VALUE ADDED TAX (AS AMENDED) Taxable transactions 1.

Persons liable Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value added tax (VA ! imposed in "ections 1#$ to 1#% of this code. &. 'ature of the tax Value added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferree or lessee of the goods, properties or services. his rule shall li(ewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of )epublic Act **1$. +. ,n the course of trade or business his means the regular conduct or pursuit of a commercial or an economic activity , including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stoc(, non-profit private organi.ation (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests!, or government entity. "ervice as defined in this /ode rendered in the Philippines by non-resident foreign persons shall be considered as being rendered in the course of trade or business. 0. "ale of 1oods or Properties here shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value added tax e2uivalent to ten percent (1#3! of the gross selling price or gross value in money of goods or properties sold, bartered or exchange, such tax to be paid by the seller or transferor 4 Provided, that the president, upon recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value added tax to t!elve percent "12#$, after any of the follo!ing conditions has %een satisfied& a' b. 5. (alue Added )ax collection as a percentage of *ross +omestic Product "*+P$ of the previous year exceeds t!o and four fifth percent "2 ,-.#$/ or 0ational government deficit as a percentage of *+P of the previous year exceeds one and one half percent "1 1#$' (As amended by REPUBLIC ACT NO. 9337!.

1oods or Properties6"ale or exchange of "ervices he terms 1oods or properties shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include4 2eal properties held primarily for sale to customers or held for lease in the ordinary course of trade or %usiness (subject to the exemption under "ection 1#7(w! 8 (x!!9 (1! "ale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business (&! or real property utili.ed for low-cost housing as defined by )epublic Act 'o. *&*7, otherwise (nown as the :rban ;evelopment and <ousing Act of 177&, (+! and other related laws, house and lot and other residential dwelling valued at =ne >illion pesos (P1,###,###.##! and below4 Provided, that not later than ?anuary +1 st of the calendar year subse2uent to the effectivity of this Act and shall be adjusted to its present value using the /onsumer Price ,ndex, as published by the 'ational "tatistic =ffice ('"=!4

(0! @ease of residential unit with a monthly rental not exceeding Aight housand Pesos (P%,###.##! provided that not later than ?anuary +1st of the calendar year subse2uent to the effectivity of this Act and shall be adjusted to its present value using the /onsumer Price ,ndex, as published by the 'ational "tatistic =ffice ('"=! )he right or the privilege to use patent, copyright, design or model plan, secret formula or process, good!ill, trademar3, trade %rand or other li3e property or right )he right or privilege to use in the Philippines of any industrial, commercial or scientific e4uipment )he right or privilege to use motion picture films, films, tapes and discs/ and 2adio, television, satellite, transmission and ca%le television time

he phrase Bsale or exchange of servicesC means the performance of all (inds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by4 o o o o o o o o o o o o o o o o /onstruction and service contractors9 "toc(, real estate, commercial, customs and immigration bro(ers9 @essors of property, whether personal or real9 Darehousing services9 @essors or distributors of cinematographic films9 Persons engaged in milling, processing, manufacturing or repac(ing goods for others9 Proprietors, operators or (eepers of hotels, motels, resthouses, pension houses, inns, resorts9 Proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers9 ;ealers in securities9 @ending investors9 ransportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes9 /ommon carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines9 "ales of electricity by generation companies, transmission, and distribution companies9 "ervices of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under "ection 117 of this /ode and 'on-life insurance companies (except their crop insurance! including surety, fidelity, indemnity and bonding companies9 and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties.

he phrase Bsale or exchange of servicesC shall li(ewise include4 o o o o o o o o he lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademar(, trade brand or other li(e property or right9 he lease or the use of, or the right to use of any industrial, commercial or scientific e2uipment9 he supply of scientific, technical, industrial or commercial (nowledge or information9 he supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (&! or any such (nowledge or information as is mentioned in subparagraph (+!9 he supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person9 he supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial underta(ing, venture, project or scheme9 he lease of motion picture films, films, tapes and discs9 and he lease or the use of or the right to use radio, television, satellite transmission and cable television time.

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@ease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines. The term GROSS RECEIPTS E means the total amount of money or its e2uivalent representing the contract price, compensation or service fee, re!t"# $r r$%"#t%& including the amount charged for materials supplied with the services and deposits or advance payments actually or constructively received during the taxable 2uarter for the services performed or to be performed for another person, excluding Value-added tax. $. 1ross "elling Price ( ax Fase! >eans the total amount of money or its e2uivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price . *. ,nvoicing )e2uirements (,nvoicing of sale! A VA - )egistered person shall, for every sale, issue an invoice or receipt. ,n addition to the information re2uired under "ection &+*, the following information shall be indicated in the invoice or receipt %. A statement that the seller is a VA -registered person, followed by his taxpayerCs identification no. ( ,'!9 he 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.

ax Gormula he tax shall be computed by multiplying the total amount indicated in the =fficial receipt by one-eleventh (1611! ( his provision which used to be 1#$ (;! (1! was not touched by REPUBLIC ACT NO. 9337! "ales )eturns, Allowances and "ales ;iscounts E he value of goods or properties sold and subse2uently returned or for which allowances were granted by a VA -registered person may be deducted from the gross sales or receipts for the 2uarter in which a refund is made or a credit memorandum or refund is issued. "ale discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event maybe excluded from the gross sales within the same 2uarter it was given. ,f the taxpayer is not registered and has not been collecting VA but is re2uired by law to collect VA the formula shall be the gross amount indicated in the =fficial receipt by 1#3

7.

