TAXATION

1. SECRETARY OF FINANCE VS. ORO

Facts:

SECRETARY OF FINANCE v ORO MAURA SHIPPING LINES Brion; June 15, 2009 Topic: Tariff
and Customs Quick Facts Glory Shipping Lines owed the Collector of the Port of Mactan
P1,296,710.00 for the importation of M/V HARUNA. Without notifying the Collector of the
Port of Mactan, Glory sold the M/V HARUNA to Oro Maura Shipping Lines. Oro Maura
through Kariton inquired with the DOF if it could pay the duties and taxes due on the vessel.
The DOF referred Karitons letter which ended up with the Collector of Customs of the Port
of Manila which accepted the declared value of the vessel at P1,100,000.00 and assessed
duties and taxes amounting to P149,989.00, which Oro Maura duly paid in 1995. Upon
learning of the sale, the Collector of the Port of Mactan ordered the forfeiture of the vessel in
favor of the Government. DOF ordered a reassessment of the dutiable value of the vessel
based on the original entered value, without allowance for depreciation.The CA ruled that the
earlier assessment made by the Collector of the Port of Manila had already become final and
conclusive on all parties, pursuant to Sections 1407 and 1603 of the TCCP. Doctrine/tax:
Section 1603. Finality of Liquidation. When articles have been entered and passed free of
duty or final adjustments of duties made, with subsequent delivery, such entry and passage
free of duty or settlements of duties will, after the expiration of one (1) year, from the date of
the final payment of duties, in the absence of fraud or protest or compliance audit pursuant to
the provisions of this Code, be final and conclusive upon all parties, unless the liquidation of
the import entry was merely tentative. Section 2503. Undervaluation, Misclassification and
Misdeclaration of Entry. Xxx That an undervaluation, misdeclaration in weight,
measurement or quantity of more than thirty percent (30%) between the value, weight,
measurement, or quantity declared in the entry, and the actual value, weight, quantity, or
measurement shall constitute a prima facie evidence of fraud penalized under Section 2530 of
this Code. Facts: In 1992, the Maritime Industry Authority (MARINA) authorized the
importation of M/V HARUNA; under a Bareboat Charter, for a period of 5 years from its
actual delivery to the charterer. The original parties to the bareboat charter agreement were
Haruna Maritime S.A and Glory Shipping Lines (Glory), the charterer. The Department of
Finance (DOF), allowed the temporary registration of the M/V HARUNA and its tax and
duty-free release to Glory. The Bureau of Customs (BOC) also required Glory to post a bond in
the amount equal to 150% of the duties, taxes and other charges due on the importation,
conditioned on the re-exportation of the vessel upon termination of the charter period, but in
no case to extend beyond the year 1999. Glory posted Ordinary Re-Export Bond for
P1,952,000.00, conditioned on the re-export of the vessel within a period of one 1 year or, in
case of default, to pay customs duty, tax and other charges on the importation of the vessel in
the amount of P1,296,710.00. M/V HARUNA arrived at the Port of Mactan with a dutiable
value of P6,171,092.00 and estimated customs duty of P1,296,710.00. When Glorys
re-export bond expired, Glory sent a Letter of Guarantee to the Collector guaranteeing to
renew the Re-Export Bond on vessel M/V HARUNA otherwise, it would pay the duties and
taxes on said vessel. Glory Shipping Lines never complied with its Letter of Guarantee; neither
did it pay the duties and taxes and other charges due on the vessel (P1,952,000.00) despite
repeated demands made by the Collector of the Port of Mactan. Without informing or
notifying the Collector of the Port of Mactan, Haruna Maritime S.A. and Glory Shipping Lines
sold the M/V HARUNA to Oro Maura Shipping Lines. Kariton and Company (Kariton),
representing Oro Maura, inquired with the DOF if it could pay the duties and taxes due on the
vessel. The DOF referred Karitons letter which ended up with the Collector of Customs of
the Port of Manila which accepted the declared value of the vessel at P1,100,000.00 and
assessed duties and taxes amounting to P149,989.00, which Oro Maura duly paid in 1995. In
1997, after discovery of the sale, the Collector of the Port of Mactan sent Oro Maura a
demand letter for the unpaid customs duties and charges of Glory Shipping Lines. It later
ordered the forfeiture of the vessel in favor of the Government, after finding that both Glory
Shipping Lines and the respondent acted fraudulently in the transaction. The Collector of the
Port of Mactan found that the respondent defrauded the BOC of the proper customs duty, but
the District Collector of Cebu held otherwise on appeal and absolved the respondent from
any participation in the fraud committed by Glory Shipping Lines. These factual findings and
conclusion were affirmed by the Commissioner of Customs, by the CTA and, ultimately, by the
CA. Although in agreement with the conclusion, DOF, however, ordered a reassessment of the
dutiable value of the vessel based on the original entered value, without allowance for
depreciation. The CA ruled that the earlier assessment made by the Collector of the Port of
Manila had already become final and conclusive on all parties, pursuant to Sections 1407 and
1603 of the TCCP. Hence to SC: DOF arguments: 1. The Commissioner and the Secretary may
at any time direct the re assessment of dutiable articles and order the collection of deficiency
duties. Even assuming that Sections 1407 and 1603 of the TCCP apply to the present case, the
one-year limitation does not run where the article was misdeclared or undervalued, until a
deficiency assessment has been issued and settled in full. 2. Oro Maura being a direct and
actual party to the importation, should have ensured that the imported article was properly
declared and assessed the correct duties. Oro Mauras arguments: 1. The appraisal of the
Collector can only be altered or modified within a year from payment of duties, per Sections
1407 and 1603 of the TCCP; it is only when there is fraud or protest or when the import entry
was merely tentative that settlement of duties will not attain finality. 2. Allegation that there
was misdeclaration or undervaluation of the vessel is not supported by the evidence.

