CIR vs. Algue Inc.

Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988

Facts:

·         Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities

·         On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income taxes from 1958-1959, amtg to P83,183.85

·         A letter of protest or reconsideration was filed by Algue Inc on Jan 18

·         On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty. Guevara, who refused to receive it on the ground of the pending protest

·         Since the protest was not found on the records, a file copy from the corp was produced and given to BIR Agent Reyes, who deferred service of the warrant

·         On April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served

·         On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals

·         CIR contentions:

-          the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense

-          payments are fictitious because most of the payees are members of the same family in control of Algue and that there is not enough substantiation of such payments

·         CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by Algue as legitimate business expenses in its income tax returns

Ruling:

·         Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance, made in accordance with law.

·         RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling challenged

·         During the intervening period, the warrant was premature and could therefore not be served.

·         Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but later on conformed to the decision of CTA

·         There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon. CTA also found, after examining the evidence, that no distribution of dividends was involved

·         CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction

·         Algue Inc. was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. This arrangement was understandable in view of the close relationship among the persons in the family corporation

·         The amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

·         Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered xxx

·         the burden is on the taxpayer to prove the validity of the claimed deduction

·         In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos.

·         Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values

·         Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by Algue Inc. was permitted under the Internal Revenue Code and should therefore not have been disallowed by the CIR

American Bible Society vs. City of Manila

American Bible Society vs. City of Manila

GR No. L-9637 | April 30, 1957

Facts:

·         American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines through its Philippine agency established in Manila in November, 1898

·         City of Manila is a municipal corporation with powers that are to be exercised in conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila

·         American Bible Society has been distributing and selling bibles and/or gospel portions throughout the Philippines and translating the same into several Philippine dialect

·         City Treasurer of Manila informed American Bible Society that it was violating several Ordinances for operating without the necessary permit and license, thereby requiring the corporation to secure the permit and license fees covering the period from 4Q 1945-2Q 1953

·         To avoid closing of its business, American Bible Society paid the City of Manila its permit and license fees under protest

·         American Bible filed a complaint, questioning the constitutionality and legality of the Ordinances 2529 and 3000, and prayed for a refund of the payment made to the City of Manila. They contended:

a.        They had been in the Philippines since 1899 and were not required to pay any license fee or sales tax

b.       it never made any profit from the sale of its bibles

·         City of Manila prayed that the complaint be dismissed, reiterating the constitutionality of the Ordinances in question

·         Trial Court dismissed the complaint

·         American Bible Society appealed to the Court of Appeals

Issue: WON American Bible Society liable to pay sales tax for the distribution and sale of bibles

Ruling: NO

·         Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person or entity engaged in any of the business, trades or occupation enumerated under Sec. 3 must obtain a Mayor’s permit and license from the City Treasurer. American Bible Society’s business is not among those enumerated

·         However, item 79 of Sec. 3 of the Ordinance provides that all other businesses, trade or occupation not mentioned, except those upon which the City is not empowered to license or 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.

·         2 provisions of law that may have bearing on this case:

a.        Chapter 60 of the Revised Administrative Code, the Municipal Board of the City of Manila is empowered to tax and fix the license fees on retail dealers engaged in the sale of books   

b.       Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in general merchandise, including importers and indentors, except those dealers who may be expressly subject to the payment of some other municipal tax. Further, Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but where commodities of different classes are sold in the same establishment, it shall not be compulsory for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance

·         The only difference between the 2 provisions is the limitation as to the amount of tax or license fee that a retail dealer has to pay per annum

·         As held in Murdock vs. Pennsylvania, The power to impose a license tax on the exercise of these freedoms provided for in the Bill of Rights, 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.

·         Further, the case also mentioned that the power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance. 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

·         Under Sec. 27(e) of Commonwealth Act No. 466 or the National Internal Revenue Code, Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code shall not be taxed

·         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 American Bible Society was engaged in the business or occupation of selling said "merchandise" for profit

·         Therefore, the Ordinance cannot be applied for in doing so it would impair American Bible Society’s free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.

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

Intel Technology Phils vs. CIR

Intel Technology Phils. Inc. vs. CIR

GR No. 166732 | April 27, 2007

Facts:

·         Intel Tech

-          domestic corporation engaged primarily in the business of designing, developing, manufacturing and exporting advanced and large- scale integrated circuit components

-          registered with the BIR as VAT entity

-          registered with PEZA

·         As a VAT-registered entity, Intel file its monthly VAT declarations and quarterly VAT return

·         During the 2Q of 1998, Intel declared zero-rated export sales of 2.5Mn and VAT input taxes from domestic purchases of goods and services of 11.7Mn

-          Zero-rated export sales were paid in acceptable foreign currency and were inwardly remitted

·         On 1999, a claim for tax refund/credit of VAT input taxes was filed by Intel

·         Prior to the lapse of 2-year prescriptive prd and due to inaction by the CIR, a petition for review was filed with the CTA and prayed for the issuance of a tax credit certificate amtg to 11.7Mn