,nput tax formula ,nput tax is computed by multiplying the gross receipted amount by 1611 of a purchase made by a buyer. ,nput tax is Vat for the buyer and it is prepayment of tax to the buyer.

1#.

=utput tax formula =utput tax is computed by multiplying the gross receipted amount by 1611 of a sale made by a seller. =utput tax is Vat for the seller and the same is a liability.

11.

Hero percent (# 3! rate VA sale here are two groups of .ero rated sales and the same are (a! export sales (b! and Goreign /urrency ;enominated sales. <ere are the e'($rt )"#e), to wit4 he sale and actual shipment of goods from the Philippines to a foreign country , irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services , and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas

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"ale of raw materials or packaging material to a nonresident buyer for delivery to a resident local export oriented enterprise to be used in manufacturing, processing, pac(ing or repac(ing in the Philippines of the said buyerCs goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulation of the Banko Sentral ng Pilipinas (F"P! "ale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent !"#$ of total amount production9 "ale of gold to the Banko Sentral ng Pilipinas (F"P! hose considered export sales under %xecutive &rder 'o( ))* , otherwise (nown as the =mnibus ,nvestment /ode of 17%*, and other special laws+ and The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations( (As amended by REPUBLIC ACT NO. 9337!.

*$re+,! -.rre!-% /e!$m+!"te/ sales means sale to a nonresident of goods, except those mentioned in "ections 107 (automobiles! and 15# (non-essential goods!, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the F"P. S"#e) t$ (er)$!) $r e!t+t+e) 0h$)e e'em(t+$! .!/er )(e-+"# #"0) $r +!ter!"t+$!"# ",reeme!t) to which the Philippines is a signatory effectively subjects such sales to .ero rate. 1er$ (er-e!t (2 3) r"te VAT )"#e $r e'-h"!,e $4 )er5+-e) Processing, manufacturing or repac(ing goods for other persons doing business outside the Philippines which goods are subse2uently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the F"P9 "ervices other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside of the Philippines or to a nonresident person not engaged in business who is outside of the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulation of the F"P9 "ervices rendered to persons or entities who exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to .ero percent (#3! rate9 "ervices rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof9 "ervice performed by subcontractors and6or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceeds seventy percent (*#3! of total amount production9 ransport of passengers and cargo by air or sea vessels from the Philippines to a foreign country9 "ale of power or fuel generated through renewable sources of energy such as, but not limited to biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies, such as fuel cells and hydrogen fuels9

1&.

ransitional ,nput ax his exists when a person who becomes liable to value-added tax or any person who elects to be a VA -registered person shall, subject to the filing of an inventory according to rules and regulations prescribed by the "ecretary of Ginance, upon recommendation of the /ommissioner, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to two percent )#$ of the value of such inventory $r the actual value-added tax

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paid on such goods, materials and supplies whichever is higher, which shall be creditable against the output tax. (As amended! 1+. Presumptive ,nput ax his VA rule is only applicable to the following persons or firms engaged in the processing of "ardines >ac(erel >il(

And those that are engaged in the manufacturing of )efined "ugar /oo(ing oil and pac(ed noodle-based instant meals

Presumptive input tax is e2uivalent to four percent (03! of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production . (As amended! And those who are public wor(s contractors shall be allowed a presumptive input tax e2uivalent to one and one-half percent (1-16&3! of the contract price with respect to government contracts only in lieu of actual input taxes therefrom. 10. Processing >ean pasteuri,ation, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition. 15. Primarily agricultural products A1),/:@ :)A@ P)=;:/ "I ;AG,'A;. J I he common parlance of the country, and the common practice of the country have been to consider all those things as farming products or agricultural products which and the situs of their production upon the farm, and which were brought into condition for the uses of society by the labor of those engaged in agricultural pursuits, as contra-distinguished from manufacturing or other industrial pursuits.I (;istrict of /olumbia vs. =yster K1%%5L, 50 Am )ep., &*5.! he term Iagricultural productsI has been held to include swine, horses, meat, cattle, sheep, manure, cord wood, hay, poultry, vegetables, fruit, eggs, mil(, butter, and lard J but no fish. ,;9 ,;. J Gish are not an agricultural product. (>olina vs. )afferty E 1) @-117%% #+* Phil 505 1$. )ecording of value added taxes in the boo(s of accounts All persons subject to the value-added tax under "ections 1#$ and 1#% shall, in addition to the regular accounting records re2uired, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. he subsidiary journals shall contain such information as maybe re2uired by the "ecretary of Ginance. 1*. )eturn and payment 1eneral )ule4 Avery person liable to pay the value-added tax imposed under this title shall file a 2uarterly return of the amount of his gross sales or receipts within twenty-five (&5! days following the close of each taxable 2uarter prescribed for each taxpayer4 Provided, however, hat VA -registered persons shall pay the value-added tax on a monthly basis. Any person, whose registration has been cancelled in accordance with "ection &+$ shall file a return and pay the tax due thereon within twenty-five (&5! days from the date of cancellation of registration4 Provided, hat only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.

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1%.

Dhere to file the return and pay the tax Axcept as the /ommissioner otherwise permits, the return shall be filed with and the tax paid to an authori.ed agent ban(, )evenue /ollection =fficer or duly authori.ed city or municipal treasurer in the Philippines located within the revenue district where the taxpayer is registered or re2uired to register.

