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TAXATION LAW Handout No. 4

GENERAL PRINCIPLES RMC No. 42-99, which states that “In cases where income taxes were previously paid directly by the Japanese contractors or nationals, the corresponding cash refund shall be recovered from the government executing agencies upon the presentation of proof of payment by the Japanese contractors or nationals”, is invalid since the RMC apparently shifts to the executing agencies (particularly, NPC in this case) the power to refund the subject taxes which power is exclusively vested by the Tax Code upon the Commissioner of Internal Revenue Code. RMC No. 42-99 is invalid. The NIRC vests upon the CIR, being the head of the BIR, the authority to credit or refund taxes which are erroneously collected by the government. This specific statutory mandate cannot be overridden by adverse interpretations made through mere administrative issuances, such as RMC No. 42-99, which apparently shifts to the executing agencies (particularly, NPC in this case) the power to refund the subject taxes. Thus, Item B (3) of RMC No. 42-99, an administrative issuance directing petitioner to claim the refund from NPC, cannot prevail over Sections 204 and 229 of the NIRC, which provide that claims for refund of erroneously collected taxes must be filed with the CIR. Mitsubishi Corporation Vs. CIR, G.R. No. 175772, June 5, 2017, J. Perlas-Bernabe

When a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are “not otherwise specified in preceding paragraphs. Double taxation means taxing the same property twice when it should be taxed only once; that is, “taxing the same person twice by the same jurisdiction for the same thing.” It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character. Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these

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are being imposed: (1) on the same subject matter — the privilege of doing business in the City of Manila; (2) for the same purpose — to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods — per calendar year; and (6) of the same kind or character — a local business tax imposed on gross sales or receipts of the business. The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are “not otherwise specified in preceding paragraphs.” In the same way, businesses such as respondent’s, already subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC]. Based on the foregoing reasons, petitioner should not have been subjected to taxes under Section 21 of the Manila Revenue Code for the fourth quarter of 2001, considering that it had already been paying local business tax under Section 14 of the same ordinance. Nursery Care Corporation vs. Acevedo, 731 SCRA 280, G.R. No. 180651 July 30, 2014

INCOME TAXATION Director’s fees are taxable, for income tax purposes, as compensation income when the recipient director is an employee of the corporation which pays the same. Being embraced within the term “compensation income”, the director’s fees are subject to the withholding tax on wages imposed under Section 79, in relation to Section 24(A), both of the National Internal Revenue Code (Code). The above tax treatment applies whenever it is established that the director and the corporation has an employer-employee relationship, i.e President of a corporation sitting as a member of the Board of Directors. Revenue Regulations No. 2-98 provides that “the term “compensation” means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code”. Thus, fees including

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director’s fees, if the director is, at the same time, an employee of the employer/corporation constitute compensation income (Section 2.78.1, RR No. 2-98). Accordingly, the director’s fees received by employees are exempt from the value-added tax under Section 109 of the Code. Revenue Memorandum Circular 34-08

However, if the director’s fees are paid to a director who is not an employee of the corporation paying such fees (i.e., whose duties are confined to the attendance of and participation in the meetings of the board of directors), such fees are not treated as compensation income because of the absence of employer-employee relationship, but rather, the same should squarely fall under Section 32(A)(2) of the Code under the caption “Gross income derived from the conduct of trade or business or exercise of a profession.” The fees received by the director who is not an employee of the payor corporation are subject to ten percent (10%) creditable withholding tax if his gross income for the current year do not exceed P720,000.00 or fifteen percent (15%) if his gross income exceeds P720,000.00 pursuant to Revenue Regulations No. 30-2003. (Now 5 or 10%, as the case may be, under the TRAIN). These payments fall under “Professional Fees, talent fees, etc., for services rendered by individuals” which include under its (purview “Fees of directors who are not employees of the company paying such fees, whose duties are confined to attendance at and participation in meetings of the board of directors.” (Section V 2.5 7.2 (A) (9), RR No. 2-98). It is also emphasized that the amount subject to the 10% or 15% creditable withholding tax (Now 5 or 10%, as the case may be, under the TRAIN) is not only confined to fees, but also per diems, allowances and any other form of income payment made to the director. Revenue Memorandum Circular 34-08

