The Court reaffirmed in this case its ruling in an earlier case that the ERBs Board Order authorizing the proceeds generated by the increase in the oil prices to be deposited to the OPSF is not an act of taxation but is authorized by PD 1956, as amended by EO 137. Ponente: Medialdea, J.
Disposition: Petitions dismissed Vote: En Banc; Narvasa, Melencio-Herrera, Feliciano, Gancayco, Bidin, Grino-Aquino and Regalado, JJ. Concur Davide, J., concurs in the result Fernan, C. J., took no part Paras, J., dissents in a separate opinion Cruz, J., concurs in Justice Paras and Justice Padillas dissents Padilla, J., dissents in a separate opinion Gutierrez, Jr., J., concurs in Justice Padillas dissent Separate Opinions Paras, J., dissenting ERB has absolutely no power to tax which is solely the prerogative of Congress This is what the ERB is precisely doing by getting money from the people to ultimately subsidize the ravenous oil companies Votes for complete and effective rollback of all oil prices Padilla, J., dissenting: Any increase, provisional or otherwise, should be allowed only after the ERB shall have fully determined, through bona fide and full-dress hearings, that it is absolutely necessary and by how much it shall be effected The right to be heard includes the right to confront and cross-examine the witnesses of the adverse parties ERB acted hastily in granting the provisional increases sought by the oil companies even before the oppositors could submit evidence in support of their opposition o The fact that the questioned orders merely allowed a provisional increase is beside the point, for past experiences have shown that so-
I agree with Justice Padilla that it amounts to fraud on the people to make them believe that the ERB can give them a fair hearing, indeed, if it can do anything at all. I agree, finally, with Justice Padilla that the nation is one in crisis, and evidently, the "ravenous" oil companies Justice Paras refers to, have not helped any. I submit however that we have not succeeded in fingering the real villain the letter of intent. Saddam's Middle East folly has nothing to do with that. -Leah Osmena v. Orbos, supra
COMMISSIONER OF INTERNAL REVENUE, petitioner, -versusHON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION,respondents. (August 29, 1996 | GR No 119761 | 1st Division) DOCTRINE: XXX Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers.
Sol-Gen (cited by Court): aside from the increase in crude oil prices, all the applications of the respondent oil companies filed with the ERB covered claims from the OPSF o Court respected the ERBs Order of Dec. 5, 1990 granting a provisional price increase premised on: The oil companies OPSF claims Crude cost peso differentials Forex risk for a subsidy on sale to NPC o Since the oil companies are entitled to as much relief as the fact alleged constituting the course of action may warrant o Court pointed out the ERB brought back the increases in Premium and Regular gasoline to the levels mandated by the Dec. 5, 1990 Order Petitioner Original: If the price increase will be used to augment the OPSF this will constitute illegal taxation Court: In the Maceda case (Dec. 18,1990), the Court has already ruled that the Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is not an act of taxation but is authorized by PD 1956, as amended by EO 137
called provisional increases allowed by the ERB ultimately became permanent The acts of the ERB (in reducing the prices of fuel) sparked by presidential requests demonstrate that the evidence did not, in the first place, justify the price increases it had ordered in the questioned issuances Vote to grant the petition and for a roll-back prices of oil products
Sarmiento, J., separate opinion: I agree with Justice Padilla insofar as he refers to the "present scheme of allowing provisional price increase" as a "scheme [to defraud] the people." I would like to go further. As I indicated the ERB does no more than to punch calculators for the Government-which decides oil price increases. The comedy of December, 1990, when the Board adjusted prices in a matter of days, is a confirmation of this point. As Justice Padilla noted, the re-adjustment of December 10, 1990 was in fact prompted by "presidential requests" which does not speak well of the Board's independence and which in fact bares the truth as to who really makes the decision. (The readjustment, consisting in the reduction in diesel fuel and a corresponding increase in gasoline, sought to mollify the indignation of the public.)
XXX It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. XXX Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due process following the Ang Tibay doctrine, the measure suffers from lack of uniformity of taxation. NATURE: Petition for Review on Certiorari PONENTE: Vitug, J. FACTS: Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes. On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local brand." Ad Valorem taxes were imposed on these brands, XXX A bill, which later became Republic Act ("RA") No. 7654, was enacted, on 10 June 1993, by the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows: Sec. 142. Cigars and Cigarettes. xxx xxx xxx
(1) On locally manufactured cigarettes which are currently classified and taxed at fiftyfive percent (55%) (2) On other locally manufactured cigarettes, forty-five percent (45%) xxx xxx xxx About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"): REVENUE MEMORANDUM CIRCULAR NO. 37-93 SUBJECT: Reclassification of Cigarettes Subject to Excise Tax TO: All Internal Revenue Officers and Others Concerned.
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is, however, not definitely determinable, ". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. . . ." XXX In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes. -End of MemorandumXXX In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged: (The) brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and
In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which are locally manufactured are appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review the previous rulings on the matter. XXX
were therefore still classified as other locally manufactured cigarettes and taxed at 45% or 20% as the case may be. Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis. Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93. In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration. The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and resolution. XXX ISSUE: (a) Is RMC 37-93 merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes? HELD: (a) NO, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. Also, Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless petitioner would be willing to concede to the submission of private respondent that the circular should, be considered adjudicatory in nature and thus violative of due process following the Ang Tibay doctrine, the measure suffers from lack of uniformity of taxation. REASONING: A. Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers. Let us first distinguish between two kinds of administrative issuances a legislative rule and aninterpretative rule. In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, the Court expressed: . . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof . In the same way that laws must have
the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides: Public Participation. If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule. (3) In case of opposition, the rules on contested cases shall be observed. In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing.
A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. Indeed, the BIR itself, in its RMC 10-86, has observed and provided: RMC NO. Effectivity of Internal Revenue Rules and Regulations It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance therewith may not be reasonably expected. And most importantly, their strict enforcement could possibly 10-86
It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law.
suffer from legal infirmity in the light of the constitutional provision on "due process of law" and the essence of the Civil Code provision concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code). In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due process, the following procedures are hereby prescribed for the drafting, issuance and implementation of the said Revenue Tax Issuances: (1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations. (2) Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed. Due notice of the said issuances may be fairly presumed only after the following procedures have been taken; xxx xxx xxx (5) Strict compliance with the foregoing procedures is enjoined. Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the above requirements before giving effect to its questioned circular. Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation. Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on equal footing both in privileges and liabilities. Thus, all taxable articles or kinds of property of the same class must be taxed at the same rate and the tax must operate with the same force and effect in every place where the subject may be found. Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due process following the Ang Tibay doctrine, the measure suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands have not been similarly included within the scope of the circular. XXX DISPOSITIVE: WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED. No costs. SEPARATE OPINION | Bellosillo, J.: XXX
That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do we deny her the exercise of her quasilegislative or quasi-judicial powers. But most certainly, by constitutional mandate, the Court must check the exercise of these powers and ascertain whether petitioner has gone beyond the legitimate bounds of her authority. In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private respondents. It is simply the faithful observance by government by government of the basic constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what distresses me no end the manner and the circumstances under which the cigarettes of private respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule which therefore requires reasonable notice and hearing before its issuance. It should not be confused with RMC 47-91, which is a mere interpretative rule. In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also voted to uphold the constitutional right of the taxpayer concerned to due process and equal protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The strong ripples whipped up by my opinion expressed therein and of the majority have yet to varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should be reason enough to simply steer clear of this controversy and surf on a pretendedloss of judicial objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have earlier expressed, if placed under similar circumstances in some future time, I shall have to brave again the prospect of another vilification and a tarnished image if only to show proudly to the whole world that under the present dispensation judicial independence in our country is a true component of our democracy. In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily issued without prior notice and hearing, and singling out private respondent alone when two days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of private respondent at a higher rate. Obviously, this was to make it appear that even before the anticipated date of effectivity of the statute which was undeniably priorly known to petitioner these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving them into the purview of the law that was to take effect two days after! For sure, private respondent was not properly informed before the issuance of the questioned memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially because private respondent was still selling its cigarettes at a price based on the old, lower tax rate. Had there been previous notice and hearing, as claimed by private respondent, it could have very well presented its side, either by opposing the reclassification, or by acquiescing thereto
but increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are also to consider the claim of private respondent that the new tax is even higher than the cost of its cigarettes. DISSENTING OPINION | Bellosillo, J.: The majority upholds these claims of private respondent, convinced that the Circular in question, in the first place, did not give prior notice and hearing, and so, it could not have been valid and effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due process clause of the Constitution. It is also its dominant opinion that the questioned Circular discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of the same kind or classification as these cigarettes manufactured by private respondent. With all due respect, I disagree with the majority in its disquisition of the issues and its resulting conclusions. XXX The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured cigarettes bearing foreign brands. The reclassification, as previously explained, is the correct interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the government agency she heads, is to proceed to make the proper determination using the criterion stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal construction consistent with the rule that revenue laws are to be construed in favor of the Government whose survival depends on the contributions that taxpayers give to the public coffers that finance public services and other governmental operations. XXX Because (1) the questioned circular merely embodied an interpretation or a way of reading and giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2) petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in favor of the Government to the end that Government collects as much tax money as it is entitled to in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is provided in the aforecited section that was construed by petitioner in the questioned circular; and (4) a similar circular declassifying copra from being an agricultural food to non-food product
for purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative, much less, an adjudicatory, action on the part of the revenue commissioner, this Court must not be blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and hearing. XXX Private respondent anchors its claim of violation of its equal protection rights upon the too obvious fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the questioned circular. Because only the cigarettes that they manufacture are enumerated in the questioned circular, private respondent proceeded to attack the same as being discriminatory against it. On the surface, private respondent seems to have a point there. A scrutiny of the questioned Circular, however, will show that it is undisputedly one of general application for all cigarettes that are similarly situated as private respondent's brands. The new interpretation of Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands, which illustration is properly a subject of the questioned Circular. Significantly, indicated as the subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The reclassification resulted in the foregrounding of private respondent's cigarette brands, which incidentally is largely due to the controversy spawned no less by private respondent's own action of conveniently changing its brand names to avoid falling under a classification that would subject it to higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his initial determination that private respondent's cigarette brands are foreign brands. The consequent specific mention of such brands in the questioned Circular, does not change the fact that the questioned Circular has always been intended for and did cover, all cigarettes similarly situated as "Hope," "More" and "Champion." XXX WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of Internal Revenue denying private respondent's request for a review, reconsideration and recall of Revenue Memorandum Circular No. 37-93 dated July 1, 1993. -Poy
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v. MARCOS (September 11, 1996) DOCTRINE: The Local Government Code withdrew the tax exemptions enjoyed by natural or juridical persons including GOCCs unless otherwise provided in the LGC. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from real property taxes granted to natural or juridical persons, including GOCCs, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958 has been withdrawn. PONENTE: Davide, Jr., J. FACTS: Petitioner was created by virtue of RA6958, mandated to "principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City. Under Section 1: The authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities. However, the Officer of the Treasurer of Cebu City demanded payment for realty taxes on parcels of land belonging to petitioner. Petitioner objected invoking its tax exemption. It also asserted that it is an instrumentality of the government performing governmental functions, citing section 133 of the LGC which puts limitations on the taxing powers of LGUs. The city refused insisting that petitioner is a GOCC performing proprietary functions whose tax exemption was withdrawn by Sections 193 and 234 of the LGC. Petitioner filed a declaratory relief before the RTC. The trial court dismissed the petitioner ruling that the LGC withdrew the tax exemption granted the GOCCs ISSUE: WON the City of Cebu has the power to tax petitioner? HELD: Yes. RATIO/ RULING: As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. Since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority. A claim of exemption from tax payment must be clearly shown and based on language in the law too plain to be mistaken. There can be no question that under Section 14 RA 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption is the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by LGUs of their power to tax, the scope thereof or its limitations, and the exemption from taxation. Section133 of the LGC prescribes the common limitations on the taxing powers of LGUs: (o) Taxes, fees or charges of any kind on the national government, its agencies and instrumentalities and LGUs. Among the "taxes" enumerated in the LGC is real property tax. Section 234 of LGC provides for the exemptions from payment of GOCCs, except as provided therein. On the other hand, the LGC authorizes LGUs to grant tax exemption privileges. Reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down in Secs 133 the taxing powers of LGUs cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalities, and LGUs"; however, pursuant to Sec 232, provinces, cities, municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the
Philippines or any of its political subdivisions except when the beneficial used thereof has been granted to a taxable person." As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234, which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption in so far as the real property taxes are concerned by limiting the retention only to those enumerated there-in; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to taxable person for consideration or otherwise. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from real property taxes granted to natural or juridical persons, including GOCCs, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958 has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Section 232 and 234. In short, the petitioner can no longer invoke the general rule in Section 133. It must show that the parcels of land in question, which are real property, are any one of those enumerated in Section 234, either by virtue of ownership, character, or use of the property. Most likely, it could only be the first, but not under any explicit provision of the said section, for one exists. In light of the petitioner's theory that it is an "instrumentality of the Government", it could only be within be first item of the first paragraph of the section by expanding the scope of the terms Republic of the Philippines" to embrace "instrumentalities" and "agencies." This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of the Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and in the second place it fails to consider the fact that the legislature used the phrase "National Government, its agencies and instrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippines or any of its political subdivision "in Section 234(a). The terms "Republic of the Philippines" and "National Government" are not interchangeable. The former is boarder and synonymous with "Government of the Republic of the Philippines" which the Administrative Code of the 1987 defines as the "corporate governmental entity though which the functions of the government are exercised through at the Philippines, including, saves as the contrary appears from the context, the various arms through which political authority is made effective in the Philippines, whether pertaining to the autonomous reason, the provincial, city, municipal or barangay subdivision or other forms of local government.". On the other hand, "National Government" refers "to the entire machinery of the central government, as distinguished from the different forms of local Governments." The
National Government then is composed of the three great departments the executive, the legislative and the judicial. An "agency" of the Government refers to "any of the various units of the Government, including a department, bureau, office instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein;" while an "instrumentality" refers to "any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy; usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned and controlled corporations". If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it did not Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the government including government-owned and controlled corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property TaxCode. Note that as a reproduced in Section 234(a), the phrase "and any government-owned or controlled corporation so exempt by its charter" was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, specially in light of the general provision on withdrawal of exemption from payment of real property taxes in the last paragraph of property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by paying the taxes and other charges due from them. The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the petitioner is a "taxable person". It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then administered by the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a "transfer" of the "lands" among other things, to the petitioner and not just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines. This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioner's authorized capital stock consists of "the value of such real estate owned
and/or administered by the airports." Hence, the petitioner is now the owner of the land in question and the exception in Sec 234(c) of the LGC is inapplicable. Petitioner cannot claim that it was never a "taxable person" under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the forgoing disquisitions, it had already become even if it be conceded to be an "agency" or "instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner. Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Pagcor is unavailing since it was decided before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom. DISPOSITION: Petition is denied. VOTE: Narvasa, C.J., Melo, Francisco, Panganiban, concur. -Steph MIAA v. CA (July 20, 2006) DOCTRINE: An instrumentality of the national government is exempt from local taxation. Real properties owned by the Republic of the Philippines are exempt real estate tax. PONENTE: Carpio, J. FACTS: MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquency was estimated at P624 million. The City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. Paranaques Contention: Section 193 of the Local Government Code expressly withdrew the tax exemption privileges of government-owned and-controlled corporations upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention
of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax. MIAAs contention: Airport Lands and Buildings are owned by the Republic. The government cannot tax itself. The reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.