17.

ransactions ;eemed "ale he following transactions shall be deemed sale4 ransfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business ;istribution or transfer to o o "hareholders or investors as share in the profits of the VA -registered persons /reditors in payment of debt

/onsignment of goods if actual sale is not made within sixty ($#! days following the date such goods were consigned )etirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.

&#.

@ease of properties @ease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines

&1.

1ross receipts ,s the total amount of money or its e2uivalent representing the /ontract price /ompensation "ervice fee )ental or royalty

,ncluding the amount charged for materials supplied with the services deposits advanced payments

actually or constructively received during the taxable 2uarter for the services performed or to be performed for another person excluding value added tax &&. ,nput tax >eans the value added tax due from or paid by a VA -registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VA -registered person. ,t shall also include the transitional input tax determined in accordance with "ection 111 of this /ode &+. =utput tax >eans the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or re2uired to register under "ection &+$ of this /ode

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&0.

;etermination of /reditable ,nput tax Axcess =utput or ,nput ax. J ,f at the end of any taxable 2uarter the output tax exceeds the input tax, the excess shall be paid by the VA -registered person. ,f the input tax exceeds the output tax, the excess shall be carried over to the succeeding 2uarter or 2uarters4 Provided, That the input tax inclusive of input -.T carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent !"#$ of the output -.T 4 Provided, however, hat any input tax attributable to .ero-rated sales by a VA -registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of "ection 11&. ;etermination of /reditable ,nput ax. J he sum of the excess input tax carried over from the preceding month or 2uarter and the input tax creditable to a VA -registered person during the taxable month or 2uarter shall be reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as purchase returns or allowances and input tax attributable to exempt sale. he claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Fureau of ,nternal )evenue but also those filed with other government agencies, such as the Foard of ,nvestments and the Fureau of /ustoms.I

&5.

Value Added ax on ,mportation of 1oods. Fase Amount shall be computed by multiplying 1#3 to the sum of the following4 otal Value used by the Fureau of /ustoms in determining tariff and customs duties /ustoms duties Axcise taxes, if any And other charges, such tax to be paid by the importer prior to the release of such goods from customs custody9 Provided, that where the customs duties are determined on the basis of the 2uantity or volume of the goods, the value added tax shall be based on4 o he landed cost plus excise taxes, if any

Provided, further, that the President, upon recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value added tax to t!elve percent "12#$, after any of the follo!ing conditions has %een satisfied& a. b. (alue Added )ax collection as a percentage of *ross +omestic Product "*+P$ of the previous year exceeds t!o and four fifth percent "2 ,-.#$/ or 0ational government deficit as a percentage of *+P of the previous year exceeds one and one half percent "1 1#$' (As amended by REPUBLIC ACT NO. 9337!.

ransfer of 1oods by ax-exempt Persons. ,n the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subse2uently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. he tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof. &$. Axempt transactions under VA ("ection 1#7! E "ubject to the provisions of subsection (&! hereof, the following transactions shall be exempt from the value-added tax4 IA! "ale or importation of agricultural and marine food products in their original state, livestoc( and poultry of a (ind generally used as, or yielding or producing foods for human consumption+ and breeding stock and genetic materials therefor. IProducts classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the mar3et , such as free.ing, drying, salting, broiling, roasting, smo(ing or stripping. Polished and6or hus(ed rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in their original state9

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I(F!

Sale or importation of fertili.ers9 seeds, seedlings and fingerlings9 fish, prawn, livestoc( and poultry feeds, including ingredients, !hether locally produced or imported , used in the manufacture of finished feeds (except specialty feeds for race horses, fighting coc(s, a2uarium fish, .oo animals and other animals generally considered as pets!9 ,mportation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citi.ens coming to resettle in the Philippines4 Provided, That such goods are exempt from customs duties under the Tariff and /ustoms /ode of the Philippines9 ,mportation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture and merchandise of any (ind in commercial 2uantity! belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (7#! days before or after their arrival, upon the production of evidence satisfactory to the /ommissioner, that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide9 "ervices subject to percentage tax under itle V9 "ervices by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar9 >edical, dental, hospital and veterinary services except those rendered by professionals9 Aducational services rendered by private educational institutions, duly accredited by the ;epartment of Aducation (;epAd!, the /ommission on <igher Aducation (/<A;!, the Technical %ducation and Skills 0evelopment .uthority T%S0.$ and those rendered by government educational institutions9 "ervices rendered by individuals pursuant to an employer-employee relationship9 "ervices rendered by regional or area headquarters established in the Philippines %y multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific )egion and do not earn or derive income from the Philippines9 ransactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential ;ecree 'o. 5&79 S"#e) 6% ",r+-.#t.r"# -$$(er"t+5e) /.#% re,+)tere/ 0+th the C$$(er"t+5e De5e#$(me!t A.th$r+t% to their mem%ers as !ell as sale of their produce , whether in its original state or processed form, to non-members 9 the+r +m($rt"t+$! $4 /+re-t 4"rm +!(.t)& m"-h+!er+e) "!/ e7.+(me!t& +!-#./+!, )("re ("rt) there$4, to be used directly and exclusively in the production and1or processing of their produce9 1ross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the /ooperative ;evelopment Authority9 "ales by non-agricultural, non-electric and non-credit cooperatives duly registered with the /ooperative ;evelopment Authority4 Provided, That the share capital contribution of each member does not exceed 2ifteen thousand pesos P34,"""$ and regardless of the aggregate capital and net surplus ratably distributed among the members4 %xport sales by persons who are not -.T-registered9

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Page 7 of .2

I(P!

