DIGEST OF 2023 SUPREME COURT TAX DECISIONS
ASSOCIATION DUES, MEMBERSHIP FEES, AND OTHER ASSESSMENTS/CHARGES ARE NOT SUBJECT TO INCOME TAX, VALUE- ADDED TAX AND WITHHOLDING TAX. They only constitute contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by recreational clubs to their exclusive members. They represent funds “held in trust” by these clubs to defray their operating and general costs and hence, only constitute infusion of capital. Neither do they arise from transactions involving the sale, barter, or exchange of goods or property. Nor are they generated by the performance of services. (Antel Sea View Towers Condominium Corporation v. BIR, G.R. No. 247770, January 11, 2023)
BIR REGULATIONS IMPOSING 5% FRANCHISE TAX ON POGO LICENSEES AND ON OFFSHORE-BASED POGO IS UNCONSTITUTIONAL. BIR regulations cannot be passed without statutory basis. Moreover, it cannot amend a law. Here, RMC 102-2017 imposed POGO licensees 5% franchise tax. Such regulations (issued prior to the enactment of a law), is invalid. Moreover, it is unconstitutional as it amended the PAGCOR Charger. Further, taxes cannot be imposed on offshore-based POGO licensees who do not derive income in the Philippines and who do not provide goods or services consumed in the Philippines. Here, RMC No. 102-2017 imposed income tax, VAT and other applicable taxes on offshore-based POGO licensees on their income derived from non-gaming operations or other related services. All the components of offshore gaming do not involve and are not performed within the Philippine territory. None of the components likewise deal with Filipino citizens. Again, the placing of bets occurs outside the Philippines; the players must not be Filipino citizens, or within the Philippines; and the payment of the prize also occurs outside of the Philippines. In other words, offshore-based POGO licensees derive no income from the sources within the Philippines because the “activity” which produces income occurs and is located outside the territory of the Philippines. The flow of wealth or the income-generating activity — the placing of bets less the amount of payout — transpires outside the Philippines. (Saint Wealth Ltd. et. al v. CIR, G.R. NO. 252965, January 10, 2023; Marco Polo Enterprise Limited et. al. v. CIR, G.R. No. 254102, January 10, 2023)
THE LAW DOES NOT REQUIRE DIRECT ATTRIBUTABILITY OF THE INPUT VAT FROM THE PURCHASE OF GOODS TO THE FINISHED PRODUCT WHOSE SALE IS ZERO-RATED IN ORDER FOR SUCH INPUT VAT TO BE REFUNDABLE. The Tax Code provides that a VAT- registered person, whose sales are zero-rated or effectively zero-rated, may apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. It suffices that the purchase of goods, properties, or services upon which the input VAT is based, can be attributed to the zero-rated sales. The law does not limit itself to purchases of goods which are to be converted into or intended to form part of a finished product for sale, or to be used in the chain of production. (CIR v. Cargill Philippines, Inc., G.R. Nos. 255470-71. January 30, 2023; CIR v. Toledo Power Company, G.R. Nos. 255324 & 255353. April 12, 2023.)