ISSUE:

WON the Secretary of Finance can order a re-assessment of the vessel M/V HARUNA.

HELD:

Yes Ratio: A closer scrutiny of the surrounding circumstances of the case and the
respondents actions reveal the existence of fraud. Our finding of fraud leads us to conclude
that the assessment of the Collector of the Port of Manila cannot become final and conclusive
pursuant to Section 1603 of the TCCP, which states: Section 1603. Finality of Liquidation.
When articles have been entered and passed free of duty or final adjustments of duties made,
with subsequent delivery, such entry and passage free of duty or settlements of duties will,
after the expiration of one (1) year, from the date of the final payment of duties, in the
absence of fraud or protest or compliance audit pursuant to the provisions of this Code, be
final and conclusive upon all parties, unless the liquidation of the import entry was merely
tentative. An undisputed given in the facts of the case is the valuation of P6,171,092.00 that
Glory Shipping Lines gave when the vessel first entered the country. When Oro Maura made
its request with the MARINA for authorization to import the same vessel after a span of only
19 months, the respondent proposed an acquisition cost of only P1,100,000.00. Consistent
with this proposal, the respondent, through Kariton, gave the vessel the same declared value
in its own Import Entry filed with the Collector of the Port of Manila. Thus, in a little over a year
and a half, the declared value of the vessel decreased by P5,000,000.00, or an astonishing 80%
of its original price. We find this drop in value within a short period of 19 months to be too
fantastic to be accepted without question, even allowing for depreciation. Equally fantastic is
the change in the customs duties, taxes and other charges due which fell from P1,296,710.00
in March 1993 to P149,989.00 in January 1995, all because of the sale, the new application by
the vendee, and the change in the Port where the assessment and collection were made. The
drop alone from the undisputed original entry valuation of P6,171,092.00 to the
respondents new valuation of P1,100,000.00 (or a decrease of 80% from the original
valuation) is already a prima facie evidence of fraud that the rulings below did not properly
appreciate simply because they disregarded the records of the original entry of the vessel
through the Port of Mactan. Section 2503 of the TCCP provides in this regard that: Section
2503. Undervaluation, Misclassification and Misdeclaration of Entry. Xxx That an
undervaluation, misdeclaration in weight, measurement or quantity of more than thirty
percent (30%) between the value, weight, measurement, or quantity declared in the entry, and
the actual value, weight, quantity, or measurement shall constitute a prima facie evidence of
fraud penalized under Section 2530 of this Code. The 80% drop in valuation existing in this
case renders the consideration and application of Section 2503 unavoidable. Significantly, Oro
Maura never explained the considerable disparity between the dutiable value declared by
Glory Shipping Lines and the dutiable value it declared difference of P5,000,000.00 so as
to overturn or contradict this prima facie finding of fraud. The respondent, being in the
shipping business, should have known the standard prices of vessels and that the value it
proposed to MARINA, is extraordinarily low compared to the vessels originally declared
valuation. Oro Mauras Complicity Oro Maura fully participated in moves to defraud the
BOC. With the knowledge that the vessel was released under a reexport bond, the respondent
should have known that this original entry was subject to specific conditions, among them,
the obligation to guarantee the re-export of the vessel within a given period, or otherwise to
pay the customs duties on the vessel. It should have known, too, of the conditions of the
vessels release under the re-export bond and of the state of Glory Shipping Lines status of
compliance. There was an original but incomplete importation by Glory Shipping Lines that
the respondent could not have simply disregarded proceeds from knowledge of the vessels
history and the application of the relevant law. In this respect, Section 1202 of the TCCP
provides: Importation begins when the carrying vessel or aircraft enters the jurisdiction of the
Philippines with intention to unlade therein. Importation is deemed terminated upon
payment of the duties, taxes and other charges due upon the articles, or secured to be paid, at
a port of entry and the legal permit for withdrawal shall have been granted, or in case said
articles are free of duties, taxes and other charges, until they have legally left the jurisdiction
of the customs. Nature of a tax lien Section 1204. Liability of Importer for Duties. Unless
relieved by laws or regulations, the liability for duties, taxes, fees and other charges attaching
on importation constitutes a personal debt due from the importer to the government which
can be discharged only by payment in full of all duties, taxes, fees and other charges legally
accruing. It also constitutes a lien upon the articles imported which may be enforced while
such articles are in custody or subject to the control of the government. Consequently, when
the respondent bought the vessel from Glory Shipping Lines on December 2, 1994, the
obligation to pay the BOC P1,296,710.00 as customs duties had already attached to the vessel
and the non-renewal of the re-export bond made this liability due and demandable. The
subsequent transfer of ownership of the vessel from Glory Shipping Lines to the respondent
did not extinguish this liability. We find in favor of DOF and uphold his order for the
re-assessment of the value of the vessel based on the entered value, which in this case should
follow the unpaid assessment made by the Collector of Customs of the Port of Mactan.