"ale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utili.ed for low-cost and sociali.ed housing as defined by )epublic Act 'o. *&*7, otherwise (nown as the :rban ;evelopment and <ousing Act of 177&, and other related laws, residential lot valued at =ne million five hundred thousand pesos (P1,5##,###! and below, house and lot, and other residential dwellings valued at wo million five hundred thousand pesos (P&,5##,###! and below4 Provided, hat not later than ?anuary +1, &##7 and every three (+! years thereafter, the amounts herein stated shall be adjusted to their present values using the /onsumer Price ,ndex, as published by the 'ational "tatistics =ffice ('"=!9 @ease of a residential unit with a monthly rental not exceeding en thousand pesos (P1#,###!4 Provided, hat not later than ?anuary +1, &##7 and every three (+! years thereafter, the amount herein stated shall be adjusted to its present value using the /onsumer Price ,ndex, ass published by the 'ational "tatistics =ffice ('"=!9 "ale, importation, printing or publication of boo(s and any newspaper, maga.ine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements 9 "ale, importation or lease of passenger or cargo vessels and aircraft, including engine, e2uipment and spare parts thereof for domestic or international transport operations9 ,mportation of fuel, goods and supplies by persons engaged in international shipping or air transport operations9 "ervices of ban(s, non-ban( financial intermediaries performing 2uasi-ban(ing functions, and other non-ban( financial intermediaries9 and "ale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and1or receipts do not exceed the amount of &ne million five hundred thousand pesos P3,4"","""$ 4 Provided, hat not later than ?anuary +1, &##7 and every three (+! years thereafter. the amount herein stated shall be adjusted to its present value using the /onsumer Price ,ndex, as published by the 'ational "tatistics =ffice ('"=!9 I(&! A VA -registered person may elect that "ubsection (1! not apply to its sale of goods or properties or services4 Provided, hat an election made under this "ubsection shall be irrevocable for a period of three (+! years from the 2uarter the election was made.I

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I"A/. 11&. )efunds or ax /redits of ,nput ax. J I(A! Hero-)ated or Affectively Hero-)ated "ales J Any VA -registered person, whose sales are .ero-rated or effectively .ero-rated may, within two )$ years after the close of the taxable quarter when the sales were made , apply for the issuance of a tax credit certificate or refund of credita%le input tax due or paid attri%uta%le to such sales, except transitional input tax , to the extent that such input tax has not been applied against output tax4 Provide, however, hat in the case of .ero-rated sales under "ection 1#$(A!(&!(a!(1!, (&! and (b! and "ection 1#%(F!(1! and (&!, the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Fang(o "entral ng Pilipinas (F"P!4 Provided, further, hat where the taxpayer is engaged in .ero-rated or effectively .ero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales 4 Provided, finally, hat for a person ma(ing sales that are .ero-rated under "ection 1#%(F!($!, the input taxes shall be allocated ratably between his .ero-rated and non-.ero-rated sales. I(F! /ancellation of VA )egistration. J A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under "ection 1#$(/! of this /ode may, within two )$ years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes.

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I(/! Period within which )efund or ax /redit of ,nput axes shall be >ade. J ,n proper cases, the /ommissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty 3)"$ days from the date of submission of complete documents in support of the application filed in accordance with "ubsection (A! hereof. I9n case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the :ommissioner to act on the application !ithin the period prescri%ed a%ove , the t"'("%er "44e-te/ m"%& 0+th+! th+rt% (32) /"%) 4r$m the re-e+(t $4 the /e-+)+$! /e!%+!, the -#"+m or "4ter the e'(+r"t+$! $4 the $!e h.!/re/ t0e!t% /"%8(er+$/& "((e"# the /e-+)+$! $r the .!"-te/ -#"+m 0+th the C$.rt $4 T"' A((e"#) . I(;! >anner of 1iving )efund. J 5efunds shall be made upon warrants drawn by the /ommissioner or by his duly authori,ed representative without the necessity of being countersigned by the /hairman, /ommission on .udit, the provisions of the Administrative /ode of 17%* to the contrary notwithstanding4 Provided, hat refunds under this paragraph shall be subject to post audit by the /ommission on Audit.I Applicable /ases4 /&'T%6 /&5P&5.T7&', petitioner, vs( 8&'( /&997SS7&'%5 &2 7'T%5'.: 5%-%';%, respondent( <=(5( 'o( 3433>4( ?uly ), )""@(A Gacts4 Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments and other hospital supplies for export. PetitionerOs place of business is at the "ubic Fay Greeport Hone ("FGH!. ,t is duly registered with the "ubic Fay >etropolitan Authority ("F>A! as a "ubic Fay Greeport Anterprise, pursuant to the provisions of )epublic Act 'o. *&&*. As an "F>A-registered firm, petitioner is exempt from all local and national internal revenue taxes except for the preferential tax provided for in "ection 1&(c! of )ep. Act 'o. *&&*. Petitioner also registered with the Fureau of ,nternal )evenue (F,)! as a non-VA taxpayer under /ertificate of )egistration );= /ontrol 'o. 75-1%#-###1++. Grom ?anuary 1, 177* to ;ecember +1, 177%, petitioner purchased various supplies and materials necessary in the conduct of its manufacturing business. he suppliers of these goods shifted unto petitioner the 1#3 VA on the purchased items, which led the petitioner to pay input taxes in the amounts of P5+7,011.%% and P5#0,#5*.07 for 177* and 177%, respectively. Acting on the belief that it was exempt from all national and local taxes, including VA , pursuant to )ep. Act 'o. *&&*, petitioner filed two applications for tax refund or tax credit of the VA it paid. >r. Adilberto /arlos, revenue district officer of F,) );= 'o. 17, denied the first application letter, dated ;ecember &7, 177%. :nfa.ed by the denial, petitioner on >ay 0, 1777, filed another application for tax refund6credit, this time directly with Atty. Alberto Pagabao, the regional director of F,) )evenue )egion 'o. 0. he second letter sought a refund or issuance of a tax credit certificate in the amount of P1,1#%,+#*.*&, representing erroneously paid input VA for the period ?anuary 1, 177* to 'ovember +#, 177%. Dhen no response was forthcoming from the F,) )egional ;irector, petitioner then elevated the matter to the /ourt of ax Appeals, in a petition for review doc(eted as / A /ase 'o. 5%75. Petitioner stressed that "ection 11&(A! if read in relation to "ection 1#$(A!(&!(a! of the 'ational ,nternal )evenue /ode, as amended and "ection 1&(b! and (c! of )ep. Act 'o. *&&* would show that it was not liable in any way for any valueadded tax. ,n opposing the claim for tax refund or tax credit, the F,) as(ed the / A to apply the rule that claims for refund are strictly construed against the taxpayer. "ince petitioner failed to establish both its right to a tax refund or tax credit and its compliance with the rules on tax refund as provided for in "ections &#0 and &&7 of the ax /ode, its claim should be denied, according to the F,). A. D<A <A) =) '= <A APA>P ,=' G)=> A@@ @=/A@ A'; 'A ,='A@ ,' A)'A@ )AVA':A APA" P)=V,;A; ,' )AP:F@,/ A/ '=. *&&* /=VA)" <A VA@:A A;;A; AP PA,; FQ PA , ,='A), A ":F,/ FAQ G)AAP=) A' A)P),"A =' , " P:)/<A"A" =G ":PP@,A" A'; >A A),A@".