-The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one intended for public use. The termi nal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed users tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. b. Airport Lands and Buildings are Outside the Commerce of Man -The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale. -Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax. c. MIAA is a Mere Trustee of the Republic -MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic. n MIAAs case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance. d. Transfer to MIAA was Meant to Implement a Reorganization -The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely toreorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAAs assets adverse to the Republic. e. Real Property Owned by the Republic is Not Taxable -Sec 234 of the LGC provides that real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person following are exempted from payment of the real property tax. -However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax DISPOSITION: Petition granted;
ISSUE/HELD: WON Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws? YES. Ergo, the real estate tax assessments issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. RATIO/RULING: 1. MIAA is Not a Government-Owned or Controlled Corporation -MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. -MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. -MIAA is also not a non-stock corporation because it has no members. A non-stock corporation must have members. -MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. -When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order. 2. Airport Lands and Buildings of MIAA are Owned by the Republic a. Airport Lands and Buildings are of Public Dominion -The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. -No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by the State. The term ports includes seaports and airports. The MIAA Airport Lands and Buildings constitute a port constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines. -The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use.
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Airport Lands and Buildings of the MIAA are declared EXEMPT from the real estate tax imposed by the City of Paraaque; Declared VOID are all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paraaque on the Airport Lands and Buildings of the MIAA, except for the portions that the MIAA has leased to private parties; Also declared VOID is the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the MIAA
2.
3. VOTE: Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, AustriaMartinez, Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur. (EN BANC) -Nem Philippine Fisheries Development Authority v CA (July 31, 2007) Doctrine: For an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation. Two requisites must concur before one may be classified as a stock corporation, namely: (a)that it has capital stock divided into shares, and (b) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. As for non-stock corporations, they must have members and must not distribute any part of their income to said members. A national government instrumentality is defined as an agency of the national government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Nature: Petition for review assailing the decision of the CA which held that petitioner Philippine Fisheries Development Authority (PFDA) is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex (IFPC) which are owned by the Republic of the Philippines but operated and governed by the PFDA. Ponente: Ynares-Santiago 1. In 1976, then President Marcos issued PD 977 creating PFDA and placing it under the direct control and supervision of the Secretary of Natural Resources. In 1982, EO 772 was issued amending PD 977, attaching said agency to the Ministry of Natural Resources. Upon the effectivity of the Administrative Code, PFDA became an attached agency of the Department of Agriculture. 2. 3. 4.
5.
6.
7. 8.
Meanwhile, beginning 1981, the then Ministry of Public Works and Highways reclaimed from the sea a 21-hectare parcel of land in Barangay Tanza, Iloilo City, and constructed thereon the IFPC, consisting of breakwater, a landing quay, a refrigeration building, a market hall, a municipal shed, an administration building, a water and fuel oil supply system and other port related facilities and machineries. Upon its completion, IFPC was turned over to PFDA, pursuant to Section 11 of PD 977, which places fishing port complexes and related facilities under the governance and operation of PFDA. Notwithstanding said turn over, title to the land and buildings of the IFPC remained with the Republic. PFDA thereafter leased portions of IFPC to private firms and individuals engaged in fishing related businesses. Sometime in 1988, the City of Iloilo assessed the entire IFPC for real property taxes. The assessment remained unpaid until the alleged total tax delinquency of PFDA for the fiscal years 1988 and 1989 amounted to P5,057,349.67, inclusive of penalties and interests. To satisfy the tax delinquency, the City of Iloilo scheduled on August 30, 1990, the sale at public auction of the IFPC. PFDA filed an injunction case with the RTC. Parties agreed that PFDA should file a claim for tax exemption with the Iloilo City Assessors Office. City Assessor, however, denied the claim for exemption, hence, PFDA elevated the case to the Department of Finance (DOF). DOF ruled that PFDA is liable to pay real property taxes to the City of Iloilo because it enjoys the beneficial use of the IFPC. In satisfying the amount of the unpaid real property taxes, the property that is owned by PFDA shall be auctioned, and not the IFPC, which is a property of the Republic. PFDA filed a petition before the Office of the President but it was dismissed. It also denied the MR filed by PFDA On petition with the CA, the latter affirmed the decision of the Office of the President. It opined, however, that the IFPC may be sold at public auction to satisfy the tax delinquency of the Authority. Hence, this petition.
WON PFDA is a government owned or controlled corporation (GOCC) or an instrumentality of the national government? HELD: Instrumentality (Is the Authority liable to pay real property tax to the City of Iloilo? (HELD: YES) If the answer is in the affirmative, may the IFPC be sold at public auction to satisfy the tax delinquency? (HELD: NO) whether the IFPC is a property of public dominion.) 1. PFDA is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax. However, said exemption does not apply to the portions of the IFPC which PFDA leased to private entities. With respect to these properties, PFDA is liable to pay real property tax. The IFPC, being a property of public dominion cannot be sold at public auction to satisfy the tax delinquency. In Manila International Airport Authority (MIAA) v. Court of Appeals, the Court made a distinction between a GOCC and an instrumentality. a. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled
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6. 7.
8.
9.
corporation as any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock b. A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." i. Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." ii. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. iii. Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." Thus, for an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation. a. Two requisites must concur before one may be classified as a stock corporation, namely i. that it has capital stock divided into shares, and ii. that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. b. As for non-stock corporations, they must have members and must not distribute any part of their income to said members. On the basis of the parameters set in the MIAA case, PFDA should be classified as an instrumentality of the national government. As such, it is generally exempt from payment of real property tax, except those portions which have been leased to private entities. In the MIAA case, PFDA was cited as among the instrumentalities of the national government. PFDA is not a GOCC but an instrumentality of the government. PFDA has a capital stock but it is not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence, it is not a stock corporation. Neither it is a non-stock corporation because it has no members. PFDA is actually a national government instrumentality which is defined as an agency of the national government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers.
10. The MIAA case held that unlike GOCCs, instrumentalities of the national government, like MIAA, are exempt from local taxes pursuant to Section 133(o) of the Local Government Code. This exemption, however, admits of an exception with respect to real property taxes. a. Applying Section 234(a) of the LGC, the Court ruled that when an instrumentality of the national government grants to a taxable person the beneficial use of a real property owned by the Republic, said instrumentality becomes liable to pay real property tax. b. Section 193 of the LGC expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o)1 of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. c. By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. d. The saving clause in Section 133 refers to the exception to the exemption in Section 234(a)2 of the Code, which makes the national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. 11. PFDA should be classified as an instrumentality of the national government which is liable to pay taxes only with respect to the portions of the property, the beneficial use of which were vested in private entities. 12. When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities. 13. The real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions leased to private persons. In case PFDA fails to pay the real property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax delinquency. 14. In Chavez v. Public Estates Authority it was held that reclaimed lands are lands of the public domain and cannot, without Congressional fiat, be subject of a sale, public or private
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (o) Taxes, fees or charges of any kinds on the National Government, its agencies andinstrumentalities, and local government units. 2 SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
1
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15. In the same vein, the port built by the State in the Iloilo fishing complex is a property of the public dominion3 and cannot therefore be sold at public auction. Being a property of public dominion the same cannot be subject to execution or foreclosure sale. In like manner, the reclaimed land on which the IFPC is built cannot be the object of a private or public sale without Congressional authorization. Whether there are improvements in the fishing port complex that should not be construed to be embraced within the term "port," involves evidentiary matters that cannot be addressed in the present case. As for now, considering that the Authority is a national government instrumentality, any doubt on whether the entire IFPC may be levied upon to satisfy the tax delinquency should be resolved against the City of Iloilo. DISPOSITIVE: Petition is GRANTED. CA decision set aside. The real property tax assessments issued by the City Iloilo on the land and buildings of the Iloilo Fishing Port Complex, is declared VOID except those pertaining to the portions leased to private parties. The City of Iloilo is DIRECTED to refrain from levying on the Iloilo Fishing Port Complex to satisfy the payment of the real property tax delinquency. -Zoilo GSIS v. City of Manila (December 23, 2009) Velasco, J. GSIS used to own two (2) parcels of land, one located at Katigbak 25th St., Bonifacio Drive, Manila (Katigbak property), and the other, at Concepcion cor. Arroceros Sts., also in Manila (Concepcion-Arroceros property). Both the GSIS and the Metropolitan Trial Court (MeTC) of Manila occupy the ConcepcionArroceros property, while the Katigbak property was under lease. Controversy started when the City Treasurer of Manila addressed a letterto GSIS President and General Manager Winston F. Garcia informing him of the unpaid real property taxes due on the aforementioned properties for years 1992 to 2002, broken down as follows: (a) PhP 54,826,599.37 for the Katigbak property; and (b) PhP 48,498,917.01 for the Concepcion-Arroceros property. The letter warned that if the taxes are unpaid they would be auctioned. GSIS, through its legal counsel, wrote back emphasizing the GSIS exemption from all kinds of taxes, including realty taxes, under Republic Act No. (RA) 8291. GSIS filed a petition for certiorari and prohibitionwith prayer for a restraining and injunctive relief before the Manila RTC. GSIS prayed for the nullification of the
assessments thus made and that respondents City of Manila officials be permanently enjoined from proceedings against GSIS property. GSIS would later amend its petition to include the fact that: (a) the Katigbak property, covered by TCT Nos. 117685 and 119465 in the name of GSIS, has, since November 1991, been leased to and occupied by the Manila Hotel Corporation (MHC), which has contractually bound itself to pay any realty taxes that may be imposed on the subject property; and (b) the Concepcion-Arroceros property is partly occupied by GSIS and partly occupied by the MeTC of Manila. RTC dismissed GSIS petition, assessments VALID. MR denied GSIS goes to SC on pure questions of law WON GSIS is exempt from real property taxation? YES By virtue of RA 8291 GSIS enjoys full tax exemption, originally given in PD 1146 (for a detailed history of GSIS, the vesting, withdrawal and re-enactment of exemption see case) Sec. 39 of RA 8291 reads: SEC. 39. Exemption from Tax, Legal Process and Lien. It is hereby declared to be the policy of the State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times and that contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly and specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed, superseded and rendered ineffective and without legal force and effect. Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless this section is expressly, specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the exemption referred to herein as an essential factor to maintain or protect the solvency of the fund, notwithstanding and independently of the guaranty of the national government to secure such solvency or liability. The funds and/or the properties referred to herein as well as the benefits, sums or monies corresponding to the benefits under this Act shall be exempt from attachment, garnishment, execution, levy or other processes issued by the courts, quasi-judicial agencies or administrative bodies including Commission on Audit (COA) disallowances and from all financial obligations of the members, including his pecuniary accountability arising from or caused or occasioned by his exercise or performance of his official functions or duties, or incurred relative to or in connection with his position or work except when his monetary liability, contractual or otherwise, is in favor of the GSIS.
ARTICLE 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.