2. COMPANIA GENERAL DE TABACOS DE FILIPINAS Vs. CITY OF MANILA

Case Digest: Compania General de Tabacos de Filipinas and La Flor de la Isabela, Inc. vs. Hon. Virgilio A.
Sevandal, et al.

Petitioners Claims:

Petitioners claimed in its Letter-Complaint to the SEC that Tabaqueria, owned by its former General
Manager, Gabriel Ripoll, cannot be allowed to continue said name because it will confuse and deceive
the public into believing that Tabaqueria is operated and managed by, and part of Tabacalera. Compania
General, being a Spain-based company, operated under La Flor de la Isabela in the Philippines.
Petitioners filed with the DOJ and the DTI a Complaint for Infringement and Unfair Competition.
Petitioners alleged that Tabaqueria deliberately sought to adopt the Tabacalera trademarks to confuse
the public that the Tabaqueria cigars are the same or are somehow connected with the Tabacalera
products. As such, the Petitioners filed for a Motion to grant Cease and Desist Order in order to enjoin
Tabaqueria from further producing cigars.

Respondents Claims:

Ripoll, now the Directing Manager of Tabaqueria, alleged that there is insufficient evidence to issue a
Cease and Desist Order against him on the ground of unfair competition and infringement of trademark.
Moreover, they moved to dismiss the case on the ground of forum shopping. Further, the Office of
Legal Affairs of the DTI ruled that there was no similarity in the general appearance of the products of
the parties and consumers would not be misled. DTI further found that the competing products, in
their totality, are easily distinguishable through their brand and logos. TABACALERA is the brand of the
Tabacalera products, while FLOR DE MANILA is the brand of the Petitioners. In fact, per Certification
of BIR in 1994, Flor de Manila is the brand registered by the latter with said bureau. As per
inspection, none of their boxes even show the word TABAQUERIA.

Issue:

Whether or not there is substantial similarity between the two parties as to amount to unfair
competition and trademark infringement, and are therefore entitled to a writ of preliminary injunction.

Ruling:

No. The Supreme Court upheld the decision of the Court of Appeals and the DTI. Injunctive relief
may only be issued when the right of the complainant is clear and unmistakable; when the invasion of
the right sought to be protected is material and substantial; and there is an urgent and paramount
necessity for the writ to prevent serious damage. The Court found that there is no urgent and
paramount necessity for the writ. The Petitioners has not shown, at least tentatively, that there exists
a fraudulent and malicious entry into the market and as a result thereby, their sales dropped by 25%.
3. PHILIPPINE AIRLINES INC. Vs. EDU

PHILIPPINE AIRLINES, INC. v. EDU

PHILIPPINE AIRLINES, INC. v. EDU

G.R. No. L- 41383, August 15, 1988

FACTS:

The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a
legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.

Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a
regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation
and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration
fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor
vehicles. After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Land
Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied
the request for refund. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo
Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified
the case to the Supreme Court.

ISSUE:

Whether or not motor vehicle registration fees are considered as taxes.

RULING:

Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees.
The motor vehicle registration fees are actually taxes intended for additional revenues of the
government even if one fifth or less of the amount collected is set aside for the operating expenses of
the agency administering the program.
4. ANGELES UNIVERSITY FOUNDATION Vs. CITY OF ANGELES

FIRST DIVISION, G.R. No. 189999, June 27, 2012, ANGELES UNIVERSITY
FOUNDATION, PETITIONER, VS. CITY OF ANGELES, JULIET G. QUINSAAT, IN HER
CAPACITY AS TREASURER OF ANGELES CITY AND ENGR. DONATO N. DIZON, IN
HIS CAPACITY AS ACTING ANGELES CITY BUILDING OFFICIAL, RESPONDENTS.

FACTS:

Angeles University Foundation, is an educational institution converted into a non-stock,

non-profit education foundation under the provisions of Republic Act 6055. In August,
2005, AUF filed with the Office of the Building Official an application for the construction of
an 11-story building in its main campus located at the Angeles City, Pampanga. Said
office then issued a Building Permit Fee Assessment; an Order of Payment was also
issued by the City Planning and Development Office requiring AUF to pay Locational
Clearance Fee. By letters, AUF claimed that it is exempt from the payment of building
permit fees and locational clearance fees citing several opinions of the Department of
Justice; it also reminded the officials that previously they had been exempt from the
payment of building fees. The City Treasurer then referred the matter to the Bureau of
Local Government Finance which also referred the matter to the Secretary of Justice. The
latter affirmed the position of the AUF. Despite the favourable ruling, however, the
Building Official still refused to issue them a building permit, hence they were forced to
pay under protest the amount demanded by the building official. Only after payments
under protest were made that AUF was granted building permits and locational
clearance.

Because of this, AUF filed a complaint with the RTC for refund of the amount paid by it, as
well as damages and attorneys fees. In their answer, the city officials averred that AUFs
claim cannot be granted because its structures were not among those expected from the
payment of building permit fees under the provision of Section 209 of the National
Building Code. RA 6055 should be considered repealed by provision of Sec. 2104 of the
National Building Code. Building permits are regulatory in nature and not taxes which will
exempt AUF from payment thereof. AUF on the other hand countered that the fees are
being collected on the basis of the Local Government Code provision on Local Taxation;
further, fees may be taxes depending on the purpose of collection; The Local
Government Code expressly retained the exemption of non-stock, non-profit educational
foundations from taxation, hence the fees are not imposable on them.