INPUT VAT ON RENEWABLE ENERGY DEVELOPER’S PURCHASES MAY BE PASSED ON AND MAY BE CLAIMED AS REFUND IN THE ABSENCE OF COMPLIANCE WITH THE REQUIREMENTS OF THE GOVERNMENT AGENCY. Renewable Energy Developer’s purchases of local supply of goods, properties, and services needed for the development, construction, and installation of plant facilities by RE developers is not subject to VAT. However, the DOE lists the following certifications which must be obtained before an RE Developer can avail of the fiscal incentives under Republic Act No. 9153: DOE Certificate of Registration, DOE Certificate of Accreditation, Certificate of Endorsement by the DOE, Registration with the BOI, and Certificate of Income Tax Holiday Entitlement. Here, the taxpayer did not comply with the requirements (i.e. not registered with DOE). Therefore, its purchases are subject to input VAT. Moreover, Sale of power generated through hydropower to NPC is zero-rated. Thus, the input VAT is subject of refund. (CBK Power Company Limited v. CIR, G.R. No. 247918, February 1, 2023)
TAXPAYER MAY SUBMIT NEW AND ADDITIONAL EVIDENCE IN INPUT VAT REFUND. Sale of power or fuel generated through a renewable source of energy is VAT-zero rated; The 120 (now 90)-day period to decide on refund case should be counted from the application, not from submission of all requirements. The BIR can only inform taxpayer to submit additional documents; it cannot dictate what type of supporting documents should be submitted. Lastly, the CTA is not limited by the evidence presented in the administrative claim; the claimant may present new and additional evidence to the CTA to support its case for tax refund (CIR v. CE Casecnan Water and Energy Company, Inc., G.R. No. 212727, February 1, 2023)
INTEREST ON LOAN TO AFFILIATES IS NOT SUBJECT TO VAT. Under the Tax Code, VAT is imposed if the transaction is in the course of trade or business. This includes incidental transactions. An isolated transaction may be considered incidental. It is imperative, however, in order for a transaction to be considered incidental to the main line of business, there must be shown some intimate connection between the transaction in question and the main business activity. Otherwise, it makes no sense to hold a transaction incidental to a primary business activity where no causal link or tie could even be traced. Thus, where the taxpayer’s primary purpose is that of a management service company, extending of loan to affiliates by way of accommodation is not incidental to main business. Thus, the interest is not subject to VAT. Consequently, the granting of a loan to an affiliate as a form of financial assistance, and entered into but a few times, cannot by any stretch of the imagination be considered as akin to managing, controlling, or directing the affairs of, or advertising or publicizing, the business of another. The financial assistance in this case could not normally be embraced in the activity of managing or administering the affairs of, or even promoting, a business. (Lapanday Foods Corporation v. CIR, G.R. No. 186155, January 17, 2023)
INTERCOMPANY LOANS AND ADVANCES ARE SUBJECT TO DOCUMENTARY STAMP TAX (DST). In the Filinvest Case (decided in 2011), the Supreme Court ruled that instructional letters, as well as journal and cash vouchers evidencing advances made by Filinvest Development Corporation(FDC) to its affiliates, qualified as loan agreements upon which DST may be imposed. Retroactive application of Filinvest is not prejudicial to taxpayers, as the same was merely an interpretation of Section 179 of the NIRC, which has been in effect since December 23, 1993. Here, the taxpayer was assessed for taxable year 2009. The taxpayer argues that the prevailing rule in 2009 when the subject transactions were made was that intercompany advances covered by mere inter-office memos were not loan agreements subject to DST under the NIRC. Unless The Filinvest overturned a prior doctrine of the Court, its retroactive application would not be prejudicial to taxpayers. The Court’s interpretation of a statute merely establishes the contemporaneous legislative intent that the interpreted law carried into effect. In this case, SMC failed to establish the existence of a ruling, prior to Filinvest, which declared that intercompany loans and advances through memos and vouchers do not constitute debt instruments subject to DST under Section 179 of the NIRC. (San Miguel Corporation v. CIR, G.R. No. 257697, April 12, 2023; CIR v. San Miguel Corporation, G.R. No. 259446, April 12, 2023)