Page 10 of .2

F.

D<A <A) =) '= <A /=:) =G AP APPAA@" /=))A/ @Q <A@; <A PA , ,='A) ," A' , @A; = A AP /)A;, =) )AG:'; =G <A VA PA,; =' , " P:)/<A"A" =G ":PP@,A" A'; )AD >A A),A@" G=) <A QAA)" 177* A'; 177%. At this juncture, it must be stressed that the -.T is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee( :nli(e a direct tax, such as the income tax, which primarily taxes an individualOs ability to pay based on his income or net wealth, an indirect tax, such as the -.T, is a tax on consumption of goods, services, or certain transactions involving the same( The -.T, thus, forms a substantial portion of consumer expenditures( Gurther, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. Bhat is transferred in such instances is not the liability for the tax, but the tax burden . I! "//+!, $r +!-#./+!, the VAT /.e t$ the )e##+!, (r+-e& the )e##er rem"+!) the (er)$! (r+m"r+#% "!/ #e,"##% #+"6#e 4$r the ("%me!t $4 the t"'' ;hat is shifted only to the intermediate %uyer and ultimately to the final purchaser is the %urden of the tax' "tated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VA on goods or services is not necessarily the person !ho ultimately %ears the %urden of the same tax. 7t is the final purchaser or consumer of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax( %xemptions from -.T are granted by express provision of the Tax /ode or special laws( ;nder -.T, the transaction can have preferential treatment in the following waysC (a! VA Axemption. J An exemption means that the sale of goods or properties and6or services and the use or lease of properties is not subject to VA (output tax! and the seller is not allowed any tax credit on VA (input tax! previously paid. &# his is a case wherein the VA is removed at the exempt stage (i.e., at the point of the sale, barter or exchange of the goods or properties!. The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subDect to -.T . &n the other hand, a -.T-registered purchaser of -.T-exempt goods1properties or services which are exempt from -.T is not entitled to any input tax on such purchase despite the issuance of a -.T invoice or receipt( (b! Hero-rated "ales. J hese are sales by VA -registered persons which are subject to #3 rate, meaning the tax %urden is not passed on to the purchaser . . ,ero-rated sale by a -.T-registered person, which is a taxable transaction for -.T purposes, shall not result in any output tax . <o!ever, the input tax on his purchases of goods, properties or services related to such =ero rated sale shall %e availa%le as tax credit or refund in accordance !ith these regulations. U!/er 1er$8r"t+!,, all (A) is removed from the =ero rated goods, activity or firm . ,n contrast, e'em(t+$! only removes the (A) at the exempt stage , and it !ill actually increase, rather than reduce the total taxes paid %y the exempt firm>s %usiness or non retail customers . ,t is for this reason that a sharp distinction must be made between .ero-rating and exemption in designating a value-added tax. Apropos, the petitionerOs claim to VA exemption in the instant case for its purchases of supplies and raw materials is founded mainly on "ection 1&(b! and (c! of )ep. Act 'o. *&&*, which basically exempts them from all national and local internal revenue taxes, including VA and "ection 0(A!(a! of F,) )evenue )egulations 'o. 1-75. O! th+) ($+!t& (et+t+$!er r+,ht#% -#"+m) th"t +t +) +!/ee/ VAT8E'em(t "!/ th+) 4"-t +) !$t -$!tr$5erte/ 6% the re)($!/e!t. I! 4"-t& (et+t+$!er +) re,+)tere/ ") " NON8VAT t"'("%er (er Cert+4+-"te $4 Re,+)tr"t+$! +)).e/ 6% the BIR. A) ).-h& +t +) e'em(t 4r$m VAT $! "## +t) )"#e) "!/ +m($rt"t+$!) $4 ,$$/) "!/ )er5+-e). Pet+t+$!er9) -#"+m& h$0e5er& 4$r e'em(t+$! 4r$m VAT 4$r +t) (.r-h")e) $4 ).((#+e) "!/ r"0 m"ter+"#) +) +!-$!,r.$.) 0+th +t) -#"+m th"t +t +) VAT8E'em(t& 4$r $!#% VAT8Re,+)tere/ e!t+t+e) -"! -#"+m I!(.t VAT Cre/+t:Re4.!/.