The Regional Trial Court ruled in favour of AUF, holding that it is exempt from the
payment of building fees, and ordered the city to refund AUFs payments;

On appeal to the Court of Appeals by the city, the CA reversed the RTC decision. It held
that while AUF is tax free, it is not exempt from the payment of regulatory fees. Building
permits are not included in the definition of charges mentioned in Sec. 8 of RA 6055
which which refers to impositions in the nature of tax, import duties, assessments and
other collections for revenue purposes, following the ejusdem generisr ule. The CA
further stated that petitioner has not shown that the fees collected were excessive and
more than the cost of surveillance, inspection and regulation. And while petitioner may be
exempt from the payment of real property tax, petitioner in this case merely alleged that
the subject property is to be used actually, directly and exclusively for educational
purposes, declaring merely that such premises is intended to house the sports and other
facilities of the university but by reason of the occupancy of informal settlers on the area,
it cannot yet utilize the same for its intended use. Thus, the CA concluded that petitioner
is not entitled to the refund of building permit and related fees, as well as real property tax
it paid under protest.

AUF thus petition for review on certiorari under Rule 45 to reverse the ruling of the Court
of Appeals.

On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting the
National Building Code of the Philippines. The said Code requires every person, firm or
corporation, including any agency or instrumentality of the government to obtain a
building permit for any construction, alteration or repair of any building or
structure.[19]Building permit refers to a document issued by the Building Official x x x to
an owner/applicant to proceed with the construction, installation, addition, alteration,
renovation, conversion, repair, moving, demolition or other work activity of a specific
project/building/structure or portions thereof after the accompanying principal plans,
specifications and other pertinent documents with the duly notarized application are
found satisfactory and substantially conforming with the National Building Code of the
Philippines x x x and its Implementing Rules and Regulations (IRR). Building permit fees
refers to the basic permit fee and other charges imposed under the National Building
Code.

Exempted from the payment of building permit fees are: (1) public buildings and (2)
traditional indigenous family dwellings. Not being expressly included in the enumeration
of structures to which the building permit fees do not apply, petitioners claim for
exemption rests solely on its interpretation of the term other charges imposed by the
National Government in the tax exemption clause of R.A. No. 6055.

A charge is broadly defined as the price of, or rate for, something, while the word fee
pertains to a charge fixed by law for services of public officers or for use of a privilege
under control of government. As used in the Local Government Code of 1991 (R.A. No.
7160), charges refers to pecuniary liability, as rents or fees against persons or property,
while fee means a charge fixed by law or ordinance for the regulation or inspection of a
business or activity.

That charges in its ordinary meaning appears to be a general term which could cover a
specific fee does not support petitioners position that building permit fees are among
those other charges from which it was expressly exempted. Note that the other
charges mentioned in Sec. 8 of R.A. No. 6055 is qualified by the words imposed by the
Government on all x x x property used exclusively for the educational activities of the
foundation. Building permit fees are not impositions on property but on the activity
subject of government regulation. While it may be argued that the fees relate to particular
properties, i.e., buildings and structures, they are actually imposed on certain activities
the owner may conduct either to build such structures or to repair, alter, renovate or
demolish the same. This is evident from the following provisions of the National Building
Code:

Section 102. Declaration of Policy

It is hereby declared to be the policy of the State to safeguard life, health, property, and
public welfare, consistent with theprinciples of sound environmental management and
control; and tothis end, make it the purpose of this Code to provide for allbuildings and
structures, a framework of minimum standards and requirements to regulate and control
their location, site, design quality of materials, construction, use, occupancy, and
maintenance.

Section 103. Scope and Application

(a) The provisions of this Code shall apply to the design,location, sitting, construction,
alteration, repair, conversion, use, occupancy, maintenance, moving, demolitionof, and
addition to public and private buildings andstructures, except traditional indigenous family
dwellingsas defined herein.

xxxx

Section 301. Building Permits

No person, firm or corporation, including any agency or instrumentality of the government

shall erect, construct, alter, repair, move, convert or demolish any building or structure or
cause the same to be done without first obtaining a building permit therefor from the
Building Official assigned in the place where the subject building is located or the building
work is to be done. (Italics supplied.)
That a building permit fee is a regulatory imposition is highlighted by the fact that in
processing an application for a building permit, the Building Official shall see to it that the
applicant satisfies and conforms with approved standard requirements on zoning and
land use, lines and grades, structural design, sanitary and sewerage, environmental
health, electrical and mechanical safety as well as with other rules and regulations
implementing the National Building Code.[ Thus, ancillary permits such as electrical
permit, sanitary permit and zoning clearance must also be secured and the
corresponding fees paid before a building permit may be issued. And as can be gleaned
from the implementing rules and regulations of the National Building Code, clearances
from various government authorities exercising and enforcing regulatory functions
affecting buildings/structures, like local government units, may be further required before
a building permit may be issued.

Since building permit fees are not charges on property, they are not impositions from
which petitioner is exempt.

As to petitioners argument that the building permit fees collected by respondents are in
reality taxes because the primary purpose is to raise revenues for the local government
unit, the same does not hold water.

A charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police power.[26] In this
case, the Secretary of Public Works and Highways who is mandated to prescribe and fix
the amount of fees and other charges that the Building Official shall collect in connection
with the performance of regulatory functions,[27] has promulgated and issued the
Implementing Rules and Regulations[28] which provide for the bases of assessment of
such fees, as follows:

1. Character of occupancy or use of building

2. Cost of construction 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J)
3. Floor area
4. Height

Petitioner failed to demonstrate that the above bases of assessment were arbitrarily
determined or unrelated to the activity being regulated. Neither has petitioner adduced
evidence to show that the rates of building permit fees imposed and collected by the
respondents were unreasonable or in excess of the cost of regulation and inspection.

In Chevron Philippines, Inc. v. Bases Conversion Development Authority,[29] this Court

explained:

In distinguishing tax and regulation as a form of police power, the determining factor is the
purpose of the implemented measure. If the purpose is primarily to raise revenue, then it
will be deemed a tax even though the measure results in some form of regulation. On the
other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an
exercise of the police power of the state, even though incidentally, revenue is generated.
Thus, in Gerochi v. Department of Energy, the Court stated:

The conservative and pivotal distinction between these two (2) powers rests in the
purpose for which the charge is made. If generation of revenue is the primary purpose
and regulation is merely incidental, the imposition is a tax; but if regulation is the primary
purpose, the fact that revenue is incidentally raised does not make the imposition a
tax.[30] (Emphasis supplied.)

Concededly, in the case of building permit fees imposed by the National Government
under the National Building Code, revenue is incidentally generated for the benefit of local
government units. Thus:

Section 208. Fees

Every Building Official shall keep a permanent record and accurate account of all fees
and other charges fixed and authorized by the Secretary to be collected and received
under this Code.

Subject to existing budgetary, accounting and auditing rules and regulations, the Building
Official is hereby authorized to retain not more than twenty percent of his collection for the
operating expenses of his office.

The remaining eighty percent shall be deposited with the provincial, city or municipal
treasurer and shall accrue to the General Fund of the province, city or municipality
concerned.

Petitioners reliance on Sec. 193 of the Local Government Code of 1991 is likewise
misplaced. Said provision states:

SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Emphasis supplied.)

Considering that exemption from payment of regulatory fees was not among those
incentives granted to petitioner under R.A. No. 6055, there is no such incentive that is
retained under the Local Government Code of 1991. Consequently, no reversible error
was committed by the CA in ruling that petitioner is liable to pay the subject building
permit and related fees.
5. WELLS FARGO Vs. COLLECTOR OF INTERNAL REVENUE

Wells Fargo Banks & Union Trust Company vs Collector of Internal Revenue

Facts:

In September 1932, Birdie Lillian Eye died in Los Angeles, California, USA which was also her place of
domicile. She left various properties. Among those properties include some intangibles consisting of
70,000 shares in the Benguet Consolidated Mining Company, a corporation organized and existing under
Philippine laws.

The Collector of Internal Revenue sought to assess and collect estate tax on the said shares. Wells Fargo
Banks & Union Trust Company, the trustee of the estate of the decedent Eye, objected to said
assessment. Wells Fargo averred that said shares were already subjected to inheritance tax in California
and hence cannot be taxed again in the Philippines (note at that time the Philippines was still under the
Commonwealth and were not yet totally independent from the US).

ISSUE: Whether or not the shares are subject to estate tax in the Philippines.

HELD: Yes. The Supreme Court ruled that even though the Philippines was considered a US territory at
that time, it is still a separate jurisdiction from the US in several aspects particularly taxation. Hence, the
Philippines has the power to tax said shares. The situs of taxation is here in the Philippines because the
situs of the shares of stock concerned is here in the Philippines because of the fact that the said shares
were issued here by a corporation organized and existing under the laws of the Philippines which is also
domiciled here. Further, (and this is the deeper reason), when Eye was alive, she actually delivered the
title to said shares to the resident secretary of the corporation here in the Philippines hence the shares
never left the Philippines.

Note: As a rule, intangibles follow the person (mobilia sequuntur personam). Hence, intangibles are
taxable in the place where their owner may be domiciled. However, Section 104 of the NIRC provides
that if the shares have attained business situs here in the Philippines, then said shares are taxable here
even if the owner of said shares are domiciled abroad.
6. Meralco v Yatco

FACTS:
Meralco entered into an insurance contract with a new york based insurance company. Yatco, the
Commissioner of Internal Revenue, levied taxes on the premium paid. Meralco paid under protest
alleging that the Philippines had no jurisdiction.

ISSUE:
Whether the CIR exceeded his powers in taxing Meralcos paid premium.

RULING:
No. Where the risk insured against and certain incidents of the contract are to be attended in the
Philippines such as payment of dividends when received in cash, the Philippines may impose tax
regardless whether the contract is executed abroad. Under such circumstances, substantial
elements of the contract may be said to be so situated in the Philippines as to give its government
the power to tax. Even if it be assumed that the tax imposed upon the insured will ultimately be
passed on to the insurer, thus constituting an indirect tax upon the foreign corporation, by
stipulations of its contract, has subjected itself to the taxing jurisdiction of the Philippines.

After all, the Government of the Philippines, by protecting the properties insured, benefits the
foreign corporation. It is thus reasonable that the latter should pay a just contribution therefor.