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The foregoing exempting proviso, couched as it were in an encompassing manner, brooks no other construction but that GSIS is exempt from all forms of taxes. Given the foregoing perspectives, the following may be assumed: (1) Pursuant to Sec. 33 of PD 1146, GSIS enjoyed tax exemption from real estate taxes, among other tax burdens, until January 1, 1992 when the LGC took effect and withdrew exemptions from payment of real estate taxes privileges granted under PD 1146; (2) RA 8291 restored in 1997 the tax exempt status of GSIS by reenacting under its Sec. 39 what was once Sec. 33 of P.D. 1146; and (3) If any real estate tax is due to the City of Manila, it is, following City of Davao, only for the interim period, or from 1992 to 1996, to be precise. Real property taxes assessed and due from GSIS considered paid according to Sec 39 (see par I ITALICS and BOLD) GSIS is not exactly a GOCC First, while created under CA 186 as a non-stock corporation, a status that has remained unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec. 193 of the LGC, a GOCC following the teaching ofMIAA v. CA, for, like MIAA, GSIS capital is not divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to those who, under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory members of the system who are government employees. Its management is entrusted to a Board of Trustees whose members are appointed by the President. Second, the subject properties under GSISs name are likewise owned by the Republic. The GSIS is but a mere trustee of the subject properties which have either been ceded to it by the Government or acquired for the enhancement of the system. Third, GSIS manages the funds for the life insurance, retirement, survivorship, and disability benefits of all government employees and their beneficiaries. This undertaking, to be sure, constitutes an essential and vital function which the government, through one of its agencies or instrumentalities, ought to perform if social security services to civil service employees are to be delivered with reasonable dispatch. It is no wonder, therefore, that the Republic guarantees the fulfillment of the obligations of the GSIS to its members (government employees and their beneficiaries) when and as they become due. Sec. 234(a), of the LGC, exempts from real estate taxes real property owned by the Republic, unless the beneficial use of the property is, for consideration, transferred to a taxable person. SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
This exemption, however, must be read in relation with Sec. 133(o) of the LGC, which prohibits LGUs from imposing taxes or fees of any kind on the national government, its agencies, and instrumentalities: SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. (Emphasis supplied.) Thus read together, the provisions allow the Republic to grant the beneficial use of its property to an agency or instrumentality of the national government. Such grant does not necessarily result in the loss of the tax exemption. The tax exemption the property of the Republic or its instrumentality carries ceases only if, as stated in Sec. 234(a) of the LGC of 1991, beneficial use thereof has been granted, for a consideration or otherwise, to a taxable person. GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status with respect to the Katigbak property when it contracted its beneficial use to MHC, doubtless a taxable person. Thus, the real estate tax assessment of PhP 54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax delinquency is concerned as assessed over said property. However MHC must pay rent In sum, the Court finds that GSIS enjoys under its charter full tax exemption. Moreover, as an instrumentality of the national government, it is itself not liable to pay real estate taxes assessed by the City of Manila against its Katigbak and ConcepcionArroceros properties. Following the beneficial use rule, however, accrued real property taxes are due from the Katigbak property, leased as it is to a taxable entity. But the corresponding liability for the payment thereof devolves on the taxable beneficial user. The Katigbak property cannot in any event be subject of a public auction sale, notwithstanding its realty tax delinquency. This means that the City of Manila has to satisfy its tax claim by serving the accrued realty tax assessment on MHC, as the taxable beneficial user of the Katigbak property and, in case of nonpayment, through means other than the sale at public auction of the leased property. RTC decision reversed -Justin Philippine Fisheries Development Authority v. Central Board of Assessment Appeals et al. Lucena City -Miggy
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Tanada v. Angara (May 2, 1997) Ponente: Panganiban, J. Nature: Petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court Facts: Sec. Rizalino Navarro (DTI Secretary) representing the Philippines government, signed the Final Act Embodying the Result of the Uruguay Round of Multilateral Negotiations, which created the World Trade Organization. By signing such act, the Philippines agreed to adopt the ministerial declarations and decisions of the WTO, and to submit the WTO agreement for the consideration and approval President Ramos sent two letters to the Philippine Senate, stating that the Uruguay Rounds Final Act is submitted for its concurrence pursuant to sec. 21 Article VII of the constitution. The Senate adopted resolution no. 97, wherein the Senate concurred in the ratification of the President. -The petition was filed seeking to nullify the act of the Philippine Senate, arguing inter alia that: o It contravenes sec. 10 Art. II and sec. 12 Article XII of the Constitution o The WTO proviso derogates from the power to tax, which is lodged in the Congress WON the act of the Phil. Senate contravenes the Constitution? NO WON it limits, impairs and restricts the exercise of legislative power by congress (specifically the power to tax)? NO
Disposition: Dismissed for lack of merit. Vote: EB, Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Kapunan, Mendoza, Francisco, Hermosisima, Jr., and Torres, Jr., JJ., concur. Padilla, and Vitug, JJ., in the result. -Wiggy Commissioner of Internal Revenue v. Mitsubishi Corporation-Manila Branch C.T.A. Sandra Commissioner of Internal Revenue v. British Overseas Airways COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents. (April 30, 1987) NOTES: Kind of Tax Involved: Income Tax a direct tax on the income of persons or other entities. DE LEON: Income Tax is a tax on the net income or the entire income realized in one taxable year. It is levied upon corporate and individual incomes in excess of specified amounts, less certain deductions and/or specified exemption in cases permitted by law. Where was income tax imposed? On the ticket sales of British Airways made in the Philippines, which was coursed through their local agents and not on the actual exercise of transportation (which would have been an excise tax). An issue was raised, however, that the tax assessment was ACTUALLY a common carriers excise tax, which is a tax on transporting or removing passengers and cargo from one place to another. But, the main decision reiterated that the tax in this case is on the income derived from the ticket sales made in the Philippines. The distinction is important because, while excise tax may only be collected where the services or activities were performed, income tax is collected on whatever source derived in the Philippines.
Issues 1. 2.
Held & Ratio 1. NO, it does not contravene the constitution The Petitioners cited the WTO agreement place nationals and products of member countries on the same footing as Filipinos and local products. They argue that this is in contravention with the Filipino First Policy of the Constitution. See sec. 10 Art. II and sec. 12 Article XII of the Constitution. First, these provisions are not self-executing. These are merely statements of principles and policies. A law should be passed by congress to clearly define and effectuate such principles. The reason for denying this a cause of action are sourced from basic considerations of due process and the lack of judicial authority to wade into uncharted ocean of social and economic policy making the said provisions should be read and understood in relation to the other section, especially sec 1 and sec 13. Hence, the Constitution ordains the ideals of economic nationalism, but it also takes into account the realities of the outside world. It did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Phil. Economy. In fact, it allowed the exchange on the basis of equality and reciprocity, frowning only on foreign competition which is unfair 2. NO, it does not limit the power of congress.
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The WTO agreement provides that each member shall ensure the conformity of its laws, regulations and administrative procedure. By their nature, treaties really limit or restrict the absoluteness of sovereignty. But by their voluntary acts, nations may surrender some aspects of their state power in exchange for greater benefits granted by or derived from a convention or pact. Certain restrictions include: o Limitations imposed by the very nature of membership in the family of nations. o Limitations imposed by treaty stipulations. Doctrine of incorporation. The constitution states that it adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equity, justice, freedom, cooperation and amity.
DOCTRINE: NATURE: Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the Court of Tax Appeals (CTA), which set aside petitioner's assessment of deficiency income taxes against respondent British Overseas Airways Corporation PONENTE: MELENCIO-HERRERA, J.: FACTS: 1. BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom It is engaged in the international airline business. 2. During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a Certificate of public convenience and necessity. 3. Consequently, it did not carry passengers and/or cargo to or from the Philippines. 4. Although during the period covered by the assessments, it maintained a general sales agent in the Philippines Wamer Barnes and Company, Ltd., and later Qantas Airways which was responsible for selling BOAC tickets covering passengers and cargoes. 5. First CTA Case Petitioner (CIR, for brevity) assessed BOAC the aggregate amount of P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963 and subsequent investigation resulted in the issuance of a new assessment, dated 16 January 1970 for the years 1959 to 1967 in the amount of P858,307.79. BOAC paid this new assessment under protest. BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by the CIR. 6. Second CTA Case BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years 1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 and P1,800.00 as compromise penalties for the requirement to file corporate returns. BOAC's request for reconsideration was denied by the CIR on 24 August 1973. This prompted BOAC to file the Second Case before the Tax Court praying that it be absolved of liability for deficiency income tax for the years 1969 to 1971. 7. CTAs DECISION: Reversed CIR MAIN POSITION: The CTA position was that income from transportation is income from services so that the place where services are rendered determines the source. The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during the period in question, These do not constitute BOAC income from Philippine sources "since no service of carriage of passengers or freight was performed by BOAC within the Philippines" Therefore, said income is not subject to Philippine income tax. ISSUES:
(1) Whether or not during the fiscal years in question BOAC is a resident foreign corporation doing business in the Philippines or has an office or place of business in the Philippines. (2) Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable. HELD/RATIO/RULING: (1) It is our considered opinion that BOAC is a resident foreign corporation. Under Section 20 of the 1977 Tax Code: (h) the term resident foreign corporation engaged in trade or business within the Philippines or having an office or place of business therein. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization, such as the appointment of a local agent, and not one of a temporary character BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the Philippines that was engaged in activities that were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its organization as an international air carrier. (See enumeration p. 405 last par.) In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective. There should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the period covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable year from all sources within the Philippines. (2) RESPONDENTS CONTENTION: Income derived from transportation is income for services, with the result that the place where the services are rendered determines the source since BOAC's service of transportation is performed outside the Philippines, the income derived is from sources without the Philippines and, therefore, not taxable under our income tax laws COURTS RULING: Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from a activity regularly pursued within the Philippines. The Tax Code "Gross income" as gains, profits, and income derived from x x x business, commerce, sales, or x x x transactions of any business carried on for gain or profile, or gains, profits, and income derived from any source whatever (Sec. 29[3] o The definition is broad and comprehensive to include proceeds from sales of transport documents. "The words 'income from any source
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whatever' disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws." The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. o In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. o The tickets exchanged hands here and payments for fares were also made here in Philippine currency. o The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. The test of taxability is the "source"; and the source of an income is that activity ... which produced the income. o And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys one essential idea, that of origin, and the origin of the income herein is the Philippines. It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. o For, pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972, international carriers are now taxed on their income from Philippine sources. The 2- % tax on gross Philippine billings is an income tax. If it had been intended as an excise or percentage tax it would have been place under Title V of the Tax Code covering Taxes on Business.
CONCURRING/DISSENTING OPINION (I tried to summarize the dissent as much as I could and this is the best I can do. She likes Feliciano kasi di ba so I dont know how detailed this should be. In case of doubt read the original na lang. Especially in No. 3, medyo interrelation of tax provisions yun kung paano sya nagarrive sa conclusions nya which would make this digest super long if I dont cut it. also, I dont think Teehankees dissent would matter just because he pointed out na dahil sa baging PD na naissue rendered moot na ang conflict of interpretation ng dalawang justices.): FELICIANO, J., dissenting: 1. Whether the foreign corporate taxpayer is doing business in the Philippines and therefore a resident foreign corporation, or not doing business in the Philippines and therefore a non-resident foreign corporation, it is liable to income tax only to the extent that it derives income from sources within the Philippines. The circumtances that a foreign corporation is resident in the Philippines yields no inference that all or any part of its income is Philippine source income. Similarly, the non-resident status of a foreign corporation does not imply that it has no Philippine source income. Conversely, the receipt of Philippine source income creates no presumption that the recipient foreign corporation is a resident of the Philippines. The critical issue, for present purposes, is thereforewhether of not BOAC is deriving income from sources within the Philippines. 2. For purposes of income taxation, it is well to bear in mind that the "source of income" relates not to the physical sourcing of a flow of money or the physical situs of payment but rather to the "property, activity or service which produced the income." 3. We turn now to the question what is the source of income rule applicable in the instant case. There are two possibly relevant source of income rules that must be confronted; (a) the source rule applicable in respect of contracts of service; and (b) the source rule applicable in respect of sales of personal property. Where a contract for the rendition of service is involved, the applicable source rule may be simply stated as follows: the income is sourced in the place where the service contracted for is rendered: Section 37. Income for sources within the Philippines: (a) Gross income from sources within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: (3) Services. Compensation for labor or personal services performed in the Philippines;... (Emphasis supplied) It should be noted that the portion of Section 37 (e) was derived from the 1939 U.S. Tax Code which "was based upon a recognition that transportation was a service and that the source of the income derived therefrom was to be treated as being the place where the service of transportation was rendered. o Section 37 (e) of the Tax Code quoted above carries a strong wellnigh irresistible, implication that income derived from transportation or other services rendered entirely outside the Philippines must be treated as derived entirely from sources without the Philippines. 4. The appropriate characterization, in my opinion, of the BOAC transactions is that of entering into contracts of service, i.e., carriage of passengers or cargo between points located outside the Philippines. The phrase "sale of airline tickets," while
RESPONDENTS LAST CONTENTION Cites JAL v. CIR: that the mere sale of tickets, unaccompanied by the physical act of carriage of transportation, does not render the taxpayer therein subject to the common carrier's tax. COURTS RULING: The subject matter of the case under consideration is income tax, a direct tax on the income of persons and other entities "of whatever kind and in whatever form derived from any source." The common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to another. It purports to tax the business of transportation. Being an excise tax, the same can be levied by the State only when the acts, privileges or businesses are done or performed within the jurisdiction of the Philippines. The tax in this case is imposed on the income not the activity of transportation. DISPOSITION: VOTE: EN BANC; Paras, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur. Fernan, J., took no part; Feliciano, Narvasa, Gutierrez, Jr., and Cruz, JJ., dissent.