Page 11 of .2

)he point of contention here is !hether or not the petitioner may claim a refund on the 9nput (A) erroneously passed on to it %y its suppliers' Dhile it is true that the petitioner should not have been liable for the VA inadvertently passed on to it by its supplier since such is a =ero rated sale on the part of the supplier , the (et+t+$!er +) !$t the (r$(er ("rt% t$ -#"+m ).-h VAT re4.!/. "ection 0.1##-& of F,)Os )evenue )egulations *-75, as amended, or the I/onsolidated Value-Added ax )egulationsI provide4 "ec. 0.1##-&. Hero-rated "ales. J . ,ero-rated sale by a VA -registered person, which is a taxable transaction for VA purposes, shall not result in any output tax. <owever, the input tax on his purchases of goods, properties or services related to such ,ero-rated sale shall be available as tax credit or refund in accordance with these regulations. he following sales by VA -registered persons shall be subject to #34 (a! Axport "ales IAxport "alesI shall mean xxx xxx xxx (5! hose considered export sales under Articles &+ and ** of Axecutive =rder 'o. &&$, otherwise (nown as the =mnibus ,nvestments /ode of 17%*, and other special laws, e.g. )epublic Act 'o. *&&*, otherwise (nown as the Fases /onversion and ;evelopment Act of 177&. xxx xxx xxx (c! "ales to persons or entities whose exemption under special laws, e.g. ).A. 'o. *&&* duly registered and accredited enterprises with "ubic Fay >etropolitan Authority ("F>A! and /lar( ;evelopment Authority (/;A!, ).A. 'o. *71$, Philippine Aconomic Hone Authority (PAHA!, or international agreements, e.g. Asian ;evelopment Fan( (A;F!, ,nternational )ice )esearch ,nstitute (,)),!, etc. to which the Philippines is a signatory effectively subject such sales to .ero-rate.I Since the transaction is deemed a ,ero-rated sale, petitionerEs supplier may claim an 7nput -.T credit with no corresponding &utput -.T liability( /ongruently, no &utput -.T may be passed on to the petitioner( =n the second issue, it may not be amiss to re-emphasi.e that the petitioner is registered as a '='-VA taxpayer and thus, is exempt from VA . As an exempt VA taxpayer, it is not allowed any tax credit on VA (input tax! previously paid. ,n fine, even if we are to assume that exemption from the burden of VA on petitionerOs purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt VA taxpayer. 5ather, it is the petitionerEs suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the -.T erroneously passed on to the latter( Accordingly, we find that the /ourt of Appeals did not commit any reversible error of law in holding that petitionerOs VA exemption under )ep. Act 'o. *&&* is limited to the VA on which it is directly liable as a seller and hence, it cannot claim any refund or exemption for any input VA it paid, if any, on its purchases of raw materials and supplies. /A"A" =' VA 4 /&997SS7&'%5 &2 7'T%5'.: 5%-%';%, petitioner, vs( S%.=.T% T%/8'&:&=F P87:7PP7'%S$, respondent( <=(5( 'o( 34>G**( 2ebruary 33, )""4(A Fusiness companies registered in and operating from the "pecial Aconomic Hone in 'aga, /ebu J li(e herein respondent J are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added taxes or VA . Although export sales are not deemed exempt transactions, they are nonetheless .ero-rated. <ence, in the present case, the distinction between exempt entities and exempt transactions has little significance, because the net result is that the taxpayer is not

Page 12 of .2

liable for the VA . )espondent, a VA -registered enterprise, has complied with all re2uisites for claiming a tax refund of or credit for the input VA it paid on capital goods it purchased. hus, the /ourt of ax Appeals and the /ourt of Appeals did not err in ruling that it is entitled to such refund or credit. Gacts4 1. K)espondentL is a resident foreign corporation duly registered with the "ecurities and Axchange /ommission to do business in the Philippines, with principal office address at the new /ebu ownship =ne, "pecial Aconomic Hone, Farangay /antao-an, 'aga, /ebu9 &. KPetitionerL is sued in his official capacity, having been duly appointed and empowered to perform the duties of his office, including, among others, the duty to act and approve claims for refund or tax credit9 +. K)espondentL is registered with the Philippine Axport Hone Authority (PAHA! and has been issued PAHA /ertificate 'o. 7*-#00 pursuant to Presidential ;ecree 'o. $$, as amended, to engage in the manufacture of recording components primarily used in computers for export. "uch registration was made on $ ?une 177*9 0. K)espondentL is VA K(Value Added ax!L-registered entity as evidenced by VA /ertification 'o. 7*-#%+-###$##-V issued on & April 177*9 5. VA returns for the period 1 April 177% to +# ?une 1777 have been filed by KrespondentL9 )egistration