7. Progressive Development Corporation vs. Quezon City

FACTS:
The City Council of Quezon City (QC) passed an ordinance known as the Market Code of
QC, which imposed a 5% supervision fee on gross receipts on rentals or lease of privately-owned
market spaces in QC. In case of failure of the owners of the market spaces to pay the tax for three
consecutive months, the City shall revoke the permit of the privately-owned market to operate.
Progressive Development Corp, owner and operator of Farmers Market, filed a petition
for prohibition against QC on the ground that the tax imposed by the Market Code was in reality a
tax on income, which the municipal corporation was prohibited by law to impose.

ISSUE: Whether or not the supervision fee is an income tax or a license fee.
RULING:
It is a license fee. A license fee is imposed in the exercise of the police power primarily
for purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of
raising revenues.

If the generating of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that incidentally, revenue is
also obtained does not make the imposition a tax.

To be considered a license fee, the imposition must relate to anoccupation or activity that
so engages the public interest in health,morals, safety, and development as to require regulation
for the protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into account not only the costs of
direct regulation but also its incidental consequences.

In this case, the Farmers Market is a privately-owned market established for the rendition
of service to the general public. It warrants close supervision and control by the City for the
protection of the health of the public by insuring the maintenance of sanitary conditions,
prevention of fraud upon the buying public, etc. Since the purpose of the ordinance is primarily
regulation and not revenue generation, the tax is a license fee. The use of the gross amount
of stall rentals as basis for determining the collectible amount of license tax does not, by itself,
convert the license tax into a prohibited tax on income. Such basis actually has a reasonable
relationship to the probable costs of regulation and supervision of Progressives kind of business,
since ordinarily, the higher the amount of rentals, the higher the volume of items sold.

The higher the volume of goods sold, the greater the extent and frequency of supervision
and inspection may be required in the interest of the buying public.
8. Tan vs. Del Rosario
FACTS:

Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation

scheme (SNIT) under Arts (26) and (28) and III (1). The SNIT contained changes in the tax
schedules and different treatment in the professionals which petitioners assail as unconstitutional
for being isolative of the equal protection clause in the constitution.

ISSUE:
Is the contention meritorious?

RULING:
No. uniformity of taxation, like the hindered concept of equal protection, merely require
that all subjects or objects of taxation similarly situated are to be treated alike both privileges and
liabilities. Uniformity, does not offend classification as long as it rest on substantial distinctions, it
is germane to the purpose of the law. It is not limited to existing only and must apply equally to all
members of the same class.

The legislative intent is to increasingly shift the income tax system towards the
scheduled approach in taxation of individual taxpayers and maintain the present global treatment
on taxable corporations. This classification is neither arbitrary nor inappropriate.

9. Punzalan vs Municipal Board of Manila

FACTS:
Municipal Board of Manila enacted Ordinance No. 3398 imposing municipal occupation
tax on persons exercising various professions in the city and penalizing non-payment of the same.
Punsalan, et al paid the same under protest and filed suit with the court. Petitioners contend that the
ordinance is unjust and oppressive and amounts to double taxation. The lower court upheld the
validity of the provision of law authorizing the enactment of the ordinance but declared the
ordinance itself illegal and void on the ground that the penalty there in provided for non-payment
of the tax was not legally authorized. Both parties appealed the courts decision.

ISSUE: Whether or not Ordinance No 3398 constitute double taxation?

RULING:
Decision reversed. The Legislature may select what occupations shall be taxed, and in the
exercise of that discretion it may tax all, or it may select for taxation certain classes and leave the
others untaxed. Manila offers a more lucrative field for the practice of the professions, so that it is
but fair that the professionals in Manila be made to pay a higher occupation tax than their brethren
in the provinces. The ordinance imposes the tax upon every person exercising or pursuing in
the City of Manila naturally any one of the occupations named, but does not say that such person
must have his office in Manila. The argument against double taxation may not be invoked where
one tax is imposed by the state and the other is imposed by the city

10. Gaston vs. Republic Planter Bank

FACTS:
On 2 February 1974, PD 388 was promulgated, which created the Philippine Sugar
Commission (PHILSUCOM) and provided for the collection of a Stabilization Fund, primarily,
from the production of sugar planters and millers. Sometime in 1978, as the Republic Planters
Bank (Bank) was undergoing difficulties, Mr. Roberto Benedicto, then Chairman of the
PHILSUCOM submitted a proposal to the Central Bank for the rehabilitation of the bank. The
Central Bank approved the proposal subject to the infusion of fresh capital by the Benedicto
Group.

The capital investment was made by PHILSUCOM which used money from the stabilization
fund to pay for its subscription in shares of stock of the Bank. The petitioners who are sugar
producers, sugarcane planters and millers brought this class suit praying for the issuance of a
Writ of Mandamus commanding the respondents, PHILSUCOM and its successor Sugar
Regulatory Administration (SRA), to transfer and distribute the shares of stock in the said bank,
which are held in the respondents name, to the sugar producers, planters, and millers, who are the
true beneficial owners thereof, because their contributions to the stabilization fund were used in
the purchase of said stocks.

PHILSUCOM and SRA oppose the petition arguing that there was no resulting trust from Sec.
7 of PD 388 and that the stabilization fees collected are considered government funds.