In relation to the availment of the 8% preferential rate under the TRAIN law, the P250,000.00 reduction from taxable gross sales/ receipts and other nonoperating income is not applicable to mixed income earners since it is already incorporated in the first tier of the graduated income tax rates applicable to compensation income. The P250,000.00 reduction from taxable gross sales/ receipts and other nonoperating income is not applicable to mixed income earners since it is already incorporated in the first tier of the graduated income tax rates applicable to compensation income. The taxable income for individuals earning income from self-employment/ practice of profession shall be based on the following:

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1) If the taxpayer opted to be taxed at graduated rates or has failed to signify the 8% income tax rate option , the tax base shall be the Net Taxable Income 2) If the 8% income tax rate is availed by self-employed individuals earning income from purely self-employment and/or practice of profession, the tax base shall be Gross sales/ receipts and other non-operating income in excess of P250,000.00. 3) Mixed income earner, who availed the 8% income tax rate, the tax base shall be Gross sales/ receipts and other non-operating income, without the P250,000.00 reduction. RMO No. 23-2018 dated 21 May 2018

The amount of Input VAT attributable to Zero-rated sales that has been disallowed by the CIR for refund cannot be claimed as deduction from gross income. It is noted, based on the above-cited provisions, that unutilized creditable input taxes attributable to zero-rated sales can only be recovered through the application for refund or tax credit. Nowhere in the Tax Code can we find a specific provision expressly providing for another mode of recovering unapplied input taxes, particularly your proposition that unapplied input taxes may be treated outright as deductible expense for income tax purposes. Thus, your proposition, that accumulated and unapplied input value-added tax (VAT) arising from Cekas’ purchase of goods and services after the expiration of the two (2) year prescriptive period may be expensed outright, is hereby denied for lack of legal basis.” It is a governing principle in taxation that tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The basic principle in the construction of laws granting tax exemptions has been very stable. He who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake (City of Iloilo, et.al. vs. Smart Communications, Inc. G.R. No. 167260, dated February 27, 2009). And since a deduction for income tax purposes partakes the nature of a tax exemption, then it must also be strictly construed (CIR vs. Isabela Cultural Corporation, G.R. No. 172231 dated February 12, 2007). Revenue Memorandum Circular No. 57-2013

Since capital gains is a tax on passive income, it is the seller, not the buyer, who generally would shoulder the tax. With respect to the capital gains tax, We find merit in petitioner’s posture that pursuant to Sections 24(D) and 56(A)(3) of the 1997 National Internal Revenue Code (NIRC), capital gains tax due on the sale of real property is a liability for the account of the seller, to wit:

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TAXATION LAW Handout No. 4

Section 24. Income Tax Rates – xxxx (D) Capital Gains from Sale of Real Property. – (1) In General. – The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other disposition of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24(A)or under this Subsection, at the option of the taxpayer. xxxx Section 56. Payment and Assessment of Income Tax for Individuals and Corporations. – (A) Payment of Tax – xxxx (3) Payment of Capital Gains Tax. - The total amount of tax imposed and prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed by the person liable thereto: Provided, That if the seller submits proof of his intention to avail himself of the benefit of exemption of capital gains under existing special laws, no such payments shall be required : Provided, further, That in case of failure to qualify for exemption under such special laws and implementing rules and regulations, the tax due on the gains realized from the original transaction shall immediately become due and payable, subject to the penalties prescribed under applicable provisions of this Code: Provided, finally, That if the seller, having paid the tax, submits such proof of intent within six (6) months from the registration of the document transferring the real property, he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for such exemption. Accordingly, the BIR, in its BIR Ruling No. 476-2013, dated December 18, 2013, constituted the DPWH as a withholding agent to withhold the six percent (6%) final withholding tax in the expropriation of real property for infrastructure projects. As far as the government is concerned, therefore, the capital gains tax remains a liability of the seller since it is a tax on the seller's gain from the sale of the real estate. Republic of the Philippines vs. Soriano G.R. No. 211666, February 25, 2015

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TRANSFER TAXES In Computing for the net taxable estate, claims or obligations which arose after the date of death shall not be considered. This is in accordance with the “Date of death” valuation rule. We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S. Ct. 291, 73 L.Ed. 647 (1929). First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or activity is taxable is generally resolved against taxation. Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term “claims” required to be presented against a decedent’s estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions. Dizon vs. Court of Tax Appeals, 553 SCRA 111, G.R. No. 140944 April 30, 2008