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-David ILOILO BOTTLERS, INC. vs. CITY OF ILOILO (August 19, 1988) Doctrine: An excise tax is a tax imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation. An excise tax can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority. Nature: Appeal from the decision of the Court of First Instance of Iloilo Ponente: Cortes J. Facts: Plaintiff is engaged in the business of bottling softdrinks under the trade name of Pepsi Cola and 7-up and selling the same to its customers, with a bottling plant situated at Barrio Ungca, Municipality of Pavis, Iloilo and which is outside the jurisdiction of the defendant. Plaintiff does not maintain any store or commercial establishment in the City of Iloilo, but by means of felt of delivery trucks, it distributes its products from Pavis to its customers in the different towns of the Province of Iloilo as well as the City of Iloilo. Defendant enacted Ordinance No. 5 on Jan. 11, 1960 which provides as follows: Section l. Any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other -
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widely used in popular parlance, does not appear to be correct as a matter of tax law. The airline ticket in and of itself has no monetary value, even as scrap paper. The value of the ticket lies wholly in the right acquired by the "purchaser" the passenger to demand a prestation from BOAC, which prestation consists of the carriage of the "purchaser" or passenger from the one point to another outside the Philippines. The ticket is really the evidence of the contract of carriage entered into between BOAC and the passenger. The money paid by the passenger changes hands in the Philippines. But the passenger does not receive undertaken to be delivered by BOAC. The "purchase price of the airline ticket" is quite different from the purchase price of a physical good or commodity such as a pair of shoes of a refrigerator or an automobile; it is really the compensation paid for the undertaking of BOAC to transport the passenger or cargo outside the Philippines. The very existance of "source rules" specifically and precisely applicable to the rendition of services must preclude the application here of "source rules" applying generally to sales, and purchases and sales, of personal property which can be invoked only by the grace of popular language. On a slighty more abstract level, BOAC's income is more appropriately characterized as derived from a "service", rather than from an "activity" (a broader term than service and including the activity of selling) or from the here involved is income taxation, and not a sales tax or an excise or privilege tax.
soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED, HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles. Section 1-AFor purposes of this Ordinance, all deliveries and/or dispatches emanating or made at the plant and all goods or stocks taken out of the plant for distribution, sale or exchange irrespective (of) where it would take place shall be covered by the operation of this Ordinance. Prior to September, 1966, Santiago Syjuco Inc., owned and operated a bottling plant at Muelle Loney Street, Iloilo City, which was doing business under the name of Seven-up Bottling Company of the Philippines and bottled the soft-drinks Pepsi-Cola and 7-up; however, on September 14, 1966, Santiago Syjuco, Inc., closed the plant and sold the same to the plaintiff Iloilo Bottlers, Inc. Plaintiff operated the said plant; however, on July 1968, it closed said bottling plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo. From the time of the enactment of the ordinance, the Seven Up Bottling Company of the Philippines under Santiago Syjuco Inc., had been religiously paying the defendant City of Iloilo the above- mentioned municipal license tax; but the plaintiff stopped paying the municipal license tax after October 21, 1968 when it transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo; July 31, 1969: the defendant demanded from the plaintiff the payment of the municipal license tax under the above-mentioned ordinance. Plaintiff explained in a letter to the defendant that it could not anymore be liable to pay the municipal license fee because its bottling plant was not anymore inside the City of Iloilo, and that moreover, since it itself sold its own products to its customers directly, it could not be considered as a distributor in line with the doctrines enunciated by the Supreme Court. On January 25, 1972, the defendant demanded from the plaintiff compliance with the said ordinance for 1972 in view of the fact that it was engaged in distribution of the softdrinks in the City of Iloilo, and it further demanded from the plaintiff payment of back taxes from the time it transferred its bottling plant to the Municipality of Pavia, Iloilo. Plaintiff demurred to the said demand of the defendant raising as issue the latters jurisdiction but due to insistence of the defendant, the plaintiff paid under protest. On June l5, 1972, the defendant informed the plaintiff that it must pay all the taxes due since July, 1968 up to the last quarter of 1971; otherwise, it shall be constrained to cancel the operation of the business of the plaintiff. Because of this threat, the plaintiff under protest agreed to the payment of the back taxes. July 12, 1972: Plaintiff filed a complaint with CFI of Iloilo for the recovery of the sum of Php 3,329.00 which amount allegedly constituted payments of municipal license tax under Ordinance No. 5. CFI granted. City of Iloilo appealed to the CA which certified the case to the SC.
1. Issue: Held: The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority. Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City. Iloilo Bottlers, Inc. disclaims liability on two grounds: a. Only manufacturers or bottlers having their plants inside the territorial jurisdiction of the city are covered by the ordinance, and since Iloilo Bottlers does not maintain a plant in the City of Iloilo, it cannot be made to pay the tax imposed by Ordinance No. 5. SC: This is devoid of merit. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person engaged in any or all of these activities is subject to the tax. In the case, there is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling under the second or the third type of business. The resolution of this case therefore hinges on whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance. b. Since it is not engaged in the independent business of distributing soft-drinks, but that its activity of selling is merely an incident to, or is a necessary consequence of its main or principal business of bottling, then it is NOT liable under the city tax ordinance. SC: This Court has always recognized that the right to manufacture implies the right to sell/distribute the manufactured Hence, for tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products. To determine whether an entity engaged in the principal business of manufacturing is likewise engaged in the separate business of selling, its marketing system or sales operations must be looked into. 2.
WON Iloilo Bottlers Inc which had its bottling plant in Pavia, Iloilo but which sold softdrinks in Iloilo City is liable under Iloilo City tax Ordinance No. 5. YES
Iloilo Bottlers, Inc. falls under the second category above. It is engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling them. In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Disposition: The appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046 is ordered DISMISSED. No Costs. Vote: Fernan, C.J., Feliciano and Bidin, JJ., concur. Concurring/Dissenting Opinion: None. Hopewell Power (Philippines) Corp vs CIR CTA Case (November 18, 1998) Ponente: Acosta (CTA Judge) Tax Term: Documentary Tax Stamp -Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. Doctrine: One of the inherent limits of taxation is that it may be exercised only within the territoral jurisdiction of the taxing authority Facts: -Dana
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First system: the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. Entities operating under this system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Anyone who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. Entities operating under this system are considered engaged in the separate business of selling.
*Please note the nationalities of the companies involved. Hopewell Power is a Philippine Corporation engaged in the business of energy. On Dec 29,1993 Hopewell Philippines, together with Hopewell Energy Intl (mother company based in Hong Kong), entered into a Mortgage Trust Indenture (MTI) with the Bank America Trust Company, an American Corporation, for the mortgage of Hopewell Philippines's chattel and real estate assets in the Philippines. The MTI was executed in Hong Kong. Hopewell Phils. Paid under protest a documentary stamp tax of P24,864,781.58 to the BIR in order to facilitate the registration of the MTI with the Register of Deeds of Lucena. On the same day that they paid under protest, Hopewell sent a letter to the BIR asking for confirmation on the tax exemption from documentary stamptax of mortgage documents executed abroad. The BIR did not respond to such letter thus on 1995, Hopewell sent a written claim for refund of what it paid but this was not acted upon as well. Thus this suit in the Court of Tax appeals. Petitioner's Argument: The Documentary Stamp Tax, being an excise tax, does not attach to the execution of documents in Hong Kong. That at the time the MTI was executed, the prevailing provision os sec 173 of the tax code did not cover documents executed abroad. Respondent's Argument: The tax was paid in accordance with sec 195 of the Tax Code. That Petitioner failed to show proof that the documents were executed in Hong Kong. That claims for refund are construed against the claimant. Issue: WON Documentary Stamp Tax has to be paid on documents executed abroad but with objects arising from Philippine sources. Court Ruling: Yes it has to be paid now because the law was amended but at the time of execution of mortgage by Hopewell, the Documentary Stamp Tax cannot be levied on documents executed abroad. Petitioner was able to provide a notarized copy of the MTI with authentication of the Philippine Consul in Hong Kong, thus proving that the MTI was indeed executed in Hong Kong. The power to levy an excise upond the performance of an act or the engaging of an occupation does not depend ipon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in. The gauge for taxability does not depend on the the location of the office, but attaches ipon the place where the respective transaction is perfected and consummated(Koppel vs Yatco)
Thus since the MTI was execucted and signed in HK prior to RA 7660. No DSY is imposable on it in the Philippines. One of the inherent limits of taxation is that it may be exercised only within the territoral jurisdiction of the taxing authority. It must be noted however that RA 7660, promulgatedon Jan 14,1994, has amended sec 173 of the tax code as imposing the DST not directly anymore on transaction documents but rather now on the act or privilege of transactig on any obligation or right arising from Philippine sources. (In short, before the amendement the tax was on the documents proper, but now the tax in on the act or privilege of transacting with objects or rights found in the Philippines) -Kester
Documentary Stamp Tax (from the case) an exise upon the facilities used in a transaction of a business separate and apart from the business itself. (from Notes) taxes levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. (from Notes) payment is done at the time of the act/transaction FACTS [Feb 28, 1986 Oct 8 1986] BPI sold to Central Bank US Dollars for P1.6B. BPI instructed its corresponding bank in NY to transfer US dollars deposited in BPI account therein to the Federal Reserve Bank for credit to the Central Banks account in the Federal Reserve. Federal Reserve Bank sent confirmation to CB that funds have been credited to their acount. Central Bank then transferred to BPIs account the corresponding amount in Php. CIR ordered an investigation on the sale of foreign currency assessed a liability for documentary stamp tax (P.30 / P200), surchage and compromise penalty amounting to P3M+
CTA : BPI liable for documentary stamp tax in connection with the sale of foreign exchange to the CB BUT reduced assessment from P3M to P690k because the law wchich passes liability on the non-exempt party was not effective until July 1986. CTA excluded in the computation of the tax liability the transactions prior to the effectivity of PD 1994. CA : Doc stamp tax imposed under Sec 182 is not limited only to foreign bills of exchange and letters of credit but also includes the orders made by telegraph OR by any other means for the payment of money made by any person drawn in but payable out of the Philippines. ISSUE / ARGUMENTS / SC :
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BPI v. CIR (July 27, 2006)
1. WON BPI is liable for documentary stamp tax in connection with its sale of foreign exchange to the CB under Sec 182 of NIRC? YES Court considered the wording of Sec 182 (orders by telegraph or otherwise, for the payment of money) and concluded that BPI ordered its correspondent bank in the US to pay the Federal Reserve Bank In NY a sum of money which is to be credited to the CB = these acts performed by BPI incidental to the sale of foreign exchange are INCLUDED among those taxed under Sec 182.
said funds ; compensation for the delay in payment ; for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid the State. Therefore, collection of charges is MANDATORY. -Mae Smith v. CIR Donald Smith, petitioner, vs. Commissioner of Internal Revenue, respondents. (September 12, 2002) NOTES: Kind of Tax Involved: Income Tax a direct tax on the income of persons or other entities. (more specifically compensation income tax) Where was income tax imposed? On the income of Smith derived from working as controller for the Coastal Subic Bay Terminal, Inc., a business enterprise within the SBMA. Hes essentially claiming that since SBMA is a tax-free zone, he should be refunded the tax he paid on his income for 1998. DOCTRINE:
a. BPIs argument (relevant to tax) : Sale between BPI and CP of foreign exchange (distinguished from foreign bills of exchange) is not subject to documentary stamp tax as prescribed in Sec 182. Court : It is not the sale of foreign exchange perse that is being taxed. Sec 182 of the NIRC refers to documentary stamp tax which is an exise upon the facilities used in the transaction of the business separate and apart from the business itself. It is not a tax upon the business but it is a duty upon the facilities made use of and actually employed in the transaction of the business, and separate and apart from the business itself. what is being taxed is the facility that allows a party to draw the draft or make the order to pay within the Philippines and have the payment made in another country. BPI ordered its corresponding bank to make the payment, thus BPI used the facility and as a rsult, they did not need to send representatives to collect funds and the transaction was made at the shortest time with the greatest convenience possible
NATURE: Petition for review by Donald Smith because the 2-year prescriptive period for his refund claim was about to lapse and BIR was still not acting upon his action on his claim for refund for the income tax he allegedly erroneously paid for year 1998. PONENTE: Ernesto Acosta, Presiding Judge FACTS: 8. Smith is a US citizen working for Coastal Subic Bay Terminal, a business entity located within the Subic Special Economic Zone (SSEZ for short), as created by RA 7227, and was issued by SBMA a Certificate of Registration and Tax Exemption on December 4, 1997 valid until December 4, 1998. 9. On April 1999, Smith filed his annual income tax return and paid P1,533,660.70 in compensation income taxes for the income he derived from his employment with Coastal Subic Bay Terminal. 10. In 2001, Smith filed a written claim for refund with the BIR alleging that the payment of tax on his compensation income was erroneous. 11. Since the 2-year prescriptive period was about to lapse, Smith filed a Petition for Review with CTA. Petitioners position: 1. SSEZ territory being tax-free, all income derived from within the zone, including his own, is exempt from income tax and other taxes. Consequently, SSEZ is beyond the coverage of NIRC, the Tariffs and Customs Code as well as other Philippine tax laws. 2. Section 12(c) of RA 7227, when it grants tax exemptions in SSEZ, applies to him. CIR: 1. petitioners claim is still subject to administrative routinary investigation. 2. Only business establishments operating within SSEZ are exempt from national and local taxes. Petitioner, as employee of a business entity within the zone, is not covered by the exemption granted by Section 12(c) of RA 7227, as implemented by Revenue Regulations No. 1-95.
b. BPIs argument (relevant to territorial jurisdiction) : That the foreign exchange sold was deposited and transferred within the US and therefore outside the Philippine territory. Court : documentary stamp tax is not imposed on the sale of the foreign exchange, rather it is an exise tax on the privilege or facility which the parties used in the transaction. Cited the case of Allied Thread : The power to levy an exise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the exise, nor upon the physical location of the property in connection with the act or occupation taxed, but depends upon the place in which thea ct is performed or the occasion engaged in. BPI instructing the correspondent bank to transfer the funds was performed in the Philippines.