ISSUES: Are the stabilization fees public funds or funds in trust for the sugar planters and millers?

RULING:

There was no trust that was created by PD 388.

o While the element of an intent to create a trust is present, a resulting trust in favor of the
 sugar producers, millers and planters cannot be said to have ensued because the
presumptive intention of the parties is not reasonably ascertainable from the language of
the statute itself.
o There is no implied trusted that can be deduced either because it is not categorically
demonstrated that the PHILSUCOM imposed on itself the obligation of holding the
stabilization fund for the benefit of the sugar producers.
o The historical background also does not show that the investment of the proceeds form the
stabilization fund in subscriptions to the capital stock of the Bank were being made for and
on behalf of the petitioners.

The fact is that the stabilization fees collected are in the nature of a tax, which is within the
power of the State to impose for the promotion of the sugar industry; they constitute sugar liens.
However, the tax collected is not a pure exercise of the taxing power; it is levied with a regulatory
purpose (to provide means for the stabilization of the sugar industry) and is, primarily in the
exercise of the police power of the State. The fact that the State has taken possession of moneys
pursuant to law is sufficient to constitute them state funds, even though they are held for a special
purpose. Having been levied for a special purpose, the revenues collected are to be treated as a
special fund, to be administered in trust for the purpose intended; once the purpose has been
fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the
Government (Art. VI, Sec. 29 [3], Constitution).

The character of the Stabilization Fund as a special fund is emphasized by the fact that the
funds are deposited in the PNB and not in the Philippine Treasure, which means that there is no
need for an appropriation from Congress to be used.

Also, the fact that half of the amount levied is to be used to pay the officers and employees
of PHILSUCOM immediately negated the claim that the fund is held in trust for petitioners.

To grant the petition would contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of private persons because
the Stabilization fund is to be utilized for the benefit of the entire sugar industry.

11.Cojuangcovs Republic
FACTS: A complaint was filed against defendant Eduardo Cojuangco Jr., by the
Presidential Commission on Good Governance (PCGG) referred here as Republic of the
Phils. With regard to a block of San Miguel Corp (SMC) stock which were allegedly
bought through the CIIF Holding Companies and funded by the coconut levy fund. The
coconut levy funds were considered as government funds since this came from
contributions from the coconut farmers with the purpose of improving and stabilizing the
coconut farming industry, however these were said to be privatized under Presidential
Directives of then Pres. Marcos. Cojuangco Jr., being close with the Marcoses, is said to
have taken undue advantage of his association, influence and connection, embarked
upon different devices and schemes including the use of ACCRA Lawyers as nominee
shareholders and the defendant corporation as fronts to unjustly enrich themselves
when he misused the coconut levy fund. Hence, with the allegations mentioned, the block
of shares representing 20% of the outstanding capital stock of SMC remained
sequestered by the government. To resolve various pending motions and pleadings,
Sandiganbayan lifted and declared Writs of Sequestration null and void.

ISSUE: WON Sandiganbayan has committed grave abuse of discretion in lifting the Writ
of Sequestrations on the sequestered SMC shares

HELD:No.Among the Writ of Sequestration issued, only 1 writ WOS 87-0218 complied
with PCGG Rules and Regulations requirement that the issuance be made by at least 2
Commissioners, the records fail to show that it was issued with factual basis or with
factual foundation. It is the absence of prima facie basis for the issuance of Writ of
Sequestration and not the lack of authority of the 2 Commissioners which renders the said
writ void ab initio. Thus, being the case, Writ of Sequestration 87-0218 must be
automatically lifted for not having complied with the pertinent provisions of the PCGG
Rules and Regulations along with the other Writs of Sequestration; Nor did the
Sandiganbayan gravely abuse its discretion in reducing from 4 to only 2 of the conditions
imposed for the lifting of the WOS.

12.COCOFED vs Republic
FACTS: In 1971, RA 6260 was enacted creating the Coconut Investment Fund (CIF). The
Philippine Coconut Administration (PCA) was tasked to collect and administer the fund. During
Martial Law, then President Marcos issued several Presidential Decrees purportedly for the
improvement of the coconut industry. Most relevant among these is PD 755 which permitted the
use of the fund for the acquisition of a commercial bank for the benefit of the coconut farmers and
the distribution of the shares of the stock of the bank it acquired free to the coconut farmers. Thus,
PCA acquired First United Bank, later renamed the UCPB. The PCA bought the 72.2% of FUBs
outstanding capital stock at 200.00 per share from Pedro Cojuangco in behalf of the coconut
farmers.

The rest of the fund was deposited to the UCPB interest free. Farmers who had paid the CIF
and registered their receipts with PCA were given their corresponding UCPB stock certificates.
Only 16M worth of coco fund receipts were registered and a large number of the coconut farmers
opted to sell all/ part of their UCPB shares to private individuals.

After EDSA Revolution, President Aquino issued Executive Order which created the
Presidential Commission on Good Governance (PCGG) aimed to assist the President in the
recovery of the ill-gotten wealth accumulated by the Marcoses and their cronies. Among the
sequestered properties were the shares of stock in the UCPB registered in the name if over a
million coconut farmers held in trust by the PCA. The Sandiganbayan allowed the sequestration by
ruling in a partial summary judgment that the Coconut Levy Funds are prima facie public funds
and that Section 1 and 2 of PD 755 were unconstitutional. The COCOFED, representing over a
million coconut farmers sought the reversal of the ruling contending among others that the taking
of private property without just compensation and impairment of vested right of ownership.