VALUE ADDED TAX Directors fees received by a Director who is not an employee of the corporation that pays such fees are not subject to VAT or Other Percentage Tax. It is apparent that the fees, per diems, honoraria or allowances being given to a Director who is not an employee of the corporation that pays such fees cannot be considered as derived from an economic or commercial activity that have been pursued “in the course of business”. Rather, said director’s fees are remunerations paid in the exercise of a right of an owner in the management of a corporation, thus, not “in the course of trade or business” as contemplated under Section 105 of the Tax Code. Such fees received by a Director who is not an employee of the corporation that pays such fees are therefore not subject to VAT or Other Percentage tax. Revenue Memorandum Circular 77-2008

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TAXATION LAW Handout No. 4

Some of the zero-rated sales under sections 106 and 108 of the Tax Code are now subject to the 12% regular VAT rate. This is pursuant to the TRAIN Law. The following transactions involving the sale of goods or properties shall no longer be subject to 0% VAT, and, instead, shall be subject to 12% upon satisfaction of the conditions for the establishment and implementation of an enhanced VAT refund system: 1) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods, paid for in acceptable foreign currency, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). 2) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed 70% of total annual production. 3) Transactions considered export sales under Executive Order (EO) No. 226 (or the Omnibus Investments Code of 1987) and other special laws. RR No. 13-2018 prescribes the rules implementing the VAT provisions under the TRAIN Law, further amending RR No. 162005, as amended. The conditions for establishing and implementing an enhanced VAT refund system are as follows: 1) It shall grant and pay refunds of creditable input tax within 90 days from the filing of the VAT refund application with the Bureau, provided that all applications filed from 1 January 2018 shall be processed and decided within 90 days from the filing of the VAT refund application. 2) All pending VAT refund claims as of 31 December 2017 shall be fully paid in cash by 31 December 2019. Pending the establishment of an enhanced VAT refund system, the 90-day period to process and decide the VAT refund application shall only be reckoned up to the date of approval of the Recommendation Report on such application by the Commissioner or his duly authorized representative. All claims for refund/tax credit certificate filed prior to 1 January 2018 shall still be governed by the 120-day processing period. The Department of Finance shall establish a VAT refund center in the BIR and in the BOC that will handle the processing and granting of cash refunds of creditable input tax.

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The sale of electricity by generation companies, transmission by any entity including the National Grid Corporation of the Philippines (NGCP), and distribution companies including electric cooperatives shall be subject to 12% VAT on their gross receipts. The following services shall no longer be subject to 0% VAT, and, instead, shall be subject to 12% VAT upon satisfaction of the conditions for the establishment and implementation of an enhanced VAT refund system: 1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. 2) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent 70% of the total annual production. RR No. 13-2018 dated 15 March 2018

In order for the publication and sale of any newspaper, magazines, reviews or bulletins to be exempt from the coverage of VAT, they must appear at regular intervals with fixed prices for subscription and sale and which are not devoted principally to the publication of paid advertisements. A taxpayer is exempt from VAT and the 3% percentage tax under Section 116 in relation to Section 109 (1) (R) of the Tax Code, provided that, in case of publication and sale of any newspaper, magazines, reviews or bulletins, they appear at regular intervals with fixed prices for subscription and sale and which are not devoted principally to the publication of paid advertisements. However, if the taxpayer is engaged in other non-exempt activities such as printing of brochures, bookbinding, engraving, stereotyping, electrotyping, lithographing of various reference books, trade books, journals and other literary works, said transactions are subject to VAT, and the taxpayer is required to register its business as VAT business entity and must issue a separate VAT invoice/receipt thereof to record the same. Also, the sale of books, newspapers, magazines, reviews and bulletin in digital and electronic format or computerized versions, including but not limited to e-books, e-journals, electronic copies, online library services, CDs and software shall be subject to VAT. BIR Ruling No. 109-2018 dated 31 January 2018

Dues, membership fees and other assessment/charges received by duly registered Homeowners are not subject to VAT provided that the same shall be used for the cleanliness,

