Case Digest - Taxation Law

International Exchange Bank vs. CIR
GRN 171266/520 SCRA 688 April 4, 2007
Carpio-Morales; J.;
An examination of book of accounts of the bank resulted to an assessment of tax liabilities of the latter amounting to P465,158,118.31 for 1996 and P17,033,311,974.23 for 1997. Details of PAN included: Savings-Deposit-ESO amounting to P9,845,800.27 should be treated as time deposits considering that its features are very much the same as time deposits... subject to DST. CTA ordered payment of DST on SA-FSD.

Whether or not SA-FSD evidenced by a passbook is subject to DST?

As correctly found by CTA, En Bans, a passbook representing an interest earning deposit account issued by a bank qualifies as a certificate of deposit earning interest.
In this case, a depositor of savings deposit FSD is required to keep the money with the bank for at least 30 days in order to yield a higher interest pertaining only to a regular savings deposit… the only difference lies on the evidence of deposits a SA-FSD is evidence by a passbook, while a time deposit is evidence by a certificate of time deposit.

Marcos II vs. CA/CIR
GRN 120880 June 5, 1997
Torres, J.:

After the death of former President Marcos, Special audit team disclosed that Marcoses failed to file a written notice of the death of the decedent, an estate tax returns as well as several income tax returns covering the years 1982 to 1986. BIR issued deficiency estate tax assessment among others and were personally and constructively served to the last known address of Marcoses. No administrative protest were served by Imelda or the heir of the late President, thus notices of levy on real property were issued. Having no response, properties were awarded in favor of the government. Marcos II questioned the levy assailing that said properties were under probate hearing thus, should not be summarily levied by BIR.

Whether or not the BIR has authority to collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the deceased.

The approval of the curt, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes… there is nothing in the tax code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court’s approval of the state’s claim for the estate taxes, before the same can be enforced and collected. If there is any issue as to the validity of the BIR’s decision to assess the estate taxes, this should have been pursued through the proper administrative and judicial avenues provided for by law.

Even an assessment based on the estimate is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous.

NB: The nature of the process of estate tax collection
…the inheritance tax does not directly involve the administration of the decedent’s estate although it may be viewed as an incident to the complete settlement of an estate, and under some statutes, it is made the duty of the probate court to make the amount of the inheritance tax a part of the final decree of distribution of the estate. It is not against the property of decedent, nor it is a claim against the estate as much, but it is against the interest or property right which the heir… has in the property formerly held by decedent… it is a proceeding in rem.

CIR vs. Solid Bank
GRN 148191 November 25, 2003
Panganiban, J.;

Solid Bank declared gross receipts included the amount from passive income which was already subjected to 20% final withholding tax (FWT). CTA affirmed that the 20% FWT should not form part of its taxable gross receipts for purpose of computing the gross receipts tax on such basis, Bank filed a request for refund. CTA ordered the refund while CA held that indeed, the 20% FWT on a bank’s interest income does not form part of the taxable gross receipts in computing the 5% GRT because the FWT was not actually received by the bank, but was directly remitted to the government.

Whether or not the 20% FWT on a bank’s interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax.

In China Banking vs. CA, this Court ruled that the amount interest income withheld in payment of 20% FWT forms part of the gross receipts in computing for the GRT on banks.
A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding.
An income tax is national tax imposed on the net or the gross income realized in a taxable year.

It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on whom tax is reposed, the payer, a separate entity, acts as no more than an agent of the government for the collection of taxes… Possession is acquired by the payer as the withholding agent of the government because the taxpayer ratifies the very act of possession for the government. There is constructive receipt, of such income and is included as part of the tax base.

China Bank vs CA
GRN 125508 July 19, 2000
Vitug, J.:

Petitioner CBC made a 53% equity investment in the First CBC, a Hongkong subsidiary engaged in financing and investment with “deposit-taking” function. First, CBC became insolvent and with approval from Bangko Sentral, petitioner wrote-off as being worthless its investment in First CBC, and its 1987 Income Tax Return, it treated as bad credit or an ordinary loss deductible from its gross income. CIR disallowed the deduction on the ground that although 1st CBC ceased to be a deposit-taking company, still it can exercise its financing and investment activities. Assuming that it become “worthless”, it should have been a capital loss, and not as a bad debt expense, there being no indebtedness to speak of between petitioner and its subsidiary.

Whether or not “securities becoming worthless” be allowed as deduction from gross income of CBC.

An equity investment is a capital, not ordinary asset of the investor, the sale or exchange in which results in either a capital gain or capital loss. The gain or loss is ordinary when the property sold or exchanged is not a capital asset. Sec 29 of NIRC on securities becoming worthless during the tax year are capital assets, the loss resulted therefrom shall be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets.

A capital gain or a capital loss normally requires the concurrence of two conditions for it to result: 1) there is a sale or exchange; 2) the thing sold or exchanged is a capital asset. Capital losses are allowed to be deducted only to the extent of capital gains, e.i. gains derived from the sale or exchange of capital assets, and not from any other income of the taxpayer… any capital loss can be deducted only from capital gains.

AFISCO Insurance et al vs. CA/CTA/CIR
GRN 112675 January 25, 1999
Panganiban, J.:

The 41 non-life insurance corporation entered into a Qouta Share Reinsurance Treaty with Munich, non-resident corporation. The reinsurance treaty required petitioners to form a pool. CA ruled that the pool of machinery was a partnership taxable as a corporation, and that the latter’s collection of premiums on behalf of its members was taxable income.

Whether or not the “insurance” pool be taxable as an incorporation and its remittances be taxable as dividends.

The Philippine legislative included in the concept of corporation those entities that resembled them such as unregistered partnerships and associations. Section 24 covered unregistered partnerships and even associations and joint accounts, which had no legal personalities apart from their individual members.
The term “partnership” includes a syndicate group, pool, joint venture or other unincorporated organization, through or by means of which any business financial operation or venture is carried on.
The pool is taxable entity distinct from the individual corporate entities of the insurance companies. The tax on income is different from the tax on dividends received by said companies, thus no double taxation.

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