2. WON delinquency interest of 20% pa is applicable in this case? YES Court : The fact that the assessment was appealed and was modified by the Court does not relieve the taxpayer of the penalties incident to delinquency. The imposition of additional charges and interests incident to delinquency is COMPENSATORY and NOT PENALTY. Compensatory in the sense that they are imposed for the taxpayers use of the funds at the time when the State should have control of the
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3. Smiths claims lacks basis in law. 4. In an action for refund, burden of proof is with taxpayer to establish its right to refund and failure to sustain burden is fatal to its action. ISSUES: (3) Whether aliens working within the SSEZ are subject to Philippine income taxes on income earned from such employment (4) Whether or not petitioner is entitled to refund for income tax paid on compensation earned from working within SSEZ (5) Whether or not Section 12(c) of RA 7227 applies to petitioner HELD &RATIO: (3) Yes. The law in point is RA 7227 Section 12 (c): Section 12. Subic Special Economic Zones. (c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of the municipalities outside the City of Olongapo, and the Municipality of Subic, and other municipalities contiguous to the base areas. In case of conflict between national and local laws with respect to tax exemption privileges in the SSEZ, the same shall be resolved in favour of the latter. The phrase no taxes, local and national, shall be imposed within the SSEZ should not be treated in isolation. The clause in lieu of taxes, 3% of the gross income earned belies petitioners claim that SSEZ is a tax-free territory. The term in lieu of taxes as used in the law does not constitute an absolute exemption from taxation. While spared from national and local taxes, businesses and enterprises within SSEZ, are subjected to said tax base on gross income. Thus, it is incorrect to say SSEZ is a tax-free territory. Individual aliens employed within SSEZ are not exempt from the awesome power of Philippine taxation, especially so that they sourced out their earnings from within the Philippines. The secured area of SSEZ is in reality a part of the territorial jurisdiction of the Philippines. RA 7227 Section 12 (h) actually makes it the responsibility of the National Government of the Philippines to secure the perimeters of the area. Such being the case, all subjects over which the Philippines can exercise dominion are necessarily objects of taxation. As such, all subjects of taxation within its jurisdiction are required to pay taxes in exchange for the protection that the state gives. SSEZ, being within the territorial boundaries of the Philippines, the aliens residing therein, who enjoy the benefits and protection from the said state are not exempt from contributing their share in the running of the government. They have the bounden duty to surrender part of their hard-earned income to the taxing authorities. The National Internal Revenue Code operates with equal force and effect to all subjects within the territorial boundary of the Philippines. Being a general law, it covers all persons, properties and privileges, which are found within its jurisdictional limit. With
(4) No. As previously discussed, resident aliens within the SSEZ are still subject to the NIRC as far as their income from within the Philippines is concerned. No refund as the tax in the amount of 1,533,660.70 was correctly remitted to BIR. (5) No. Close reading of RA 7227, Section 12 (c) will reveal that it was intended to benefit only those businesses operating within SSEZ, and not to individual taxpayers working within its parameters. The grant of incentive was meant to encourage investments in the area to convert the former military base to an economic zone. To likewise exempt them from taxes would be stretching the law too far. COURTS RULING: Refund denied. DISPOSITION: VOTE: Judge Juanito Cataneda Jr. concurs. -Ann CIR v. Juliane Baier-Nickel (Aug. 29, 2006) Doctrine: non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on their income received from all sources within the Philippines. The important factor therefore which determines the source of income of personal services is the place where the services were actually rendered. The rule is that source of income relates to the property, activity or service that produced the income. Ponente: Ynares-Santiago, J. Facts: Respondent Juliane Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Inc., a domestic corporation engaged in [m]anufacturing, marketing on wholesale only, buying or otherwise acquiring, holding, importing and exporting, selling and disposing embroidered textile products. Through JUBANITEXs General Manager, Marina Q. Guzman, the corporation appointed and engaged the services of
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the enactment of RA 7227, there came an exception to the general rule. Being a special law, it prevails over the general law but only in so far as a certain group of persons or things is concerned. Since the law, in granting tax incentives, only made mention of businesses and enterprises within the SSEZ, it follows then that said RA 7227 operates only on the said group. As no mention was made to individual taxpayers being taxexempt, it follows that they still fall within the ambit of the general law pursuant to the maxim excepto firmat regulam in casibus non exceptis, a thing not being excepted must be regarded as coming within the purview of the general rule. Parenthetically, there is not much of a substantial difference between individual citizen and an individual resident alien working in the Philippines as far as income taxation is concerned. In fact, under the National Internal Revenue Code (NIRC) of 1997, both classes of individual taxpayers are similarly taxed under Section 24(A). The distinction lies only on the source of income to be taxed: While a resident citizen is taxed on all income from within and without the Philippines, the resident alien is taxed only on income from within the Philippines.
respondent as commission agent. It was agreed that respondent will receive 10% sales commission on all sales actually concluded and collected through her efforts. In 1995, respondent received the amount of P1,707,772.64, representing her sales commission income from which JUBANITEX withheld the corresponding 10% withholding tax amounting to P170,777.26, and remitted the same to the BIR. On October 17, 1997, respondent filed her 1995 income tax return reporting a taxable income of P1,707,772.64 and a tax due of P170,777.26. On April 14, 1998, respondent filed a claim to refund the amount of P170,777.26 alleged to have been mistakenly withheld and remitted by JUBANITEX to the BIR. Respondent contended that her sales commission income is not taxable in the Philippines because the same was a compensation for her services rendered in Germany and therefore considered as income from sources outside the Philippines. She filed a petition for review with the CTA. CTA: claim denied. the commissions received by respondent were actually her remuneration in the performance of her duties as President of JUBANITEX and not as a mere sales agent thereof. The income derived by respondent is therefore an income taxable in the Philippines because JUBANITEX is a domestic corporation. CA: reversed CTA decision. respondent received the commissions as sales agent of JUBANITEX and not as President thereof. And since the source of income means the activity or service that produce the income, the sales commission received by respondent is not taxable in the Philippines because it arose from the marketing activities performed by respondent in Germany. Petitioner: the income earned by respondent is taxable in the Philippines because the source thereof is JUBANITEX, a domestic corporation located in the City of Makati; source of income means the physical source where the income came from; since respondent is the President of JUBANITEX, any remuneration she received from said corporation should be construed as payment of her overall managerial services to the company and should not be interpreted as a compensation for a distinct and separate service as a sales commission agent. Respondent: the income she received was payment for her marketing services; income of nonresident aliens like her is subject to tax only if the source of the income is within the Philippines; source is the situs of the activity which produced the income and since the source of her income were her marketing activities in Germany, the income she derived from said activities is not subject to Philippine income taxation. Issue/Held: WON respondents sales commission income is taxable in the Philippines YES (sub-issue: WON respondent presented sufficient evidence to prove that the services she rendered were performed in Germany NO) Ratio: The NIRC states: SEC. 25. Tax on Nonresident Alien Individual.
(A) Nonresident Alien Engaged in Trade or Business Within the Philippines. (1) In General. A nonresident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual, on taxable income received from all sources within the Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a nonresident alien doing business in the Philippines, Section 22(G) of this Code notwithstanding. xxxx (B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines. There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every nonresident alien individual not engaged in trade or business within the Philippines x x x a tax equal to twenty-five percent (25%) of such income. x x x Pursuant to the foregoing provisions of the NIRC, non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on their income received from all sources within the Philippines. Thus, the keyword in determining the taxability of non-resident aliens is the incomes source. In construing the meaning of source in Section 25 of the NIRC, resort must be had on the origin of the provision. The first Philippine income tax law enacted was Act No. 2833. Under Section 1 thereof, nonresident aliens are likewise subject to tax on income from all sources within the Philippine Islands, Act No. 2833 substantially reproduced the U.S. Revenue Law of 1916 as amended by U.S. Revenue Law of 1917. The Internal Revenue Code of the U.S. enumerates specific types of income to be treated as from sources within the U.S. and specifies when similar types of income are to be treated as from sources outside the U.S. Under the said Code, compensation for labor and personal services performed in the U.S., is generally treated as income from U.S. sources; while compensation for said services performed outside the U.S., is treated as income from sources outside the U.S. A similar provision is found in Section 42 of our NIRC, thus: SEC. 42. x x x (A) xx xxxx (3) Services. Compensation for labor or personal services performed in the Philippines; Gross Income From Sources Within the Philippines. x
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xxxx (C) xxxx (3) Compensation for labor or personal services performed without the Philippines; The important factor therefore which determines the source of income of personal services is not the residence of the payor, or the place where the contract for service is entered into, or the place of payment, but the place where the services were actually rendered. The rule is that source of income relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income. On the sub-issue: The decisive factual consideration here is the sufficiency of evidence to prove that the services she rendered were performed in Germany. The settled rule is that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the taxpayer. To those therefore, who claim a refund rest the burden of proving that the transaction subjected to tax is actually exempt from taxation. In the instant case, the appointment letter of respondent as agent of JUBANITEX stipulated that the activity or the service which would entitle her to 10% commission income, are sales actually concluded and collected through [her] efforts. What she presented as evidence to prove that she performed income producing activities abroad, were copies of documents she allegedly faxed to JUBANITEX and bearing instructions as to the sizes of, or designs and fabrics to be used in the finished products as well as samples of sales orders purportedly relayed to her by clients. However, these documents do not show whether the instructions or orders faxed ripened into concluded or collected sales in Germany. At the very least, these pieces of evidence show that while respondent was in Germany, she sent instructions/orders to JUBANITEX. As to whether these instructions/orders gave rise to consummated sales and whether these sales were truly concluded in Germany, respondent presented no such evidence. Neither did she establish reasonable connection between the orders/instructions faxed and the reported monthly sales purported to have transpired in Germany. Respondent presented no contracts or orders signed by the customers in Germany to prove the sale transactions therein. The concern raised by petitioners counsel as to the absence of substantial evidence that would constitute proof that the sale transactions for which respondent was paid commission actually transpired outside the Philippines, is relevant because respondent stayed in the Philippines for 89 days in 1995. Except for the months of July and September 1995, respondent was in the Philippines in the months of March, May, June, and August 1995, the same months Gross Income From Sources Without the Philippines. x x x
when she earned commission income for services allegedly performed abroad. Furthermore, respondent presented no evidence to prove that JUBANITEX does not sell embroidered products in the Philippines and that her appointment as commission agent is exclusively for Germany and other European markets. In sum, we find that the faxed documents presented by respondent did not constitute substantial evidence, or that relevant evidence that a reasonable mind might accept as adequate to support the conclusion that it was in Germany where she performed the income producing service which gave rise to the reported monthly sales in the months of March and May to September of 1995. She thus failed to discharge the burden of proving that her income was from sources outside the Philippines and exempt from the application of our income tax law. Hence, the claim for tax refund should be denied. Disposition: petition GRANTED. CA decisions reversed and set aside. CTA decision reinstated. -Barbie TAN v. DEL ROSARIO October 3, 1994 DOCTRINE: Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression is so evident to us. NATURE: Two consolidated special civil actions for prohibition PONENTE: Vitug, J. FACTS/HELD (for non-tax issues) G.R. No. 109289 Petitioners, claiming to be taxpayers adversely affected by the continued implementation of the amendatory legislations, seek a declaration of unconstitutionality of RA7496 (also known as Simplified Net Income Taxation) due to violation of the following constitutional provision: 1. Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. a. PET: They argue that it is a misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of their Profession" The amendatory law should be considered as having now adopted a gross income, instead of as having still retained the net income, taxation scheme. SC HELD: The allowance for deductible items may have significantly been reduced by the questioned law in comparison with prior law;
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b.
limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. Various deductions, which are by no means inconsequential, continue to be well provided under the new law. The objectives of the constitution in preventing logrolling and surprises to the legislator have been sufficiently met. 2. Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. a. Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships. (see HELD)
SISON, JR v ANCHETA (July 25, 1984) DOCTRINE: It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation NATURE: Petition to review the decision of the Acting Commissioner of Internal Revenue. (Suit was actually for declaratory relief or prohibition.) PONENTE: Fernando, C.J. FACTS: Petitioner filed suit assailing the validity of Section I of Batas Pambansa Blg. 135. The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income Petitioner as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. The section as allegedly: arbitrary amounting to class legislation, oppressive and capricious in character. For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. ISSUE: WON Section 1 of Batas Pambansa Blg. 135 which amended Section 21 of the NIRC of 1977 is unconstitutional.
3.
Article III, Section 1 No person shall be deprived of . . . property without due process of law, nor shall any person be denied the equal protection of the laws a. PET: Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not. SC HELD: The discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation lies with the legislation. The courts can only strike it down when it is unconscionable and/or confiscatory. No such transgression is evident to us. This court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have been reached within any appreciable distance in this controversy before us
b.
Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression is so evident to us DISPOSITION: WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. VOTING: En Banc. All concur (save for 2 on leave) -Jamie
HELD: On equal protection: The applicable standard to avoid the charge that there is a denial of the constitutional mandate of equal protectionwhether the assailed act is in the exercise of the police power or the power of eminent domain is to demonstrate that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same. Hence, the constant reiteration of the view that classification if rational in character is allowable. In a leading case of Lutz v. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to
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hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" -Jenin VILLEGAS v HIU CHIONG TSAI PAO HO (November 10, 1978) Doctrine: There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation. The fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. Nature: Petition for certiorari to review the decision of the Court of First Instance of Manila declaring Ordinance No. 6537 of the City of Manila null and void. Ponente: FERNANDEZ, J. Facts: Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. Section 1 of said Ordinance prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind. On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the Court of First Instance of Manila, praying for the issuance of the writ of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance null and void. Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared null and void: 1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in taxation; 2) As a police power measure, it makes no distinction between useful and nonuseful occupations, imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration and that it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus, violating the fundamental principle on illegal delegation of legislative powers:
Issues: WON CIF erred in ruling that the ordinace violated the cardinal rules of uniform taxation, the principle of undue delegation of legislative power and the due process and equal protection clauses of the Constitution. Held: -
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of their rights to life, liberty and property and therefore, violates the due process and equal protection clauses of the Constitution. As said, CIF ruled in favor of Hiu Chiong and contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition.
Ratio: -
The second part of the Ordinance which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation. The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful. It was also held in Primicias vs. Fugoso that the authority and discretion to grant and refuse permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled discretion but legal discretion to be exercised within the limits of the law. Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its territory, once an alien is admitted, he
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NO. The petition of Mayor Villegas must fail. The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the exercise of the power which has been granted to him by the ordinance.
cannot be deprived of life without due process of law. This guarantee includes the means of livelihood. Disposition:WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs. SO ORDERED. Vote: Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur. Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result. Concepcion, Jr., J., took no part. Concurring/Dissenting Opinion: TEEHANKEE, J., concurring The national policy on the matter has been determined in the statutes enacted by the legislature, viz, the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain gainful employment in the country with the exception of certain specific fields and areas. Such national policies may not be interfered with, thwarted or in any manner negated by any local government or its officials since they are not separate from and independent of the national government. As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular (National) Government adopts a policy, a municipality is without legal authority to nullify and set at naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised within the limits of the organic laws, but they must be consistent with the general law and public policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011). With more reason are such national policies binding on local governments when they involve our foreign relations with other countries and their nationals who have been lawfully admitted here, since in such matters the views and decisions of the Chief of State and of the legislature must prevail over those of subordinate and local governments and officials who have no authority whatever to take official acts to the contrary. -JP PHILRECA V. SECRETARY G.R. No. 143076 (10 June 2003) Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA); Agusan Del Norte Electric Cooperative, Inc. (ANECO); Iloilo I Electric Cooperative, Inc. (ILECO I); and Isabela I Electric Cooperative, Inc. (ISELCO I), petitioners v. The Secretary, Department Of Interior and Local Government, and The Secretary, Department Of Finance, respondents Puno, J. DOCTRINE: "The guaranty of the equal protection of the laws is not violated by a law based on reasonable classification. Classification, to be reasonable, must (1) rest on
substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members of the same class." NATURE: Petition for Prohibition under R65 FACTS: Petitioner, PHILRECA is an association of 119 electric cooperatives while the other petitioners are electric cooperatives existing under PD 269 and registered with the National Electrification Administration or NEA Petitioners, in their own behalf and other cooperatives organized under PD 269 filed a class suit for prohibition seeking to declare as unconstitutional secs. 193 and 234 of the Local Government Code (RA 7160) In furtherance with the aim of PD 269, cooperatives so organized are granted tax exemptions under Sec. 39, viz: (a) Provided that it operates in conformity with the purposes and provisions of this Decree, cooperatives (1) shall be permanently exempt from paying income taxes, and (2) for a period ending on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion hereunder, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs, shall be exempt from the payment (a) of all National Government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceeding in which it may be a party , and (b) of all duties or imposts on foreign goods acquired for its operations. (Emphasis in the original) Also in furtherance of its mandate the Government, through NEC and NEA obtained a loan from USAID in the amount of 86M USD The terms of the loan provided that such loan shall be without deduction for and free from, any taxation or fees imposed under any laws or decrees in effect within the Republic of the Philippines or any such taxes or fees so imposed or payable shall be reimbursed by the Borrower with funds other than those provided under the Loan. Petitioners contend that pursuant to the provisions of P.D. No. 269, as amended, and the above-mentioned provision in the loan agreements, they are exempt from payment of local taxes, including payment of real property tax With the passage of the Local Government Code, however, they allege that their tax exemptions have been invalidly withdrawn. In particular, petitioners assail Sections 193 and 234 of the Local Government Code on the ground that the said provisions discriminate against them, in violation of the equal protection clause
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Further, they submit that the said provisions are unconstitutional because they impair the obligation of contracts between the Philippine Government and the United States Government
In contrast, cooperatives under PD 269 do not require such capital contributions. In fact, it is usually the government which the capital infusion Membership in an electric-cooperative only requires a 5 peso membership fee, which is refundable if the member chooses to leave the cooperative Second, cooperatives under PD 269 are subject to greater government control. The NEA is granted broad powers to intervene in the management and affairs of the cooperative conditioned upon the happening of certain events These include designation of officers, supervision and control of all matters affecting cooperatives as well as financial management In contrast, the cooperatives under 6938 are more independent and are generally free from such state interference, in line with the Constitutional policy of cooperative self-sufficiency with minimal government regulation The role of the CDA is merely to regulate and promote cooperative development activities The Court also found that the classification of tax exempt entities is germane to the purpose of the LGC Congress has the discretion to determine the extent of the taxing powers of the local government The sections of the code indicate a legislative intent to grant broad taxing powers to the LGCs The provision effectively withdraws exemptions from local taxation enjoyed by various entities except for a) local water districts; b) cooperatives duly registered under R.A. No. 6938; and c) non-stock and non-profit hospitals and educational institutions Further, with respect to real property taxes, the LGC specifically enumerates entities which are exempt therefrom and withdraws exemptions enjoyed by all other entities In Mactan Cebu International Airport Authority v. Marcos,this Court held that the limited and restrictive nature of the tax exemption privileges under the Local Government Code is consistent with the State policy to ensure autonomy of local governments and the objective of the Local Government Code to grant genuine and meaningful autonomy to enable local government units to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The obvious intention of the law is to broaden the tax base of local government units to assure them of substantial sources of revenue. It is also axiomatic that the Court cannot question the wisdom of an enactment for such is a purely legislative province
ISSUES: Prefatorily, the Court notes that petitioner disregarded the hierarchy of courts by filing its petition directly with the Supreme Court. However, the Court opted to take cognizance of the petition in view of the constitutional issues raised and the interest of a speedy disposition and delivery of justice 1. W/N the provisions of the LGC violate the petitioners right to equal protection of laws? 2. W/N the provisions violate the non-impairment clause? HELD/RATIO 1. NO Secs. 193 and 234 provide for the blanket withdrawal of tax exemptions to those previously granted exemptions subject to certain exceptions enumerated in the provisions Among these are cooperatives duly registered under RA 6938 or the Cooperative Act of 1990. Sec. 234 further provides for the exemption of such cooperatives from payment of real-property tax Petitioners, being cooperatives under PD 269, contend that that such violates the equal protection clause They stress that there are no substantial distinctions between them and cooperatives under RA 6938 o They are both registered with a government agency, in their case NEA while in 6938, the CDA o They both operate for the benefit of their member-consumers o They were also tax-exempt prior to the enactment of the LGC For a classification to be reasonable it must satisfy the following requisites: (1) It must rest on substantial distinctions; (2) Be germane to the purposes of the law; (3) Not be limited to existing conditions only; and (4) Apply equally to all members of the same class. The Court held that there exists substantial distinctions between the petitioners and cooperatives under 6938 First, members of cooperatives under 6938 make equitable capital contributions to the cooperative. Cooperatives under the same posses or are characterized by the following: a) association of persons; b) common bond of interest; c) voluntary association; d) lawful common social or economic end; e) capital contributions; f) fair share of risks and benefits; g) adherence to cooperative values; and h)registration with the appropriate government authority
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Finally the provisions constitute reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. Exemptions from local taxation, including real property tax, are granted to all cooperatives covered by R.A. No. 6938 and such exemptions exist for as long as the Local Government Code and the provisions therein on local taxation remain good law
The Constitution does prohibit the imposition of indirect taxes which, like the VAT, are regressive. The constitutional provision has been interpreted to mean simply that "direct taxes are to be preferred and as much as possible, indirect taxes should be minimized." NATURE: reconsideration of our decision dismissing the petitions filed in these cases for the declaration of unconstitutionality of R.A. No. 7716 PONENTE: Mendoza FACTS: 1. petitioners claim that R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI, Sec. 24 of the Constitution. o Among the petitioners are the IBP, several publishing houses and printing presses,, and other book sellers. o H. No. 11197 was filed in the House of Representatives where it passed three readings and that afterward it was sent to the Senate where after first reading it was referred to the Senate Ways and Means Committee; o However, they complain that the Senate did not pass it on second and third readings. Instead what the Senate did was to pass its own version (S. No. 1630) Petitioner adds that what the Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text of S. No. 1630. ISSUES: 1. Was the bill properly passed through Senate? YES. 2. Does the bill suppress press freedom and religious liberty by removing the tax exception? NO. 3. Is the tax on the press a form of taxation on constitutionally guaranteed freedom, thus unconstitutional? NO. 4. Is VAT unconstitutional for being a regressive system of taxation? NO. RATIO: 1. The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress, the Senate passed its own version of revenue bills, which, in consolidation with House bills earlier passed, became the enrolled bills. o The enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose amendments to bills required to originate in the House, passed its own version of a House revenue measure. While Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, " but the Senate may propose or concur with amendments." As petitioner Tolentino states in a high school text, a committee to which a bill is referred may do any of the following: o (1) to endorse the bill without changes;
2. NO The Court, citing Clemons v. Nolting defines impairment as when when: A law which changes the terms of a legal contract between parties, either in the time or mode of performance, or imposes new conditions, or dispenses with those expressed, or authorizes for its satisfaction something different from that provided in its terms, is law which impairs the obligation of a contract and is therefore null and void In the agreement between NEA and USAID, the government merely covenanted that such loans will be free from deduction or taxation or fees or such fee will be absorbed by the borrower from funds other than the loan proceeds This means that the borrower is entitled to receive the amounts in full and any tax imposed shall be paid by the same using funds other than the loan proceeds This does not mean that the loan agreement granted a tax-exemption to the cooperatives as borrowers Hence the enactment of the LGC will not impair the obligations of the government vis--vis that of USAID
As epilogue, the Court commiserated with the petitioners in their plight brought about by the tedious requirement of conversion a cooperative registered under 6938. However, it noted that the remedy is not judicial but legislative. DISPOSITION: Petition DENIED. Votes: Davide, Jr., C.J., Bellosillo, Vitug, Panganiban, Quisumbing, Austria-Martinez, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Corona, Carpio-Morales, Callejo, Sr., Azcuna, JJ., concur -Raffy TOLENTINO vs. SEC. OF FINANCE (October 30, 1995) DOCTRINE: Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation.
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o o
o o Petitioners' basic error is that they assume that S. No. 1630 is an independent and distinct bill. Because the Senate bill was a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and three readings. The press is not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these. o Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. o Other exemptions from the VAT, such as petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more are likewise withdrawn in an effort to broaden the base of the tax. Petitioners are claiming it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional citing the US case of Murdock v. Pennsylvania: o The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First Amendment is not so restricted. A license tax certainly does not acquire constitutional validity because it classifies the privileges protected by the First Amendment along with the wares and merchandise of hucksters and peddlers and treats them all alike. Such equality in treatment does not save the ordinance. Freedom of press, freedom of speech, freedom of religion are in preferred position. However, The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. o As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon." o The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.
(2) to make changes in the bill omitting or adding sections or altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee bill; or (4) to make no report at all.
4.
2.
3.
The transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups. These include real properties held primarily for sale to customers or for lease in the ordinary course of trade or business, the right or privilege to use patent, copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television time, hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services of franchise grantees of telephone and telegraph.
DISPOSITIVE: the motions for reconsideration are denied with finality and the temporary restraining order previously issued is hereby lifted. NOTE: There are several dissenting/concurring opinions for this case. I cannot find them online, so refer to the original case nalang. Sorry, guys! -Ice PEPSI COLA V CITY OF BUTUAN (August 28, 1968) Facts:
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Petitioners argues that the law contravenes the mandate of Congress to provide for a progressive system of taxation because the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay. o Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. o The Constitution does prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are to be preferred and as much as possible, indirect taxes should be minimized." o Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions while granting exemptions to other transactions.