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safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. Considering that ABC Homeowners’ Association is a duly registered Homeowners Association with the Housing and Land Use Regulatory Board (HLURB); that its financial statements show the delivery of basic community services defined under Section 3 (d) of RA No. 9904; and that the local government unit covering the jurisdiction of the Homeowners Association has issued a Certificate that it lacks the resources to provide these services to the Association, the income of ABC Homeowners’ Association derived from association dues and rental facilities is exempt from income tax and VAT or percentage tax, whichever is applicable, provided that such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. BIR Ruling No. 063-2018 dated 24 January 2018

REMEDIES AND REVISED CTA RULES The so called “Expenditure Method” is a method used by the Bureau of Internal Revenue to determine if there were under-declarations in the ITR of the taxpayers. This method is legally allowed and is used whenever such under-declarations cannot be explained by the taxpayer. The government is allowed to resort to all evidence or resources available to determine a taxpayer’s income and to use methods to reconstruct his income. A method commonly used by the government is the expenditure method, which is a method of reconstructing a taxpayer’s income by deducting the aggregate yearly expenditures from the declared yearly income. The theory of this method is that when the amount of the money that a taxpayer spends during a given year exceeds his reported or declared income and the source of such money is unexplained, it may be inferred that such expenditures represent unreported or undeclared income. Since respondent spouses failed to show the source of their cash purchases, the revenue officers concluded that respondent Antonio’s Income Tax Returns (ITRs) for taxable years 2000, 2001,and 2003 were underdeclared. And since the under declaration exceeded 30% of the reported or declared income, it was considered a prima facie evidence of fraud with intent to evade the payment of proper taxes due to the government. Apparently, the revenue officers considered respondent Antonio’s rental business to be the likely source of their unreported or undeclared income due to his unjustified refusal to allow the revenue officers to inspect the building.

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TAXATION LAW Handout No. 4

Respondent spouses’ defense that they had sufficient savings to purchase the properties remains self-serving at thispoint since they have not yet presented any evidence to support this. And since there is no evidence yet to suggest that the money they used to buy the properties was from an existing fund, it is safe to assume that that money is income or a flowof wealth other than a mere return on capital. It is a basic concept in taxation that income denotes a flow of wealth during a definite period of time, while capital is a fund or property existing at one distinct point in time. Moreover, by just looking at the tables presented by petitioner, there is a manifest showing that respondent spouses had under declared their income. The huge disparity between respondent Antonio’s reported or declared annual income for the past several years and respondent spouses’ cash acquisitions for the years 2000, 2001, and 2003 cannot be ignored. Infact, it makes uswonder how they were able to purchase the properties in cash given respondent Antonio’s meager income. In view of the foregoing,we are convinced that there is probable cause to indict respondent spouses for tax evasion aspetitioner was able to show that a tax is due from them. Probable cause, for purposes of filing a criminal information, is defined as such facts that are sufficient to engender a well-founded belief that a crime has been committed, that the accusedis probably guilty thereof, and that he should be held for trial. Bureau of Internal Revenue Vs. Court of Appeals and Spouses Manly G.R. No. 197590, November 24, 2014

Failure on the part of the BIR to prove the receipt of the assessment by the taxpayer would necessarily lead to the conclusion that no assessment was issued. In that case, the assessment shall be null and void. The CTA was correct in ruling that petitioner failed to prove that it sent a notice of assessment and that it was received by respondent. In the case of Nava v. Commissioner of Internal Revenue,13 this Court stressed on the importance of proving the release, mailing or sending of the notice. While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. Of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.

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Thus, the failure of petitioner to prove the receipt of the assessment by respondent would necessarily lead to the conclusion that no assessment was issued. Commissioner of Internal Revenue Vs. Bank of the Philippine Islands G.R. No. 224327, June 11, 2018