HOLDING COMPANY IS NOT SUBJECT TO LOCAL BUSINESS TAX. Banks and other financial institutions, including non-bank financial intermediaries (NBFI) are subject to local business tax on their dividends. Where the company is a mere holding company for shares of stock owned by the government, and it only managed the dividends for the benefit of the coconut farmers, and it does not fall under the requisites of bank and NBFI, whose principal function include lending and investing, and it receives funds from group of persons regularly and recurringly, the company is not subject to LBT. (City of Davao et. al v. Te Deum Resources, Inc., G.R. No. 243068, January 17, 2023)
NATIONAL POWER CORPORATION’S MACHINERY IS SUBJECT TO REAL PROPERTY TAX. The Local Government Code exempts from RPT all machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. To successfully claim exemption, the claimant must prove that: “(a) the machineries and equipment are actually, directly, and exclusively used by local water districts and GOCCs; and (b) the local water districts and GOCCs claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power. Where NPC never alleged that the properties were actually, directly, and exclusively used for pollution control and environmental protection nor did it not introduce evidence on the direct, immediate, and actual use of the properties as would control pollution and protect the environment, the property is considered not exempt. (National Power Corporation V. Provincial Government of Bulacan, G.R. No. 207140, January 30, 2023)
ALKYLATE IS NOT SUBJECT TO EXCISE TAX. Refund, in the nature of exemption, is construed against a taxpayer. However, if refund is based on taxpayer’s erroneous payment of the tax or government’s exaction in the absence of law, such rule does not apply. Here, alkylate is not among the articles subject to excise tax. In the absence of law expressly imposing excise tax on alkylate, statute must be construed against the government. In any case, alkylate does not fall under the category of “other similar products of distillation” subject to excise tax.(Petron Corporation v. CIR, G.R. No. 255961, March 20, 2023)
FRAUD MUST BE PROVED IN INVOKING 10-YEAR PRESCRIPTIVE PERIOD; NON-FILING OF DST DOES NOT JUSTIFY 10-YEAR PRESCRIPTION FOR ALL OTHER TAXES; WITHHOLDING TAXES ARE INTERNAL REVENUE TAXES. As a rule, the BIR must assess the internal revenue taxes within 3 years after the last day prescribed by law, except when taxpayer filed a false or fraudulent return, in which case, 10-year prescription applies. However, in invoking the extraordinary period of 10-years, fraud is never imputed. The Court has refrained from sustaining findings of fraud upon circumstances which, at most, create only suspicion. The mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.” Bare allegation of falsity or fraudulency, without proof, is insufficient to remove the present case outside the purview of the three-year prescriptive period under Section 203. Here, the BIR did not present any evidence to prove the falsity of the taxpayer’s tax return in order to justify the 10-year period. Moreover, non-filing of its DST returns should not trigger the ten-year assessment period for all of its deficiency tax liabilities. A plain reading of both Sections 203 and 222 would show that the prescriptive periods therein are reckoned from the last day of filing of each return for each type of tax. By no stretch of imagination can it be concluded that the period of one should apply to all. Lasty, withholding taxes are subject to prescription considering that it is an internal revenue tax. Withholding taxes do not cease to become income taxes just because it is collected and paid by the withholding agent. (CIR v. Parity Packaging Corporation, G.R. No. 249045, January 11, 2023) –
DATE OF BIR ACCEPTANCE OF WAIVER MUST BE INDICATED; OTHERWISE, WAIVER IS VOID. In cases of waiver, RMO 20-90, the BIR is mandated to sign the waiver indicating that the BIR accepted and agreed to the waiver. Here, the waiver bears no date of the acceptance by the BIR. Thus, the assessment is invalidated on the ground of prescription. (CIR v. Amparo Shipping Corporation, G.R. No. 259049, January 11, 2023)