-          for the period covering April 01, 1998 to June 30, 1998, having generated zero-rated sales and paid VAT input taxes in the course of its trade or business, which VAT input taxes are attributable to the zero-rated sales and have not been applied to any VAT output tax liability for said period or any succeeding quarter or quarters nor has been issued any tax credit certificate, it follows that it is entitled to the issuance of a tax credit certificate for VAT input taxes in the amount of PhP11,770,181.70

·         CTA decision: denied the claim for tax refund or issuance of a tax credit certificate since the export invoices offered as evidence could not be considered as competent evidence to prove its zero-rated sales of goods for VAT purposes and for refund or issuance of a tax credit certificate because no BIR authority to print said invoices was indicated

·         A petition for review was filed before the CA, arguing that the info (seller’s TIN, statement that seller is VAT-registered) required to be printed in the invoice or receipt do not apply to its export sales since no input VAT may be claimed and that the absence of BIR authority to print its TIN-V in some of the invoices is not fatal to its claim for refund or issuance of a tax credit certificate as to invalidate the documents used to prove its export sales

·         CA decision:  since Intel issued invoices with the BIR’s authority to print, it must be concluded that these invoices were not registered as they did not comply with the invoicing requirements under Section 113, and the requirements for issuance of receipts or sales or commercial invoices under Section 237. Thus, an unregistered receipt could not be used as supporting document for input tax

Issue: W/N Intel is not entitled to a tax refund/credit for failure to comply with the invoicing requirements?

Ruling:

·         a taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for a refund or issuance of a tax credit certificate for input taxes paid attributable to such sales upon complying with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated (like export sales) or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax; and (5) in case of zero-rated sales under Section 106(A)(2)(a)(1) and (2), Section 106(B), and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations.

·         The docu evid submitted by Intel such as summary of export sales, sales invoices, official receipts, airway bills and export declarations, prove that it is engaged in the "sale and actual shipment of goods from the Philippines to a foreign country." Hence, Intel is considered engaged in export sales (a zero-rated transaction) if made by a VAT-registered entity

·         the certification of inward remittances attests to the fact of payment "in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the BSP

·         Therefore, Intel’s evidence, juxtaposed with the requirements of Sections 106 (A)(2)(a)(1) and 112(A) of the Tax Code, as enumerated earlier, sufficiently establish that it is entitled to a claim for refund or issuance of a tax credit certificate for creditable input taxes.

·         while entities engaged in business are required to secure from the BIR an authority to print receipts or invoices and to issue duly registered receipts or invoices, it is not required that the BIR authority to print be reflected or indicated therein. Only the following items are required to be indicated in the receipts or invoices: 

a.        a statement that the seller is a VAT-registered entity followed by its TIN-V;

b.        the total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax;

c.        date of the transaction;

d.        quantity of merchandise;

e.        unit cost;

f.         description of merchandise or nature of service;

g.        the name, business style, if any, and address of the purchaser, customer or client in the case of sales, receipt or transfers in the amount of P100.00 or more, or regardless of the amount, where the sale or transfer is made by a person liable to VAT to another person also liable to VAT, or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees; and

h.        the TIN of the purchaser where the purchaser is a VAT-registered person.

·         while the pertinent provisions of the Tax Code and the rules and regulations implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts and to issue duly registered invoices or receipts, it is not specifically required that the BIR authority to print be reflected or indicated therein. Indeed, what is important with respect to the BIR authority to print is that it has been secured or obtained by the taxpayer, and that invoices or receipts are duly registered.

·         Intel,  as a VAT-registered entity, is engaged in export sales of advanced and large-scale ICs and, as such, under Section 106 (A)(2)(a)(1) of the Tax Code, its sales or transactions are subject to VAT at 0% rate. Further, subject to the requirements stated in Section 112(A), it is entitled to claim refund or issuance of a tax credit certificate for input VAT taxes attributable to its export sales. As the Court had the occasion to explain since no output VAT was imposed on the zero-rated export sales, what the government reimburses or refunds to the claimant is the input VAT paid – thus, the necessity for the input VAT paid to be substantiated by purchase invoices or official receipts. These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or quality of goods sold and their selling price, and, taken collectively, are the best means to prove the input VAT payments of the claimant

·         In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales, what is to be closely scrutinized is the documentary substantiation of the input VAT paid, as may be proven by other export documents, rather than the supporting documents for the zero-rated export sales. And since petitioner has established by sufficient evidence that it is entitled to a refund or issuance of a tax credit certificate, in accordance with the requirements of Sections 106 (A)(2)(a)(1) and 112(A) of the Tax Code, then its claim should not be denied, notwithstanding its failure to state on the invoices the BIR authority to print and the TIN-V.