The CTA, not the Secretary of Justice, has jurisdiction to review disputed assessment cases, even if protest is initiated by another agency of the government. RA 1125 prevails over the Revised Administrative Code provisions on settling disputes or controversies between or among government offices, agencies, and instrumentalities, including GOCCs. Although acknowledging the validity of the petitioner’s contention, the Secretary of Justice still resolved the disputed assessments on the basis that the prevailing doctrine at the time of the filing of the petitions in the Department of Justice (DOJ) on January 5, 2004 was that enunciated in Development Bank of the Philippines v. Court of Appeals, whereby the Court ruled that: x x x (T)here is an “irreconcilable repugnancy x x x between Section 7(2) of R.A. NO. 1125 and P.D. No. 242,” and hence, that the latter enactment (P.D. No. 242), being the latest expression of the legislative will, should prevail over the earlier. Later on, the Court reversed itself in Philippine National Oil Company v. Court of Appeals, and held as follows: “Following the rule on statutory construction involving a general and a special law previously discussed, then P.D. No. 242 should not affect R.A. No. 1125. R.A. No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and controversies, falling under Section 7 of R.A. No. 1125, even though solely among government offices, agencies, and instrumentalities, including government-owned and controlled corporations, remain in the exclusive appellate jurisdiction of the CTA. Such a construction resolves the alleged inconsistency or conflict between the two statutes.” x x x Despite the shift in the construction of P.D. No. 242 in relation to R.A. No. 1125, the Secretary of Justice still resolved PAGCOR’s petitions on the merits, stating that: While this ruling (DBP) has been superseded by the ruling in Philippine National Oil Company v. CA, in view of the prospective application of the PNOC ruling, we (the DOJ) are of the view that this Office can continue to assume jurisdiction over this case which was filed and has been pending with this Office since January 5, 2004 and rule on the merits of the case. PAGCOR filed its appeals in the DOJ on January 5, 2004 and August 4, 2004. Philippine National Oil Company v. Court of Appeals was promulgated on April 26, 2006. The Secretary of Justice

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resolved the petitions on December 22, 2006. Under the circumstances, the Secretary of Justice had ample opportunity to abide by the prevailing rule and should have referred the case to the CTA because judicial decisions applying or interpreting the law formed part of the legal system of the country, and are for that reason to be held in obedience by all, including the Secretary of Justice and his Department. Upon becoming aware of the new proper construction of P.D. No. 242 in relation to R.A. No. 1125 pronounced in Philippine National Oil Company v. Court of Appeals, therefore, the Secretary of Justice should have desisted from dealing with the petitions, and referred them to the CTA, instead of insisting on exercising jurisdiction thereon. Therein lay the grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Secretary of Justice, for he thereby acted arbitrarily and capriciously in ignoring the pronouncement in Philippine National Oil Company v. Court of Appeals. Indeed, the doctrine of stare decisis required him to adhere to the ruling of the Court, which by tradition and conformably with our system of judicial administration speaks the last word on what the law is, and stands as the final arbiter of any justiciable controversy. In other words, there is only one Supreme Court from whose decisions all other courts and everyone else should take their bearings. Nonetheless, the Secretary of Justice should not be taken to task for initially entertaining the petitions considering that the prevailing interpretation of the law on jurisdiction at the time of their filing was that he had jurisdiction. Neither should PAGCOR to blame in bringing its appeal to the DOJ on January 5, 2004 and August 4, 2004 because the prevailing rule then was the interpretation in Development Bank of the Philippines v. Court of Appeals. The emergence of the later ruling was beyond PAGCOR’s control. Accordingly, the lapse of the period within which to appeal the disputed assessments to the CTA could not be taken against PAGCOR. While a judicial interpretation becomes a part of the law as of the date that the law was originally passed, the reversal of the interpretation cannot be given retroactive effect to the prejudice of parties who may have relied on the first interpretation. The Court now undertakes to settle the controversy because of the urgent need to promptly decide it. We cannot lose sight of the fact that PAGCOR is among the most prolific incomegenerating institutions that contribute immensely to the country’s developing economy. Any controversy involving PAGCOR should be resolved expeditiously considering the underlying public interest in the matter at hand. To dismiss the petitions in order to have PAGCOR bring a similar petition in the CTA would not serve the interest of justice. On previous occasions, the Court has overruled the defense of jurisdiction in the interest of public welfare and for the advancement of public policy whenever, as in this case, an extraordinary situation existed. Commissioner of Internal Revenue vs. Secretary of Justice, 808 SCRA 14, G.R. No. 177387 November 9, 2016