$. An administrative claim for refund of VA input taxes in the amount of P&%,+$7,&&$.+% with supporting documents (inclusive of the P1&,&$*,7%1.#0 VA input taxes subject of this Petition for )eview!, was filed on 0 =ctober 1777 with )evenue ;istrict =ffice 'o. %+, alisay /ebu9 *. 'o final action has been received by KrespondentL from KpetitionerL on KrespondentOsL claim for VA refund. I he administrative claim for refund by the KrespondentL on =ctober 0, 1777 was not acted upon by the KpetitionerL prompting the KrespondentL to elevate the case to Kthe / AL on ?uly &1, &### by way of Petition for )eview in order to toll the running of the two-year prescriptive period. IGor his part, KpetitionerL . . . raised the following "pecial and Affirmative ;efenses, to wit4 1. K)espondentOsL alleged claim for tax refund6credit is subject to administrative routinary investigation6examination by KpetitionerOsL Fureau9 &. "ince Otaxes are presumed to have been collected in accordance with laws and regulations,O the KrespondentL has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected . . .9 +. ,n /itiban(, '.A. vs. /ourt of Appeals, &%# "/)A 057 (177*!, the "upreme /ourt ruled that4 IA claimant has the burden of proof to establish the factual basis of his or her claim for tax credit6refund.I 0. /laims for tax refund6tax credit are construed in Ostrictissimi jurisO against the taxpayer. his is due to the fact that claims for refund6credit Kparta(e ofL the nature of an exemption from tax. hus, it is incumbent upon the KrespondentL to prove that it is indeed entitled to the refund6credit sought. Gailure on the part of the KrespondentL to prove the same is fatal to its claim for tax credit. <e who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications9 5. 1ranting, without admitting, that KrespondentL is a Philippine Aconomic Hone Authority (PAHA! registered Aco.one Anterprise, then its business is not subject to VA pursuant to "ection &0 of )epublic Act 'o. (K)AL! *71$ in relation to "ection 1#+ of the ax /ode, as amended. As KrespondentOsL business is not subject to VA , the capital goods and services it alleged to have purchased are considered not used in VA taxable business. As such, KrespondentL is not entitled to refund of input taxes on such capital goods

Page 15 of .2

pursuant to "ection 0.1#$.1 of )evenue )egulations 'o. (K))L!*-75, and of input taxes on services pursuant to "ection 0.1#+ of said regulations. $. K)espondentL must show compliance with the provisions of "ection &#0 (/! and &&7 of the 177* ax /ode on filing of a written claim for refund within two (&! years from the date of payment of tax.O I=n ?uly 17, &##1, the ax /ourt rendered a decision granting the claim for refund.I "ole ,ssue Petitioner submits this sole issue for our consideration4 IDhether or not respondent is entitled to the refund or issuance of ax /redit /ertificate in the amount of P1&,1&&,7&&.$$ representing alleged unutili.ed input VA paid on capital goods purchased for the period April 1, 177% to ?une +#, 1777.I he /ourtOs )uling he Petition is unmeritorious. "ole ,ssue4 Antitlement of a VA -)egistered PAHA Anterprise to a )efund of or /redit for ,nput VA . 'o doubt, as a PAHA-registered enterprise within a special economic .one, respondent is entitled to the fiscal incentives and benefits provided for in either P; $$ or A= &&$. ,t shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both )epublic Act 'os. ()A! *&&* 11 and *%00. Preferential ax reatment :nder "pecial @aws ,f it avails itself of P; $$, notwithstanding the provisions of other laws to the contrary, respondent shall not be subject to internal revenue laws and regulations for raw materials, supplies, articles, e2uipment, machineries, spare parts and wares, except those prohibited by law, brought into the .one to be stored, bro(en up, repac(ed, assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured, mixed or used directly or indirectly in such activities. Aven so, respondent would enjoy a netoperating loss carry over9 accelerated depreciation9 foreign exchange and financial assistance9 and exemption from export taxes, local taxes and licenses. /omparatively, the same exemption from internal revenue laws and regulations applies if A= &&$ is chosen. :nder this law, respondent shall further be entitled to an income tax holiday9 additional deduction for labor expense9 simplification of customs procedure9 unrestricted use of consigned e2uipment9 access to a bonded manufacturing warehouse system9 privileges for foreign nationals employed9 tax credits on domestic capital e2uipment, as well as for taxes and duties on raw materials9 and exemption from contractorsO taxes, wharfage dues, taxes and duties on imported capital e2uipment and spare parts, export taxes, duties, imposts and fees, 1$ local taxes and licenses, and real property taxes. A privilege available to respondent under the provision in )A *&&* on tax and duty-free importation of raw materials, capital and e2uipment J is, ipso facto, also accorded to the .one under )A *71$. Gurthermore, the latter law J notwithstanding other existing laws, rules and regulations to the contrary J extends to that .one the provision stating that no local or national taxes shall be imposed therein. 'o exchange control policy shall be applied9 and free mar(ets for foreign exchange, gold, securities and future shall be allowed and maintained. Fan(ing and finance shall also be liberali.ed under minimum Fang(o "entral regulation with the establishment of foreign currency depository units of local commercial ban(s and offshore ban(ing units of foreign ban(s.