The incentives offered to PEZA enterprises, among which are tax exemptions and tax credits, ultimately redound to the benefit of the national economy, enticing as they do more enterprises to invest and do business within the zones, thus creating more employment opportunities and infusing more dynamism to the vibrant interplay of market forces

Yu Cong Eng vs. Trinidad

Yu Cong Eng et al vs. Trinidad

GR No. L-20479 | Feb. 6, 1925

History:

·         The sales tax has been in force in the Philippines for a number of years. Our law provides for privilege taxes to be levied on certain businesses and occupations. These percentage taxes on business are payable at the end of each calendar quarter in the amount lawfully due on the business transacted during the past quarter. It is made the duty of every person conducting a business subject to such tax, within the same period as is allowed for the payment of the quarterly installments of the fixed taxes without penalty, to make a true and complete return of the amount of the receipts or earnings of his business during the preceding quarter and pay the tax due thereon. All merchants not specifically exempted must pay a tax of one and one-half per cent on the gross value in money of the commodities, goods, wares, merchandise sold, bartered, exchanged, or consigned abroad by them, such tax to be based on the actual selling price or value of the things in question at the time they are disposed of or consigned

·         The income tax has also been established here for sometime, first pursuant to an Act of Congress and later pursuant to an Act of the Philippine Legislature (Act No. 2833, as amended by Act No. 2926). The customary returns are required from individuals and corporations. The tax is computed and the assessments are made by the Collector of Internal Revenue and his agents.

·         The Spanish Code of Commerce, which was in force at that time, requires that merchants shall keep:  A book of inventories and balances; (2) a daybook; (3) a ledger; (4) a copying book for letters and telegrams; and (5) the other books required by special laws. However, it was silent as to the language which the books must be kept

·         CIR issued a Circular Letter requiring that the record of sales of merchants subject to the merchant’s tax must either be in English or Spanish

-          Challenged in the case of Young vs. Rafferty

-          SC: CIR is not empowered to designate the language which the entries in the books should be made. Such initiative should not be taken by the CIR, arguing that it is to protect the govt against evasion

Facts:

·         On 1921, Act No. 2972 or the Chinese Bookkeeping Law was passed, regulating that the account books should not be in any other language exc. English, Spanish or any dialect, otherwise a penalty of fine of not more than 10K or imprisonment for not more than 2 years will be imposed

-          fiscal measure intended to facilitate the work of the government agents and to prevent fraud in the returns of merchants, in conformity with the sales tax and the income tax

·         On March 1923, BIR inspected the books of account of Yu Cong Eng where it was found out that it is not in accordance with Act 2972

·         A criminal case was filed against Yu Cong Eng before the CFI Manila for keeping his books of account in Chinese

·         Yu’s defense:

·         Yu Cong Eng et al are Chinese merchants, claiming that they represent the other 12K filed a petition for prohibition and injunction against the CIR, questioning the constitutionality of Act No. 2972 or the Chinese Bookkeeping Law

Issue: W/N Act No. 2972 is constitutional?

Ruling:

·         As a general rule, the question of constitutionality must be raised in the lower court and that court must be given an opportunity to pass upon the question before it may be presented to the appellate court for resolution

·         Power of taxation

-          strongest of all the powers of government, practically absolute and unlimited

-          It is a legislative power. All its incidents are within the control of the legislature. It is the Legislature which must questions of state necessarily involved in ordering a tax, which must make all the necessary rules and regulations which are to be observed in order to produce the desired results, and which must decide upon the agencies by means of which collections shall be made

·         The power to tax is not judicial power and that a strong case is required for the judiciary to declare a law relating to taxation invalid. If, of course, so great an abuse is manifest as to destroy natural and fundamental rights, it is the duty of the judiciary to hold such an Act unconstitutional

·         The Chinese petitioners are accorded treaty rights of the most favored nation

·         Their constitutional rights are those accorded all aliens, which means that the life, liberty, or property of these persons cannot be taken without due process of law, and that they are entitled to the equal protection of the laws, without regard to their race

·         Act No. 2972 is a fiscal measure which seeks to prohibit not only the Chinese but all merchants of whatever nationality from making entries in the books of account or forms subject to inspection for taxation purposes in any other language than either the English or Spanish language or a local dialect

·         the law only intended to require the keeping of such books as were necessary in order to facilitate governmental inspection for tax purposes

·         The Chinese will not be singled out as a special subject for discriminating and hostile legislation since there are other aliens doing business in the Phils. There will be no arbitrary deprivation of liberty or arbitrary spoliation of property. There will be no unjust and illegal discrimination between persons in similar circumstances. The law will prove oppressive to the extent that all tax laws are oppressive, but not oppressive to the extent of confiscation

·         Act No. 2972 as meaning that any person, company, partnership, or corporation, engaged in commerce, industry, or any other activity for the purpose of profit in the Philippine Islands, shall keep its account books, consisting of sales books and other records and returns required for taxation purposes by regulations of the Bureau of Internal Revenue, in effect when this action was begun, in English, Spanish, or a local dialect, thus valid and constitutional 

Johns, J. Dissenting

·         Both in the title and the body of the act, the legislature has said that it shall be unlawful for any person, firm or corporation engaged in certain lines of business to keep its account books in any language other than English, Spanish or any local dialect, and has expressly imposed a penalty for a violation of the act. There are no exceptions or limitations in the language, and it is not confined or limited to any specific purpose. It is broad and general and applies to any and all account books which may be kept or used in connection with the business.

Assuming, as the majority opinion does, that Act No. 2972 should read that account books, for taxation purposes, should be kept in their English, Spanish or any local dialect, the act does not specify or define what books shall be kept or how and in what manner they shall be kept. Neither does it delegate that power to anyone else