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But in a later case, (Compare this case to the immediately preceding case) Supreme Court ruled that Under Presidential Decree No. 242 (PD 242), all disputes and claims solely between government agencies and offices, including government-owned or -controlled corporations, shall be administratively settled or adjudicated by the Secretary of Justice, the Solicitor General, or the Government Corporate Counsel, depending on the issues and government agencies involved We find that the DOJ is vested by law with jurisdiction over this case. This case involves a dispute between PSALM and NPC, which are both wholly government-owned corporations, and the BIR, a government office, over the imposition of VAT on the sale of the two power plants. There is no question that original jurisdiction is with the CIR, who issues the preliminary and the final tax assessments. However, if the government entity disputes the tax assessment, the dispute is already between the BIR (represented by the CIR) and another government entity, in this case, the petitioner PSALM. Under Presidential Decree No. 24224 (PD 242), all disputes and claims solely between government agencies and offices, including government-owned or -controlled corporations, shall be administratively settled or adjudicated by the Secretary of Justice, the Solicitor General, or the Government Corporate Counsel, depending on the issues and government agencies involved. The use of the word “shall” in a statute connotes a mandatory order or an imperative obligation.25 Its use rendered the provisions mandatory and not merely permissive, and unless PD 242 is declared unconstitutional, its provisions must be followed. The use of the word “shall” means that administrative settlement or adjudication of disputes and claims between government agencies and offices, including government-owned or -controlled corporations, is not merely permissive but mandatory and imperative. Thus, under PD 242, it is mandatory that disputes and claims “solely” between government agencies and offices, including government-owned or -controlled corporations, involving only questions of law, be submitted to and settled or adjudicated by the Secretary of Justice. The law is clear and covers “all disputes, claims and controversies solely between or among the departments, bureaus, offices, agencies and instrumentalities of the National Government, including constitutional offices or agencies arising from the interpretation and application of statutes, contracts or agreements.” When the law says “all disputes, claims and controversies solely” among government agencies, the law means all, without exception. Only those cases already pending in court at the time of the effectivity of PD 242 are not covered by the law. The purpose of PD 242 is to provide for a speedy and efficient administrative settlement or adjudication of disputes between government offices or agencies under the Executive branch, as well as to filter cases to lessen the clogged dockets of the courts. This case is different from the case of Philippine National Oil Company v. Court of Appeals,30 (PNOC v. CA) which involves not only the BIR (a government bureau) and the PNOC and PNB (both government-owned or -controlled corporations), but also respondent Tirso Savellano, a private citizen. Clearly, PD 242 is not applicable to the case of PNOC v. CA. Power Sector Assets and

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TAXATION LAW Handout No. 4

Liabilities Management Corporation vs. Commissioner of Internal Revenue, 835 SCRA 235, G.R. No. 198146 August 8, 2017

LOCAL GOVERNMENT TAXATION The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot overcome the specific exception/exemption in Section 133(j) of the same Code. This is in accord with the rule on statutory construction that specific provisions must prevail over general ones. A special and specific provision prevails over a general provision irrespective of their relative positions in the statute. In the case at bar, the Sanggunian of the city of Manila cannot enact an ordinance imposing business tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water, when said sanggunian was already specifically prohibited from doing so. This prohibition is expressly stated in Section 133(j) of the LGC. Section 133(j) of the LGC is a specific provision that explicitly withholds from any LGU, i.e., whether the province, city, municipality, or barangay, the power to tax the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water. In contrast, Section 143 of the LGC defines the general power of the municipality (as well as the city, if read in relation to Section 15170 of the same Code) to tax businesses within its jurisdiction. While paragraphs (a) to (g) thereof identify the particular businesses and fix the imposable tax rates for each, paragraph (h) is apparently the "catch-all provision" allowing the municipality to impose tax "on any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax." The succeeding proviso of Section 143(h) of the LGC, viz., "Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year[,]" is not a specific grant of power to the municipality or city to impose business tax on the gross sales or receipts of such a business. Rather, the proviso only fixes a maximum rate of imposable business tax in case the business taxed under Section 143(h) of the LGC happens to be subject to excise, value added, or percentage tax under the NIRC. City of Manila Vs. Judge Colet, G.R. No. 120051, December 10, 2014