ISSUE:

- WON the Sandiganbayan abused its power of judicial review?

- WON Sections 1 and 2 of PD 755 unconstitutional?

HELD:

- Yes, since the case cannot be solved unless the unconstitutionality issues is addressed.
The case is for the recovery of shares grounded on the invalidity of the enactments and
rooted in the nature of the shares being public.
- The levy implemented takes on the nature of taxes since they utilized the taxing power
and police power of the state, thereby making it a public fund. The funds were intended
for the exclusive benefit of private persons. PD 755 did not specify the means of
distributing the banks shares not claimed by beneficiaries and did not specifically
 define, coconut farmers. The PCA assumes authority to define who coconut
farmers are and decided that those who did claim shall also be given gift of bank
shares. The laws failed the completeness test in the sense that they failed to provide
guidelines for rules and regulations. The petition is therefore denied and the stocks are
now considered property of the Republic of the Philippines.

13. NAPOCOR vs Province of Isabela

FACTS: Petitioner National Power Corporation is a government owned and controlled

corporation engaged in the generation and sale of electric power. Respondent Povince of Isabela
alleged in the complaint that petitioners Magat River Hydro-Electric Power Plant is located
within the Province of Isabela and for this reason, it imposed a franchise tax on NAPOCOR
pursuant to Sec 137 of RA 7160. Petitioner for its part, asserts that it is a nonprofit corporation
pursuant to Section 13 of RA 6395, as such, it is not covered by the Local Government Code, and
therefore, not obliged to pay franchise tax. The imposition of the franchise tax on appellant would
run counter on Section 13 of its charter.

The Court of Appeals rendered a decision affirming RTSs decision, that the petitioner is not
exempt from paying the franchise tax. Petitioner through OSG, filed a petition for review with
Province of Isabela as respondent.

ISSUE: WON petitioner NAPOCOR is subject to franchise tax under the LGC?

HELD: The court held that the petition has no merit; that the petitioner is not exempt from paying
franchise tax. As a general rule, LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities however, this rule admits of an exception
such as, when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges
on the aforementioned entities. Section 137 of the LGC is one of those exceptions.In this case,
petitioner relies solely on the exemption granted to it by its charter, arguing that its exemption
from franchise tax remained despite the enactment of the LGC. Further, in enacting the LGC,
Congress empowered LGUs to impose certain taxes even on instrumentalities of the National
Government.

14.Lung Center of the Phils.vs Quezon City

FACTS: Petitioner, Lung Center of the Phils., is a nonstock, nonprofit entity established by virtue
of PD 1823. Petitioner seeks exemption from real property taxes when the City Assessor issued
Tax Declarations for the land and the hospital building. Petitioner predicted on its claim that it is a
charitable institution and as a charitable institution, is exempt from real property taxes under Sec
28(3) Art VI of the Constitution.

ISSUE: WON petitioner is a charitable institution and is exempt from real property taxes?

HELD:The Court held that the petitioner is indeed a charitable institution based on its charter and
articles of incorporation. As a general principle, a charitable institution does not lose its character
as such and its exemption from taxes simply because it derives income from paying patients,
whether outpatient or confined in the hospital, or receives subsidies from the government, so long
as the money received as devoted or used altogether to the charitable object which it is intended to
achieve, and no money inures to the private benefit of the persons managing or operating the
institution.

Despite this, the Court held that the portions of real property that are leased to private entities are
not exempt from real property taxes as those are not actually, directly and exclusively used for
charitable purposes.

15.PAGCOR VS BIR 645 SCRA 338

FACTS:Philippine Amusement and Gaming Corporation (PAGCOR), is a government owned
and controlled corporation (GOCC). In 1998, RA 8424 became effective which provides that
GOCCs are not exempt from paying income taxation but it exempted the following GOCCs:

GSIS PCSO

SSS PAGCOR

PHILHEALTH

But in May 2004, certain provision of RA 8424 was passed which excluded PAGCOR from the
exemption. In 2005, BIR issued IRR for RA 9337 which subjected PAGCOR to a 10% VAT.
PAGCOR questions the constitutionality of Section 1 of RA 9337 as well as the IRR. PAGCOR
avers that the said provision violates the equal protection clause.
ISSUE: WON PAGCOR should be subjected to income taxation.

HELD: Yes, Section 1 of RA 9337 is constitutional. It was the express intent of the Congress to
exclude PAGCOR from the exempt GOCCs hence PAGCOR is now subject to income taxation.
When the SC looked into the records of the deliberations of the lawmakers when RA 8424 was
being drafted, SC found out that PAGCORs exemption was not based on substantial distinctions.
The lawmakers exempted PAGCOR from income taxation upon its request. This was changed
however when RA 9337 was passed and now PAGCOR is already subject to income taxation.

Anent the issue of the imposition of the 10% VAT against PAGCOR, the BIR had
overstepped its authority. Nowhere in RA 9337 does it state that PAGCOR is subject to VAT, thus,
such portion of the IRR issued by the BIR is void. Section 109 of RA 9337 expressly exempts
PAGCOR from VAT. Further, PAGCORs charter exempts it from VAT.

Therefore, PAGCOR is subject to income taxation but not VAT.