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Taxation Digest 3

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  Philippine American Life and General Insurance (PHILAMLIFE) vs Secretary of Finance G.R. No. 198756 January 13, 2015 Facts: PHILAMLIFE intended to divest its shares from PHILAMCARE and was then able to sold it to STI INVESTMENTS, INC. for an amount based on the prevailing market rate of the shares via public bidding. However, the book value of the shares sold is more than the selling price. When the subject taxpayer applied for the issuance of tax clearance certificate and Certificate Authorizing Registration, they were advised to secure a ruling due to the potential donor’s tax implication. In the BIR Ruling, the CIR denied the tax exemption and held that the subject transaction is subject to donor’s tax . (Dili nalng nato e detail ngano subject sa donor’s tax ky tax remedies man ang topic).  Petitioner then appealed the ruling of the CIR to the Finance Secretary who also confirmed the ruling of the CIR in its entirety. Petitioner ELEVATED THE CASE TO THE COURT OF APPEALS. CA dismissed the case for lack of jurisdiction. It held that CIR’s ruling was in the exercise of his power under NIRC to interpret tax laws. Hence, a petition for review for that matter comes within the jurisdiction of COURT OF TAX APPEALS and not in CA. Petitioner’s contention:   1.   POWER TO INTERPRET TAX LAWS & DECIDE TAX CASES (note duha ni ka power under Section 4) Power to Interpret tax laws  –  any adverse decisions of the CIR is appealable to the Finance Secretary Power to Decide Tax Cases  –  CTA has the exclusive and appellate jurisdiction on reviewing matters in the exercise of this power by CIR. Petitioner argued that their case does not fall in the first paragraph of Section 4 of NIRC (power to interpret tax laws). Their case does not also fall under the second paragraph (power to decide tax cases) because according to RA 1125, this relates only to customs cases. Hence, there is a gap in the law because it was not indicated clearly where to elevate the case on the adverse decision of the Finance Secretary under the Second paragraph. This gap, petitioner submits, was remedied by Bristish American Tabacco v. Camacho wherein the Court ruled that where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency, the regular courts have  jurisdiction to pass upon the same. 2.   APPLICABILITY OF SECTION 100 OF THE NIRC AND RR 06-2008 AND RMC 25-2011. Petitioner argued that the transaction cannot be subjected to donor’s tax because it has no donative intent nor actual donation. The fact that the shares are sold in an arm’s length transaction is enough to prove that there was no donation. Moreover, they alleged that sale thru public bidding (as in this case) is not among those included transactions subject to donor’s tax.   Respondent’s contention:  Even assuming that CTA has no jurisdiction over the case, petitioner should have appealed the case to the Office of the President as DOF is not among the agencies enumerated under Rules of Court whose decisions are subject to petitioner for review in regular courts. They also use the constitutional provision that the president exercises control over executive departments, bureaus and offices. Issue: 1. WON CA has jurisdiction in petitions for review on the decisions/rulings issued by the finance secretary in relation to the exercise by the CIR of its POWER TO DECIDE TAX CASES. 2. WON CTA has jurisdiction in deciding the validity of the Revenue Regulations and Revenue Memorandum Circulars issued by the Finance Secretary. Rule: 1.   No. Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary of Finance under the adverted NIRC provision is appealable to. However,We find that Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly, with jurisdiction over the CA petition as “ other matters” arising under the NIRC or other laws administered by the BIR. As stated: Sec. 7. Jurisdiction. - The CTA shall exercise: Exclusive appellate jurisdiction to review by appeal, as herein provided:  1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters  arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue. (emphasis supplied). Even though the provision suggests that it only covers rulings of the Commissioner, We hold that it is, nonetheless, sufficient enough to include appeals from the Secretary’s review  under Sec. 4 of the NIRC. 2.   Yes. The recent case of City of Manila vs Grecia-Cuerdo over-rules the British American case depicted by the petitioner. City of Manila diametrically opposes British American Tobacco to the effect that it is now within the power of the CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based. Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only contested the applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the validity of Sec. 7(c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the controversy, contrary to petitioner’s argu ments. Commissioner of Internal Revenue v. Court of Tax Appeals and Petron Corporation, G.R. No. 207843, July 15, 2015 DOCTRINE: The CTA has no jurisdiction to determine the validity of a ruling issued by the CIR or the COC in the exercise of their quasi-legislative powers to interpret tax laws. The phrase other matters arising under this Code, as stated in the second paragraph of Section 4 of the NIRC, should be understood as pertaining to those matters directly related to the preceding phrase disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto . It cannot extend to evaluating the soundness of the interpretation of tax laws by the CIR. FACTS: (Short Version) Petron imports alkylate as a raw material for the manufacture of motor gasoline. It claims that its importation of akylate is exempt from excise tax. A Customs Memorandum Circular (CMC) was issued stating that Alkylate is subject to excise tax under Section 148( e) of the NIRC. CIR then issued assessment to Petron for deficiency tax. filed before the CTA a petition for review raising the issue of whether its importation of alkylate is subject to excise tax as contemplated under Section 148 (e) of the NIRC. CIR filed a motion to dismiss on the grounds of lack of  jurisdiction and prematurity. CTA ruled in favor of Petron, stating that (a) the controversy was not essentially for the determination of the constitutionality, legality or validity of a law, rule or regulation but a question on the propriety or soundness of the CIR's interpretation of Section 148 (e) of the NIRC which falls within the exclusive jurisdiction of the CTA under Section 4 thereof, particularly under the phrase other matters arising under [the NIRC] ;17 and (b) there are attending circumstances that exempt the case from the rule on non-exhaustion of administrative remedies, such as the great irreparable damage that may be suffered by Petron from the CIR's final assessment of excise tax on its importation. CIR is now alleging that the CTA committed grave abuse of discretion because it does not have  jurisdiction to take cognizance of the case. (Long Version) Petron, which is engaged in the manufacture and marketing of petroleum products, imports alkylate as a raw material or blending component for the manufacture of ethanol-blended motor gasoline.For the period January 2009 to August 2011, as well as for the month of April 2012, Petron transacted an aggregate of 22 separate importations for which petitioner the Commissioner of Internal Revenue (CIR) issued Authorities to Release Imported Goods (ATRIGs), categorically stating that Petron's importation of alkylate is exempt from the payment of the excise tax. In June 2012, Petron imported 12,802,660 liters of alkylate and paid value-added tax (VAT) in the total amount of 41,657,533.00 as evidenced by Import Entry and Internal Revenue Declaration (IEIRD) No. SN 122406532. Based on the Final Computation, said importation was subjected by the Collector of Customs of Port Limay, Bataan, upon instructions of the Commissioner of Customs (COC), to excise taxes of P4.35 per liter, or in the aggregate amount of P55,691,571.00, and consequently, to an additional VAT of 12% on the imposed excise tax in the amount of P6,682,989.00. The imposition of the excise tax was supposedly premised on Customs Memorandum Circular (CMC) No. 164-2012 dated July 18, 2012, implementing the Letter dated June 29, 2012 issued by the CIR, which states that: [A]lkylate which is a product of distillation similar to that of naphta, is subject to excise tax under Section 148( e) of the National Internal Revenue Code (NIRC) of 1997. In view of the CIR's assessment, Petron filed before the CTA a petition for review, docketed as CTA Case No. 8544, raising the issue of whether its importation of alkylate as a blending component is subject to excise tax as contemplated under Section 148 (e) of the NIRC.  CIR filed a motion to dismiss on the grounds of lack of  jurisdiction and prematurity. CTA gave due course to Petron's petition, finding that: (a) the controversy was not essentially for the determination of the constitutionality, legality or validity of a law, rule or regulation but a question on the propriety or soundness of the CIR's interpretation of Section 148 (e) of the NIRC which falls within the exclusive jurisdiction of the CTA under Section 4 thereof, particularly under the phrase other matters arising under [the NIRC] ;17 and (b) there are attending circumstances that exempt the case from the rule on non-exhaustion of administrative remedies, such as the great irreparable damage that may be suffered by Petron from the CIR's final assessment of excise tax on its importation. CIR sought immediate recourse to the Court, through the instant petition, alleging that the CTA committed grave abuse of discretion when it assumed authority to take cognizance of the case despite its lack of  jurisdiction to do so ISSUE/S: WON CTA had jurisdiction - NO HELD: NO. The case does not fall within the jurisdiction of the CTA because the phrase other matters arising under this Code, as stated in the second paragraph of Section 4 of the NIRC, should be understood as pertaining to those matters directly related to the preceding phrase disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto . It cannot extend to evaluating the soundness of the interpretation of tax laws by the CIR. Moreover, Section 4 of the NIRC confers upon the CIR both: (a) the power to interpret tax laws in the exercise of her quasi-legislative function; and (b) the power to decide tax cases in the exercise of her quasi-judicial function. It also delineates the jurisdictional authority to review the validity of the CIR's exercise of the said powers, thus: SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and srcinal jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. The CTA is a court of special jurisdiction, with power to review by appeal decisions involving tax disputes rendered by either the CIR or the COC. Conversely, [the CTA] has no  jurisdiction to determine the validity of a ruling issued by the CIR or the COC in the exercise of their quasilegislative powers to interpret tax laws. In this case, Petron's tax liability was premised on the COC's issuance of CMC No. 164-2012, which gave effect to the CIR's June 29, 2012 Letter interpreting Section 148 (e) of the NIRC as to include alkylate among the articles subject to customs duties, hence, Petron's petition before the CTA ultimately challenging the legality and constitutionality of the CIR's aforesaid interpretation of a tax provision. In line with the foregoing discussion, however, the CIR correctly argues that the CTA had no jurisdiction to take cognizance of the petition as its resolution would necessarily involve a declaration of the validity or constitutionality of the CIR's interpretation of Section 148 (e) of the NIRC, which is subject to the exclusive review by the Secretary of Finance and ultimately by the regular courts. Hence, as the CIR's interpretation of a tax provision involves an exercise of her quasi-legislative functions, the proper recourse against the subject tax ruling expressed in CMC No. 164-2012 is a review by the Secretary of Finance and ultimately the regular courts. There being no protest ruling by the customs collector that was appealed to the COC, the filing of the petition before the CTA was premature as there was nothing yet to review. Verily, the fact that there is no decision by the COC to appeal from highlights Petron's failure to exhaust administrative remedies prescribed by law. Before a party is allowed to seek the intervention of the courts, it is a pre-condition that he avail of all administrative processes afforded him, such that if a remedy within the administrative machinery can be resorted to by giving the administrative officer every opportunity to decide on a matter that comes within his jurisdiction, then such remedy must be exhausted first before the court's power of judicial review can be sought, otherwise, the premature resort to the court is fatal to one's cause of action. DISPOSITIVE: WHEREFORE, the petition is GRANTED. The Resolutions dated February 13, 2013 and May 8, 2013 of the Court of Tax Appeals (CTA), Second Division in CTA Case No. 8544 are hereby REVERSED and SET ASIDE. The petition for review filed by private respondent Petron Corporation before the CTA is DISMISSED for lack of jurisdiction and prematurity. SECRETARY OF FINANCE v ORO MAURA SHIPPING LINES Brion; June 15, 2009 Topic: Tariff and Customs Quick Facts Glory Shipping Lines owed the Collector of the Port of Mactan P1,296,710.00 for the importation of M/V “HARUNA.” Without  notifying the Collector of the Port of Mactan, Glory sold the M/V “HARUNA” to Oro Maura Shipping Lines. Oro Maura through Kariton inquired with the DOF if it could pay the duties and taxes due on the vessel. The DOF referred Kariton’s letter which ended up with the Collector of Customs of the Port of Manila which accepted the declared value of the vessel at P1,100,000.00 and assessed duties and taxes amounting to P149,989.00, which Oro Maura duly paid in 1995. Upon learning of the sale, the Collector of the Port of Mactan ordered the forfeiture of the vessel in favor of the Government.  DOF ordered a reassessment of the dutiable value of the vessel based on the srcinal entered value, without allowance for depreciation.The CA ruled that the earlier assessment made by the Collector of the Port of Manila had already become final and conclusive on all parties, pursuant to Sections 1407 and 1603 of the TCCP. Doctrine/tax : Section 1603. Finality of Liquidation.  –  When articles have been entered and passed free of duty or final adjustments of duties made, with subsequent delivery, such entry and passage free of duty or settlements of duties will, after the expiration of one (1) year, from the date of the final payment of duties, in the absence of fraud or protest or compliance audit pursuant to the provisions of this Code, be final and conclusive upon all parties, unless the liquidation of the import entry was merely tentative. Section 2503. Undervaluation, Misclassification and Misdeclaration of Entry.  –  Xxx That an undervaluation, misdeclaration in weight, measurement or quantity of more than thirty percent (30%) between the value, weight, measurement, or quantity declared in the entry, and the actual value, weight, quantity, or measurement shall constitute a prima facie evidence of fraud penalized under Section 2530 of this Code. Facts: In 1992, the Maritime Industry Authority (MARINA) authorized the importation of M/V “HARUNA”; under a Bareboat Charter, for a period of 5 years from its actual delivery to the charterer. The srcinal parties to the bareboat charter agreement were Haruna Maritime S.A and Glory Shipping Lines (Glory), the charterer. The Department of Finance (DOF), allowed the temporary registration of the M/V “HARUNA” and its tax and duty -free release to Glory. The Bureau of Customs (BOC) also required Glory to post a bond in the amount equal to 150% of the duties, taxes and other charges due on the importation, conditioned on the re-exportation of the vessel upon termination of the charter period, but in no case to extend beyond the year 1999. Glory posted Ordinary Re-Export Bond for P1,952,000.00, conditioned on the re-export of the vessel within a period of one 1 year or, in case of default, to pay customs duty, tax and other charges on the importation of the vessel in the amount of P1,296,710.00. M/V “HARUNA” arrived at the Port of Mactan with a dutiable value of P6,171,092.00 and estimated customs duty of P1,296,710.00. When Glory’s re -export bond expired, Glory sent a Letter of Guarantee to the Collector guaranteeing to renew the Re-Export Bond on vessel M/V “HARUNA” otherwise, it w ould pay the duties and taxes on said vessel. Glory Shipping Lines never complied with its Letter of Guarantee; neither did it pay the duties and taxes and other charges due on the vessel (P1,952,000.00) despite repeated demands made by the Collector of the Port of Mactan. Without informing or notifying the Collector of the Port of Mactan, Haruna Maritime S.A. and Glory Shipping Lines sold the M/V “HARUNA” to Oro  Maura Shipping Lines. Kariton and Company (Kariton), representing Oro Maura, inquired with the DOF if it could pay the duties and taxes due on the vessel. The DOF referred Kariton’s letter which ended up with the Collector of Customs of the Port of Manila which accepted the declared value of the vessel at P1,100,000.00 and assessed duties and taxes amounting to P149,989.00, which Oro Maura duly paid in 1995. In 1997, after discovery of the sale, the Collector of the Port of Mactan sent Oro Maura a demand letter for the unpaid customs duties and charges of Glory Shipping Lines. It later ordered the forfeiture of the vessel in favor of the Government, after finding that both Glory Shipping Lines and the respondent acted fraudulently in the transaction. The Collector of the Port of Mactan found that the respondent defrauded the BOC of the proper customs duty, but the District Collector of Cebu held otherwise on appeal and absolved the respondent from any participation in the fraud committed by Glory Shipping Lines. These factual findings and conclusion were affirmed by the Commissioner of Customs, by the CTA and, ultimately, by the CA. Although in agreement with the conclusion, DOF, however, ordered a reassessment of the dutiable value of the vessel based on the srcinal entered value, without allowance for depreciation. The CA ruled that the earlier assessment made by the Collector of the Port of Manila had already become final and conclusive on all parties, pursuant to Sections 1407 and 1603 of the TCCP. Hence to SC: DOF arguments: 1. The Commissioner and the Secretary may at any time direct the re assessment of dutiable articles and order the collection of deficiency duties. Even assuming that Sections 1407 and 1603 of the TCCP apply to the present case, the one-year limitation does not run where the article was misdeclared or undervalued, until a deficiency assessment has been issued and settled in full. 2. Oro Maura being a direct and actual party to the importation, should have ensured that the imported article was properly declared and assessed the correct duties. Oro Maura’s arguments:  1. The appraisal of the Collector can only be altered or modified within a year from payment of duties, per Sections 1407 and 1603 of the TCCP; it is only when there is fraud or protest or when the import entry was merely tentative that settlement of duties will not attain finality. 2. Allegation that there was misdeclaration or undervaluation of the vessel is not supported by the evidence. ISSUE: WON the Secretary of Finance can order a re-assessment of the vessel M/V “HARUNA.”  

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