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TAXATION LAW Handout No. 4

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REAL PROPERTY TAXATION When a tax case is pending on appeal with the Court of Tax Appeals, the Court of Tax Appeals and not the Court of Appeals, has the exclusive jurisdiction to enjoin the levy of taxes and the auction of a taxpayer's properties in relation to a case involving the levy of real property tax. Section 7, paragraph (a)(5) of Republic Act No. 1125,32 as amended by Republic Act No. 9282,33 provides that the Court of Tax Appeals has exclusive appellate jurisdiction over: Section 7. Jurisdiction. - The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (5) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. The Central Board of Assessment Appeals April 7, 2005 Decision assailed by petitioner before the Court of Appeals was rendered in the exercise of its appellate jurisdiction over the real property tax assessment of its properties. Clearly, this falls within the above-cited provision. Indeed, there is no dispute that this Central Board of Assessment Appeals decision constitutes one of the cases covered by the Court of Tax Appeals' exclusive jurisdiction. Despite the clear wording of the law placing this case within the exclusive appellate jurisdiction of the Court of Tax Appeals, petitioner insists that the Court of Appeals could have issued the relief prayed for despite the provisions of Republic Act No. 9282, considering its urgent need for injunctive relief. Petitioner's contention has no legal basis whatsoever and must be rejected. Urgency does not remove the Central Board of Assessment Appeals decision from the exclusive appellate jurisdiction of the Court of Tax Appeals. This is particularly true since, as properly recognized by the Court of Appeals, petitioner could have, and should have, applied for injunctive relief with the Court of Tax Appeals, which has the power to issue the preliminary injunction prayed for. In this case, the Court of Tax Appeals had jurisdiction over petitioner's appeal to resolve the question of whether or not it was liable for real property tax. To recall, the real property tax liability was the very reason for the acts which petitioner wanted to have enjoined. It was, thus, the Court of Tax Appeals, and not the Court of Appeals, that had the power to preserve the subject of the appeal, to give effect to its final determination, and, when necessary, to control auxiliary and incidental matters and to prohibit or restrain acts which might interfere with its exercise of jurisdiction over petitioner's appeal. Thus, respondents' acts carried out pursuant to

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TAXATION LAW Handout No. 4

the imposition of the real property tax were also within the jurisdiction of the Court of Tax Appeals. Even if the law had vested the Court of Appeals with jurisdiction to issue injunctive relief in real property tax cases such as this, the Court of Appeals was still correct in dismissing the petition before it. Once a court acquires jurisdiction over a case, it also has the power to issue all auxiliary writs necessary to maintain and exercise its jurisdiction, to the exclusion of all other courts. Thus, once the Court of Tax Appeals acquired jurisdiction over petitioner's appeal, the Court of Appeals would have been precluded from taking cognizance of the case. Philippine Ports Authority Vs. City of Davao, G.R. No. 190324, June 06, 2018

Submarine or undersea communications cables are akin to electric transmission lines which this Court has recently been treated as “no longer exempted from real property tax” and may qualify as “machinery” subject to real property tax under the Local Government Code. To the extent that the equipment’s location is determinable to be within the taxing authority’s jurisdiction, the Court sees no reason to distinguish between submarine cables used for communications and aerial or underground wires or lines used for electric transmission, so that both pieces of property do not merit a different treatment in the aspect of real property taxation. Both electric lines and communications cables, in the strictest sense, are not directly adhered to the soil but pass through posts, relays or landing stations, but both may be classified under the term “machinery” as real property under Article 415(5) of the Civil Code for the simple reason that such pieces of equipment serve the owner’s business or tend to meet the needs of his industry or works that are on real estate. Even objects in or on a body of water may be classified as such, as “waters” is classified as an immovable under Article 415(8) of the Code. A classic example is a boathouse which, by its nature, is a vessel and, therefore, a personal property but, if it is tied to the shore and used as a residence, and since it floats on waters which is immovable, is considered real property. Besides, the Court has already held that “it is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property.” Lastly, absent any showing from Capwire of any express grant of an exemption for its lines and cables from real property taxation, then this interpretation applies and Capwire’s submarine cable may be held subject to real property tax. Capitol Wireless, Inc. vs. Provincial Treasurer of Batangas, 791 SCRA 272, G.R. No. 180110 May 30, 2016

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