-Ivan MANILA RACE HORSE TRAINERS ASSOCIATION, INC. vs DE LA FUENTE (11 January 1951) DOCTRINE: In taxing only boarding stables for race horses, we do not believe that the ordinance, makes arbitrary classification. In the case of Eastern Theatrical Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p. 303,* it was said there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed . Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any profit from horse racing, and this business demands relatively heavy police supervision. Nature: Petition for Declaratory Relief Ponente: Tuason, J. FACTS: Present action was instituted by Manila Race Horses Association, Inc., a nonstock corporation duly organized and existing under the laws of the Philippines. They alleged that they are the owners of boarding stables for race horses, and they are affected by Ordinance No. 3065 of the City of Manila
Issues: Held: Ratio:
WON the exaction amounts to double taxation WON the exaction is excessive, oppressive and confiscatory WON Sec 2, RA2264 is undue delegation of legislative power WON the exaction is an import tax WON the exaction is highly unjust and discriminatory No No No Yes Yes Double taxation in general is not forbidden by our fundamental law, unlike in the US. The tax of P.10 per case of 24 bottles of soft drinks or carbonated drinks is too small to be excessive, oppressive or confiscatory. Legislative power may be delegated to local governments in respect of matters of local concern. The tax imposed is only upon any agent/consignee engaged in selling soft drinks or carbonated drinks. As such, merchants engaged in selling the same items are not subject to tax. Unless they are also agents/consignees of another dealer, who by the very nature of things, must be engaged in business outside the city. The tax is also based and computed from the cargo manifest or bill of lading. The material fact here is not the number of cases sold rather the number of
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Pepsi Cola seeks to recover the exaction it paid to the City of Butuan pursuant to Ordinance 110, as amended by Ordinance 122. Pepsi Cola filed the complaint for recovery of the total amount of P14k it previously paid under protest on the ground that Ordinance 110 as amended is illegal, excessive and unconstitional. The provisions of Ordinance 110 are as follows: o Sec 2, provides for payment of taxes at specified rates, by an agent/consignee engaged in selling liquors, imported or local in the City o Sec 4, provides that said taxes shall be paid at the end of every calendar month o Sec 5, provides that the taxes shall be based and computed from the cargo manifest or bill of lading or any record showing the number of cases of liquid drinks received within the month. o Sec 6, 7 and 8 provide the surcharge to be added upon failure to pay the taxes or for failure to furnish the City Treasurer a copy of the bill of lading or cargo manifest in the City. o Sec 10, provides that the revenue derived therefrom shall be allotted as follows: 40% for roads and bridges fund, 40% for the general fund and 20% for the school fund.
cases received. Thus, there is an intention to limit the inflow of soft drinks and carbonated drinks brought into the city from outside. This makes the tax as an import duty, which is far beyond the City of Butuans authority to tax as provided by law. If the tax is regarded as a tax on sale, it still remains violative of the Constitutional requirement of uniformity. This is because the tax is imposed only upon agents/ consignees of outside dealers. Sales y local dealers, not acting for or on behalf of other merchants, will not be taxed. For uniformity to achieved, the requisites for valid classification must be met: o it is based upon substantial distinctions which make real differences; o these are germane to the purpose of the legislation or ordinance; o the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; o the classification applies equally all those who belong to the same class
AN ORDINANCE PROVIDING FOR LICENSE FEES ON PERSONS MAINTAINING OR CONDUCTING ANY BOARDING STABLE FOR HORSE RACES AND/OR HORSE STABLES, OR PLACES WHERE HORSE ARE KEPT, FED, OR BOARDED FOR OTHERS, FOR COMPENSATION OR HIRE, AND/OR FOR PRIVATE, AND FOR OTHER PURPOSES. Be it ordained by the Municipal Board of the City of Manila, that: SECTION 1. License. No person shall own, keep, maintain, or conduct any boarding stable, or place where race horse are kept, fed, or boarded for others, for compensation or hire, and/or for race horse stable privately owned not for hire, without first having obtained a permit from the Mayor and license therefor from the City Treasurer. SEC. 2. Fees. For every license granted under the provisions of this ordinance, there shall be paid an annual license fee , which may be paid either annually, semestrally or quarterly at the option of the taxpayer, to wit: Boarding stable for race horses: Class A For each race horse, kept, maintained, fed or boarded in boarding stables........................................................ P10.00
1. 2.
(What is being taxed, race horses or boarding stables?) WoN the ordinance makes an arbitrary classification (on taxing only boarding stables for race horses)
HELD + RATIO: 1. BOARDING STABLES. From the context of Ordinance No. 3065, the intent to tax or license stables and not horses is clearly manifest. The tax is assessed not on the owners of the horses but on the owners of the stables , as counsel admit in their brief, although there is nothing, of course, to stop stable owners from shifting the tax to the horse owners in the form of increased rents or fees, which is generally the case. It is also plain from the text of the whole ordinance that the number of horses is used in the assessment purely as a method of fixing an equitable and practical distribution of the burden imposed by the measure. Far from being obnoxious, the method is fair and just. It is but fair and just that for a boarding stable where only one horse is maintained proportionately less amount should be exacted than for a stable where more horses are kept and from which greater income is derived. 2. NO, the ordinance does not make an arbitrary classification. In taxing only boarding stables for race horses, we do not believe that the ordinance, makes arbitrary classification. In the case of Eastern Theatrical Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p. 303,* it was said there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate . Thus, it was held in that case, that "the fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is not argument at all against the equality and uniformity of tax imposition." Applying this criterion to the present case, there would be discrimination if some boarding stables of the same class used for the same number of horses were not taxed or were made to pay less or more than others. From the viewpoint of economics and public policy the taxing of boarding stables for race horses to the exclusion of boarding stables for horses dedicated to other purposes is not indefensible. The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed. Race horses are devoted to gambling if legalized, their owners derive fat income and the public hardly any profit from horse racing, and this business demands relatively heavy police supervision. Taking everything into account, the differentiation against
Class B For each race horse, kept, maintained, or fed in private race horse stables........................................................
P5.00
SEC. 3. Contents of application. Every application for the license in this ordinance required, shall be accompanied by a sworn statement of the greatest number of animals to be kept by the applicant, which statement shall be the basis for computing the amount of fees to be paid for such license. SEC. 4. Effectivity. This ordinance shall take effect upon its approval. They made the Mayor of Manila defendant and prayed that the ordinances be declared invalid as violative of the Constitution. LOWER COURT: Case was submitted on the pleadings; ordinance is constitutional and valid. It has been enacted in accordance with the powers of the Municipal Board granted by the Charter of the City of Manila. Upon appeal, the petitioners argued that, by section 2 the basis of the license fees "is the number of race horses kept or maintained in the boarding stables to be paid by the maintainers at the rate of P10.00 a year for each race horse;" that "the fee is increased correspondingly P10 for each additional race horse maintained or fed in the stable;" and that "by the same token, an empty stable for race horse pays no license fee at all.
32
ISSUE/S:
which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discrimatory within the meaning of the Constitution. DISPOSITION: We are of the opinion that the trial court committed no error and the judgment is affirmed with costs against the plaintiff-appellants. VOTE: Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur. NOTES: One attack on the constitutionality of the ordinance was that the Municipal Board of Manila had no power to enact an ordinance that taxed private stables for race horses. ANSWER-(But only if TTWNL-the teacher who needs love asks) Not having been raised in the pleading, this question was properly ignored, not to say that even it had been raised it would not have been available as basis for a declaration of nullity of the ordinance. The clause of the ordinance taxing or licensing boarding stables for race horses does not prejudice the plaintiffs in any material way, and it is well settled that a person who is not adversely affected by a licensing ordinance may not attack its validity. Stated differently, he may not complain that a licensing ordinance is invalid as against a class other than that to which he belongs. -Kriszanne
NATURE: Appeal from decision of CFI of Manila PONENTE: Perfecto, J. FACTS: Twelve corporation engaged in motion picture business have initiated these proceeding through a complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila which was enacted by the municipalBoard of said city on April 25 1946 approved by the Mayor on April 27, 1946 and took effect on May 1, 1946 said ordinance reading as follows:
SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudeville companies, theatrical shows and boxing exhibitions, as provided for in the Revised Ordinance of the City of Manila, as amended, there shall be collected from the place of amusement which are specifically mentioned above the following fees on the price of every admission ticket sold by such enterprises XXX
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants, -versusVICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of the City of Manila, defendants-appellees. ( May 31, 1949 | GR No L-1104)
DOCTRINE: XXX The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. XXX TYPE OF TAX INVOLVED: Tax on Amusements; and Business Tax
SEC. 4. Any person violation any of the provision of this ordinance shall upon conviction thereof be punished by a fine of not more than P200 or by imprisonment for not more than six months or by both such fine and imprisonment in the discretion of the court. SEC. 5. This Ordinance shall take effect on the May 1, 1946. Plaintiffs Arguments Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that they are interested in the provision of section 1,2 and 4 of said ordinance which they impugn as null and void upon the following grounds: (a) For violation the Constitution more particular the provision regarding the uniformity and equality of taxation and thee equal protection of the laws; (b) because the Municipal Board of Manila exceeded and over-stepped the power granted it the Charter of the City of Manila; (c) because it contravenes violates and is inconsistent with, existing national legislation more particularly revenue and tax laws and (d) because it is unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to and violation our basic and recognizes principles of taxation and licensing laws. Defendants Arguments Defendants allege as affirmative defenses the following:
33
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES THEATRICAL SHOWS AND BOXING EXHIBITION AND PROVIDING FOR OTHER PURPOSES.
Defendants allege also that since May 1, 1946, when the ordinance in question took effect plaintiffs have been charging the theater-going public increased prices for admission to the cinematographs owned and operated to the graduated tax imposed by said ordinance and as a result while refusing to pay said tax but at the same time collecting an amount equal to said tax plaintiffs have taken undue advantage of said ordinance to realized more profits. ISSUE: (a) Is the power granted to the City of Manila by section 2444(m) of the Revised Administrative Code limited to the authority to impose a tax on business, with exclusion of the power to impose a tax on amusement? (b) Did Ordinance No. 2958 violate the principle of equality and uniformity of taxation enjoined by the Constitution? HELD: (a) NO, The tax therein authorized cannot be defined as tax on business and cannot be restricted within a smaller scope than what is authorized by the words used, to the extent of excluding what plaintiffs describe as tax on amusement. (b) NO, The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. REASONING: A. The distinction made by plaintiffs as to the power to tax on business and the power to tax on amusement has no ground under the provisions of section 2444(m) of the Revised Administrative Code. The tax therein authorized cannot be defined as tax on business
DISPOSITIVE: The judgment of the trial court is AFFIRMED with costs against appellants. -Poy SHELL v. MUNICIPAL TREASURER OF CORDOVA (February 24, 1954) DOCTRINE: The fact that there is no other person in the locality who exercises such a designation or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling designated as installation manager. NATURE: Appeal from judgment of CFI of Cebu PONENTE: Padilla, J. FACTS: Municipal Council of Cordova, Cebu adopted the following ordinances: o No. 10 series 1946: annual tax of P150 on occupation/ exercise of privilege of installation manager o No. 9 series 1947: annual tax of P40 for local deposits in drums of combustible and inflammable materials and annual tax of P200 for tin can factories o No. 11 series 1948: annual tax of P150 on tin can factories with maximum annual output capacity of 30,000 tin cans
34
(a) That the ordinance was passed by the Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee and regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix the license fee for and regulate the business of theatrical performances public exhibition circus and other performances and places of amusement; (b) that the graduated tax required by said ordinance being applied to all cinematographs, theaters, vaudeville companies theatricalshow and boxing exhibitions similarly situated and as a class without distinction or exception the same does not violate the prohibition against uniformity and equality of taxation; (c) that the graduated tax on admission tickets to theaters and other places of amusement imposed by the National Internal Revenue Code (Commonwealth Act No. 466) is collected by and for the purposes of the National Government, whereas, Ordinance No.2958 imposes and requires the collection of a similar tax by and for the purposes of the Government of the City of Manila, and there is no case of double taxation, (d) that said ordinance having been enacted under the express power of the Municipal Board to tax for revenue as distinguishedfrom its power to license for purely police purposes, the fact that the amount collected thereunder are higher than what are needed for police regulation and supervision does not render said ordinance unfair unjust capricious unreasonable and oppressive; (e) that consideration the nature of the business of the plaintiffs and the enormous volume of business they handle the graduated tax fixed by the ordinance is not unreasonable.
and cannot be restricted within a smaller scope than what is authorized by the words used, to the extent of excluding what plaintiffs describe as tax on amusement. The very fact that section 2444 (m) of the Revised Administrative Code includes theaters, cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public dancing halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical performances, public exhibition, circus and other performances and places of amusements, will show conclusively that the power to tax amusement is expressly included within the power granted by section 2444(m) of the Revised Administrative Code. B. The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance.
Shell, a foreign corporation filed suit for the refund of taxes paid by it on the ground that the ordinances imposing such taxes are ultra vires. They paid the said taxes under protest CFI: ordinances are valid; dismissed complaint
DOCTRINE: For a tariff classification to be reasonable, it must be shown that 1) it rests on substantial distinctions; 2) it is germane to the purpose of the law; 3) it is not limited to existing conditions only; and 4) it applies equally to all members of the same class. PONENTE: Sereno, J. FACTS: In November 2003, the Commissioner of Customs issued CMO 27-2003 under which wheat was classified according to the following: (1) importer or consignee; (2) country of origin; and (3) port of discharge. The regulation provided an exclusive list of corporations, ports of discharge, commodity descriptions and countries of origin. Depending on these factors, wheat would then be classified either as food grade with tariff at 3% or feed grade, at 7%. In December, Hypermix filed a Petition for Declaratory Relief the RTC of Las Pias City, contending that: o The memorandum was issued without following the mandate of the Revised Administrative Code on public participation, prior notice, and publication or registration with the UP Law Center. o The regulation summarily adjudged it to be a feed grade supplier without the benefit of prior assessment and examination; thus, despite having imported food grade wheat, it would be subjected to the 7% tariff upon the arrival of the shipment, forcing them to pay 133% more than was proper. o The equal protection clause of the Constitution was violated when the regulation treated non-flour millers differently from flour millers for no reason at all. o That the retroactive application of the regulation was confiscatory in nature. The Commissioner filed an MTD alleging that: o The RTC did not have jurisdiction over the subject matter of the case o An action for declaratory relief was improper o Memorandum was an internal administrative rule and not legislative in nature o The claims of respondent were speculative and premature RTC ruled in favor of Hypermix. Upon appeal by the Commissioner, CA affirmed RTC decision. Hence, this petition.