WILLFULNESS IN CRIMINAL CASES MEANS THE ACT IS VOLUNTARY OR INTENTIONAL. To successfully prosecute a violation of Section 255, it must be shown that: (1) the taxpayer is required to pay any tax, make or file a return, keep any record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations; (2) the taxpayer failed to do so; and (3) the act is willful. As regards the third requisite, the word willfully means voluntary, intentional violation of known legal duty. Here, Joel consciously and voluntarily refused to comply with his duty to make a return, as he is a doctor by profession and businessman, he is expected to know and understand the matters concerning his practice and business. (People of the Philippines v. Mendez, G.R. Nos. 208310-11, March 28, 2023; Mendez v. People, G.R. No. 208662, March 28, 2023)
PRIOR ASSESSMENT IS NOT REQUIRED IN CRIMINAL ACTION. When a criminal action for violation of the tax laws is filed, a prior assessment is not required. Neither a final assessment is a precondition to collection of delinquent taxes in the criminal tax case. The criminal action is deemed a collection case. Therefore, the government must prove two things: one, the guilt of the accused by proof beyond reasonable doubt, and two, the accused’s civil liability for taxes by competent evidence (other than an assessment). If before the institution of the criminal action, the government filed (1) a civil suit for collection, or (2) an answer to the taxpayer’s petition for review before the CTA, the civil action or the resolution of the taxpayer’s petition for review shall be suspended before judgment on the merits until final judgment is rendered in the criminal action. However, before judgment on the merits is rendered in the civil action, it may be consolidated with the criminal action. In such a case, the judgment in the criminal action shall include a finding of the accused’s civil liability for unpaid taxes relative to the criminal case. (People of the Philippines v. Mendez, G.R. Nos. 208310-11, March 28, 2023; Mendez v. People, G.R. No. 208662, March 28, 2023)
10-YEAR PRESCRIPTION REQUIRES BIR TO DISCLOSE BASIS OF THE MISSTATEMENT; FALSE RETURN MUST BE COUPLED WITH INTENT TO EVADE TAX. The BIR has 3 years to assess the taxpayer, unless the 10-year extraordinary period applies in case of fraud, false return or failure to file tax. Presumption of fraud or falsity arises if there is under declaration of sales or overstatement of expenses exceeding the 30% threshold (amount declared). Before presumption arises, the BIR must observe due process by providing computation by which it ascertained the misstatement. Moreover, the BIR cannot adopt a position inconsistent with the invocation of the 10-year period (i.e. extension of waivers and issuance of assessment a day prior to the lapse of 3-year period). On the other hand, the presumption may be overcome by good faith, mistake, carelessness or ignorance. Not all types of error or falsehood in a return will make available the 10-year exception. Thus, where the assessment did not provide computation giving rise to the presumption and the alleged undeclared receipts was not actually collected by the taxpayer as it relates to VAT assessment, the 10-year period shall not apply (McDonald’s Philippines Realty Corporation v. CIR, G.R. No. 247737, August 8, 2023)
AMENDED RETURN IS THE RECKONING POINT FOR PRESCRIPTION IF THE AMENDED IS NOT SUBSTANTIAL SUCH AS AMENDMENT OF FORMS. The reckoning of the three-year prescriptive period for the making of assessment is the (1) last day prescribed by the law for the filing of return, or (2) the date of actual filing of the return, whichever comes later. The running of the three-year prescriptive period for issuing an assessment for deficiency VAT commences at the last day of the 25-day period from the close of the taxable quarter within which to file the quarterly VAT return, or the date of actual filing of the quarterly VAT return, whichever comes later. In Phoenix Assurance Case, the Supreme Court ruled in case of amended returns, the running of the prescriptive period should commence from the date of the filing of the original return or amended return. Ultimately, the answer hinged on whether the amendment was substantial or not. Where the monthly VAT return was amended to quarterly VAT return to correct the form, but the amount is the same, thus, the reckoning point is the amended VAT returns. (Lapanday Foods Corporation v. CIR, G.R. No. 186155, January 17, 2023)
FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) WITHOUT STATING THE FACTUAL AND LEGAL BASIS IS VOID. Revenue Regulations 12-99 states that FDDA must (a) state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based; otherwise, the decision shall be void, in which case, the same shall not be considered a decision on a disputed assessment and (b) that the same is his final decision. Where the FDDA merely informs the taxpayer of its supposed tax liabilities without basis, the FDDA is void. (CIR V. Manila Medical Services, Inc. (Manila Doctors Hospital) G.R. No. 255473, February 13, 2023)