ISSUE: WON the ordinances are valid? HELD: Yes RATIO/RULING: Petitioner: Ordinance No 9 was adopted pursuant to Revised Admin Code Sec 2244 which only allows municipal councils, in exercise of regulative authority to charge a reasonable fee to those in business of storing combustible material in no case to exceed P10 per annum. Thus, annual tax of P40 and P200 are illegal. Court: The ordinance which imposes the taxes in question were adopted pursuant to CA 472 which authorizes municipal councils and district councils to impose municipal license taxes upon persons engaged in any occupation/ business/ exercising privileges in the municipality by requiring them to secure licenses at rates fixed by the municipal council, which shall be just and uniform but not percentage taxes on specified articles Petitioner: For Ordinance No 10, installation manager is a designation made by plaintiff and such designation cannot be deemed a calling as defined in Sec 178 of the NIRC (CA 466); the installation manager they employ is a salaried employee which the municipal corporation cannot tax under CA 472. Court: Without merit. Even if the installation manager is a salaried employee of plaintiff, it is still an occupation and one occupation or line of business cannot become exempt by being conducted with some other occupation or business for which such tax has been paid and the occupation tax must be paid by each individual engaged in a calling subject thereto. Petitioner: Ordinance 10 is discriminatory and hostile because there is no other person in the locality who exercises such designation or occupation Court: Without merit. The fact that there is no other person in the locality who exercises such a designation or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling designated as installation manager. DISPOSITION: Judgment affirmed VOTE: Paras, CJ, Pablo, Bengzon, Montemayor, Reyes, Jugo, Bautista Angelo, Labrador, Concepcion and Diokno, concur. -Steph COMMISSIONER OF CUSTOMS and the DISTRICT COLLECTOR OF SUBIC v. HYPERMIX FEEDS CORPORATION (February 1, 2012) TAX INVOLVED: Tariff on wheat imports
ISSUES/HELD: 1. WON a Petition for Declaratory Relief was proper YES 2. WON respondents right to Due Process vas violated YES 3. WON CMO 27-2003 violated the Equal Protection clause with the classification it provided YES 4. WON the Commissioner went beyond his powers of delegated authority YES RATIO/RULING: 1. It is clear that a petition for declaratory relief is the right remedy given the circumstances of the case. There must be a justiciable Subject of the controversy is the
35
controversy Controversy must be between persons whose interests are adverse
constitutionality of CMO 27-2003 Petitioners are summarily imposing a tariff rate that respondent is refusing to pay Respondent made shipments of wheat from China to Subic set to arrive in December 2003. It alleged that it would be made to pay the 7% tariff applied to feed grade wheat, instead of the 3% tariff on food grade wheat. Litigation is inevitable for the simple and uncontroverted reason that respondent is not included in the enumeration of flour millers classified as food grade wheat importers. 4.
burdened to prove the classification of their wheat imports; while in the second, the state carries that burden. Petitioner Commissioner of Customs also went beyond his powers when the regulation limited the customs officers duties mandated by Section 1403 of the Tariff and Customs Law, as amended. The provision mandates that the customs officer must first assess and determine the classification of the imported article before tariff may be imposed. Unfortunately, CMO 23-2007 has already classified the article even before the customs officer had the chance to examine it. In effect, petitioner Commissioner of Customs diminished the powers granted by the Tariff and Customs Code with regard to wheat importation when it no longer required the customs officers prior examination and assessment of the proper classification of the wheat.
Party seeking declaratory relief must have a legal interest in the controversy
DISPOSITION: Petition denied. VOTE: Carpio, Brion, Perez and Reyes, JJ., concur. (SECOND DIVISION) -Nem Casanovas v Hord (March 22, 1907) Doctrine: Citing Powers v The Detroit, Grand Haven and Milwaukee Railway: Legislature of a State may, in the absence of special restrictions in its constitution, make a valid contract with a corporation in respect to taxation, and that such contract can be enforced against the State at the instance of the corporation. Nature: Appeal from decision of the CFI Ponente: Willard 1. 2. In 1897, the Spanish Government, in accordance with the provisions of the royal decree of the 14th of May, 1867, granted to Casanovas certain mines in the said Province of Ambos Camarines, of which he is now the owner. The Collector of Internal Revenue (CIR) imposed tax on Casanovas property, claiming that Casanovas ownership of the mines consituted a mining concession Section 134 of Act No. 1189 (Internal Revenue Act or IRA) imposed taxes on all valid perfected mining concessions granted prior to April 11, 1899. Casanovas, paying under protest, contested such imposition.
Issue involved must be ripe for judicial determination
2.
Considering that the questioned regulation would affect the substantive rights of respondent, it therefore follows that petitioners should have applied the pertinent provisions of Book VII, Chapter 2 of the Revised Administrative Code, on filing (Sec. 3) and public participation (Sec. 9). Since petitioners failed to follow the requirements enumerated by the said Code, the assailed regulation must be struck down. For a classification to be reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all members of the same class Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of wheat is affected by who imports it, where it is discharged, or which country it came from. Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food grade wheat, the product would still be declared as feed grade wheat, a classification subjecting them to 7% tariff. On the other hand, even if the importers listed under CMO 27-2003 have imported feed grade wheat, they would only be made to pay 3% tariff, thus depriving the state of the taxes due. The regulation, therefore, does not become disadvantageous to respondent only, but even to the state. It is also not clear how the regulation intends to "monitor more closely wheat importations and thus prevent their misclassification." A careful study of CMO 27-2003 shows that it not only fails to achieve this end, but results in the opposite. The application of the regulation forecloses the possibility that other corporations that are excluded from the list import food grade wheat; at the same time, it creates an assumption that those who meet the criteria do not import feed grade wheat. In the first case, importers are unnecessarily
3.
3.
WON Section 134 of IRA is void? HELD: YES 1. Casanovas claims that it is void because it comes within the provision of section 5 of the act of Congress of July 1, 1902, which provides "that no law impairing the obligation of contracts shall be enacted." a. The royal decree of the 14th of May, 1867, provided, among other things, as follows: i. ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the first paragraph of article 13 (sixty thousand square meters) there shall be paid annually a
36
2.
3.
fixed tax of forty escudos (about P20.00). The pertenencia referred to in the second paragraph of the same article, though of greater area than the others (one hundred and fifty thousand square meters), shall pay only twenty escudos (about P10.00). ii. ART. 78. Pertenencia of iron mines and mines of combustible minerals shall be exempt from the annual tax for a period of thirty years from the date of publication of this decree. iii. ART. 80. A further tax of three per centum on the gross earnings shall be paid without deduction of costs of any kind whatsoever. All substances enumerated in section one shall be exempt from said tax of three per centum for a period of thirty years. iv. ART. 81. No other taxes than those herein mentioned shall be imposed upon mining and metallurgical industries. COURT: Deed constituted a contract between the Spanish Government and the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the IRA, thereby infringing the non-impairment provisions from section 5 of the act of Congress of July 1, 1902. Court enumerated several US cases a. McGee vs. Mathis i. State of Arkansas, by an act of the legislature of 1851, provided for the sale of certain swamp lands granted to it by the United States ii. It exempted all said swamp lands from taxation for 10 years or until they were reclaimed. iii. In 1855, tax exemption was repealed. iv. McGee, before appeal, had become the owner by transfer from contractors of a large amount of scrip issued under the Act of 1851, and with this scrip, after the repeal, took up and paid for many sections and parts of sections of the granted lands. Taxes were levied by the State on the lands so taken up by McGee. v. The Supreme Court held that these taxes could not be collected because the Act of 1851 authorizing the issue of land scrip constituted a contract between the State and the holders of the land scrip issued under the act. b. Home of the Friendless vs. Rouse i. Legislature of Missouri, in incorporating Home of the Friendless, exempted all its property from taxation ii. The court held that the State had no power afterwards to pass laws providing for the levying of taxes upon this institution. 1. The validity of this contract is questioned at the bar on the ground that the legislature had no authority to grant away the power of taxation. The answer to this position is, that the question is no longer open for argument here, for it is settled by the repeated adjudications of this court, that a State may be contract based on a consideration exempt the property of an individual or corporation from
4.
5. 6. 7.
taxation, either for a specified period or permanently. And it is equally well settled that the exemption is presumed to be on sufficient consideration, and binds the State if the charter containing it is accepted. c. The Asylum vs. The City of New Orleans i. St. Ariva's Asylum was incorporated by an act of the legislature of Louisiana. It was exempted from taxation ii. It was held that the State had no power by subsequent legislation to impose taxes upon the property of this institution. d. Powers vs. The Detroit, Grand Haven and Milwaukee Railway i. Legislature of Michigan, in incorporating the railway company, provided that it pay an annual tax of 1% on its capital stock in lieu of all other taxation. ii. COURT: It has often been decided by this court that the legislature of a State may, in the absence of special restrictions in its constitution, make a valid contract with a corporation in respect to taxation, and that such contract can be enforced against the State at the instance of the corporation. In the case at bar, there is found not only the provisions for the payment of certain taxes annually, but there is also found the provision contained in article 81 which expressly declares that no other taxes shall be imposed upon these mines. The fact that this concession was made by the Government of Spain, and not by the Government of the United States, is not important. The concessions granted by the Government of Spain Casanovas, constitute contracts between the parties; that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is therefore void as to them. Section 134 of IRA is also void because it is conflict with section 60 of the act of Congress of July 1, 1902 a. This section seems to indicate that concessions can be canceled only by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisite for their retention in the laws under which they were granted. b. There is nothing in the section which indicates that they can be canceled for failure to comply with the conditions prescribed by subsequent legislation. c. There is no claim in this case that there was any illegality in the procedure by which these concessions were obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed in the said royal decree of 1867.
Dispositive: Judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and against the defendant for P9,600, with interest thereon, at 6 per cent, from the 21st day of February, 1906, and the costs of the Court of First Instance. -Zoilo
37
AMERICAN BIBLE SOCIETY vs. CITY OF MANILA Felix, J.: American Bible Soicety is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the In the course of its ministry, plaintiffs Philippine agency has been distributing and selling bibles and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines and translating the same into several Philippine dialects. Acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business of general merchandise since November, 1945, without providing itself with the necessary Mayors permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 . Plaintiff protested, but the City Treasurer demanded that plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same. To avoid the closing of its business as well as further fines and penalties plaintiff paid under protest the said permit accompanied with a suit. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the City be ordered to refund to the plaintiff the sum of P5,891.45 paid under protest, together with legal interest . City in its answer: ordinances were enacted by the Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila Before trial the parties submitted the following stipulation of facts: Plaintiff: proved, among other things, that it has been in existence in the Philippines since 1899, and that its parent society is in New York, United States of America; that its, contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that it was never required to pay any municipal license fee or tax before the war, nor does the American Bible Society in the United States pay any license fee or sales tax for the sale of bible therein. Plaintiff further tried to establish that it never made any profit from the sale of its bibles, which are disposed of for as low as one third of the cost, and that in order to maintain its operating cost it obtains substantial remittances from its New York office and voluntary contributions and gifts from certain churches, both in the United States and in the Philippines, which are interested in its missionary work. City: presented witness that the plaintiff indeed acquired profits Lower Court found for American Bible Society. Assailed ordinances unconstitutional
ISSUES (1) whether or not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar (therefore plaintiffs acts are taxable) Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that: (7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political rights. Section 1 of Ordinance No. 3000 reads as follows: SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or engage in any of the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other businesses, trades, or occupations for which a permit is required for the proper supervision and enforcement of existing laws and ordinances governing the sanitation, security, and welfare of the public and the health of the employees engaged in the business specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER. The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3 of the Ordinance, and the record does not show that a permit is required therefor under existing laws and ordinances for the proper supervision and enforcement of their provisions governing the sanitation, security and welfare of the public and the health of the employees engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which reads as follows: 79. All mentioned City is other businesses, trades or in this Ordinance, except those not empowered to license or occupations not upon which the to tax P5.00
Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or occupation. It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in the business or occupation of selling said merchandise for profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession and
38
worship
as
well
as
its
rights
of
dissemination
of
religious
beliefs.
. But as Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of plaintiff Society involved herein for, as stated before, it would impair plaintiffs right to the free exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff. Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it.
NB: the tax imposed is a flat tax (quoting in toto the permanent analysis) Those who can tax the privilege of engaging in this form of missionary evangelism can close all its doors to all those who do not have a full purse. Spreading religious beliefs in this ancient and honorable manner would thus be denied the needy. . . . It is contended however that the fact that the license tax can suppress or control this activity is unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose a license tax on the exercise of these freedom is indeed as potent as the power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax. -Justin
Tolentino v. Sec. of Finance, ibid. - Miggy
39
Without
pronouncement
as
to
costs.
It
is
so
ordered.

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MACEDA V MACARAIG (June 8, 1993) Facts: On November 3, 1936, Commonwealth Act No.

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BPI v. CIR (July 27, 2006)

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Issues: Held: Ratio:

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controversy Controversy must be between persons whose interests are adverse

Issue involved must be ripe for judicial determination

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Tolentino v. Sec. of Finance, ibid. - Miggy

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