CONVERSION OF LETTER NOTICE REQUIRES LETTER OF AUTHORITY; OTHERWISE, ASSESSMENT IS VOID. Pursuant to RMO No. 32-2005, in case of unresolved Letter Notice (LN), the revenue officer (RO) assigned to handle the LN shall recommend the issuance of LOA to replace the LN. Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug. The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR himself . Any tax assessment issued without an LOA is a violation of the taxpayer’s right to due process and is therefore “inescapably void (CIR v. Ermilo Tan Ng Hua, G.R No. 259264, January 23, 2023) –
ASSISTANT REGIONAL DIRECTOR HAS NO POWER TO ISSUE LOA. Pursuant to Section 6 of the NIRC, the CIR or his duly authorized representative may authorize the examination of the taxpayer. The Regional Director is the authorized representative contemplated by the NIRC. An LOA issue by the officer-in-charge Assistant Regional Director, a mere ARD, is void is not among the authorized officers that possess the power to issue LOA. Therefore, the assessment is void. (CIR v. Amparo Shipping Corporation, G.R. No. 259049, January 11, 2023)
FDDA, ISSUED PRIOR TO THE LAPSE OF 60-DAY PERIOD TO SUBMIT DOCUMENTS IN CASE OF REQUEST FOR REINVESTIGATION, IS VOID. Assessment may be protested administratively by filing a request for reconsideration or reinvestigation within 30 days from the receipt of the assessment. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. In case of reinvestigation, the 60-day period commence from the filing of the protest to the FAN and not PAN. Therefore, where the BIR failed to give the taxpayer the opportunity to submit relevant documents within 60-days, wherein the FDDA was issued prior to the lapse of the 60-day period, the FDDA was issued prematurely in violation of the taxpayer’s right to due process. (CIR v. Maxicare Healthcare Corporation, G.R No. 261065, July 10, 2023)
WARRANT OF DISTRAINT AND/OR LEVY (WDL) IS NOT THE FINAL DECISION ON THE ASSESSMENT. The taxpayer may appeal to the CTA either after the lapse of the 180-day period or receipt of the final decision of the BIR. Where the BIR issued the WDL after the lapse of the 180-day period, and the taxpayer protested the WDL, the taxpayer was awaiting the decision of the BIR. The WDL is not the final decision on the protest appealable to the CTA. Issuance of WDL is premised that the taxes are delinquent, which is not present in case of valid request of reinvestigation pending for resolution by the BIR. (Mannasoft Technology Corporation v. CIR, G.R. No. 244202, July 10, 2023)
RECEIPT BY THE CLIENT SERVICE ASSISTANT AND SECURITY GUARD OF THE NOTICE OF INFORMAL CONFERENCE AND FAN, RESPECTIVELY, WITHOUT INDICATION OF AUTHORITY RENDERS THE ASSESSMENT VOID; DEFECT IS NOT CURED BY FILING OF PROTEST. Taxpayer must be properly notified of its findings. Moreover, personal delivery must be acknowledged by the taxpayer or his duly authorized representative. Here, the NIC, the PAN, and the FAN bear indications that they were personally served. However, those who received them were not authorized representatives of the taxpayer as they have been served upon one “Ms. Gladys Badocdoc,” whose indicated position was “Client Service Assistant.” The FAN, on the other hand, was personally served upon a certain “Angelo Pineda,” who was a reliever security guard at that time, and who was not even an employee of petitioner. No indication of authority to act on behalf of the taxpayer was provided. Hence, the assessment is void. The defect in complying with the requirements of due process was not cured by the fact that the taxpayer was able to file a protest to the FAN. (Mannasoft Technology Corporation v. CIR, G.R. No. 244202, July 10, 2023)
AMENDED DECISIONS ARE PROPER SUBJECTS OF MOTIONS FOR RECONSIDERATION WHEN THEY ARE BASED ON ADDITIONAL EVIDENCE OR THE RE-EVALUATION OF PREVIOUSLY SUBMITTED EVIDENCE. Where the Amended Decision was rendered based on the additional evidence presented by party to bolster its claim, the “new” decision requires the parties adversely affected thereby to seek reconsideration with the CTA Division before they would be allowed to appeal to the CTA En Banc. Their failure to do so is fatal to their cause. (CIR v. Coral Bay Nickel Corporation, G.R. Nos. 243523-24, February 15, 2023)