Page 1, of .2

,n the same vein, respondent benefits under )A *%00 from negotiable tax credits for locally-produced materials used as inputs. Aside from the other incentives possibly already granted to it by the Foard of ,nvestments, it also enjoys preferential credit facilities and exemption from P; 1%5+. 2rom the above-cited laws, it is immediately clear that petitioner enDoys preferential tax treatment( ,t is not subject to internal revenue laws and regulations and is even entitled to tax credits. he VA on capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the transactions involving such tax are not exempt, petitioner as a VA -registered person, however, is entitled to their credits. 'ature of the VA and the ax /redit >ethod Viewed broadly, the VA is a uniform tax ranging, at present, from # percent to 1# percent levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller, transferor or lessor. ,t is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. As such, it should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption. ,n either case, though, the same conclusion is arrived at. he law that originally imposed the VA in the country, as well as the subse2uent amendments of that law, has been drawn from the tax credit method. "uch method adopted the mechanics and self-enforcement features of the VA as first implemented and practiced in Aurope and subse2uently adopted in 'ew Healand and /anada. :nder the present method that relies on invoices, an entity can credit against or subtract from the VA charged on its sales or outputs the VA paid on its purchases, inputs and imports. ,f at the end of a taxable 2uarter the output taxes charged by a seller are e2ual to the input taxes passed on by the suppliers, no payment is re2uired. ,t is when the output taxes exceed the input taxes that the excess has to be paid. ,f, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding 2uarter or 2uarters. "hould the input taxes result from .ero-rated or effectively .ero-rated transactions or from the ac2uisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. Hero-)ated and Affectively Hero-)ated ransactions .lthough both are taxable and similar in effect, ,ero-rated transactions differ from effectively ,erorated transactions as to their source( 1er$8r"te/ tr"!)"-t+$!) generally refer to the export sale of goods and supply of services . he tax rate is set at .ero. Dhen applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the -.T previously charged by suppliers . E44e-t+5e#% ;er$8r"te/ tr"!)"-t+$!) , however, refer to the sale of goods or supply of services to persons or entities !hose exemption under special la!s or international agreements to !hich the Philippines is a signatory effectively su%?ects such transactions to a =ero rate . Again, as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The seller who charges ,ero output tax on such transactions can also claim a refund of or a tax credit certificate for the -.T previously charged by suppliers( Hero )ating and Axemption

Page 1. of .2

,n terms of the VA computation, .ero rating and exemption are the same, but the extent of relief that results from either one of them is not. Applying the destination principle to the exportation of goods, ".t$m"t+- ;er$ r"t+!, is primarily intended to be enDoyed by the seller who is directly and legally liable for the -.T, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. E44e-t+5e ;er$ r"t+!,, on the contrary, is intended to benefit the purchaser who, not being directly and legally liable for the payment of the -.T, will ultimately bear the burden of the tax shifted by the suppliers( ,n both instances of .ero rating, there is total relief for the purchaser from the burden of the tax. Fut in an exemption there is only partial relief, because the purchaser is not allowed any tax refund of or credit for input taxes paid. Axempt ransaction and Axempt Party he object of exemption from the VA may either be the transaction itself or any of the parties to the transaction. An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VA under the ax /ode, without regard to the tax status J VA -exempt or not J of the party to the transaction. ,ndeed, such transaction is not subject to the VA , but the seller is not allowed any tax refund of or credit for any input taxes paid. An exempt party, on the other hand, is a person or entity granted VA exemption under the ax /ode, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from the VA . "uch party is also not subject to the VA , but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VA or non-VA taxpayer. As mentioned earlier, the VA is a tax on consumption, the amount of which may be shifted or passed on by the seller to the purchaser of the goods, properties or services. Dhile the liability is imposed on one person, the burden may be passed on to another. herefore, if a special law merely exempts a party as a seller from its direct liability for payment of the VA , but does not relieve the same party as a purchaser from its indirect burden of the VA shifted to it by its VA -registered suppliers, the purchase transaction is not exempt. Applying this principle to the case at bar, the purchase transactions entered into by respondent are not VA -exempt. "pecial laws may certainly exempt transactions from the VA . <owever, the ax /ode provides that those falling under P; $$ are not. P; $$ is the precursor of )A *71$ J the special law under which respondent was registered. he purchase transactions it entered into are, therefore, not VA -exempt. hese are subject to the VA 9 respondent is re2uired to register. ,ts sales transactions, however, will either be .ero-rated or taxed at the standard rate of 1# percent, depending again on the application of the destination principle. ,f respondent enters into such sales transactions with a purchaser J usually in a foreign country J for use or consumption outside the Philippines, these shall be subject to # percent. ,f entered into with a purchaser for use or consumption in the Philippines, then these shall be subject to 1# percent, unless the purchaser is exempt from the indirect burden of the VA , in which case it shall also be .ero-rated. "ince the purchases of respondent are not exempt from the VA , the rate to be applied is .ero. ,ts exemption under both P; $$ and )A *71$ effectively subjects such transactions to a .ero rate, because the eco.one within which it is registered is managed and operated by the PAHA as a separate customs territory. his means that in such .one is created the legal fiction of foreign territory. :nder the cross-border principle of the VA system being enforced by the Fureau of ,nternal )evenue (F,)!, no VA shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the

Page 16 of .2

taxing authority. ,f exports of goods and services from the Philippines to a foreign country are free of the VA , then the same rule holds for such exports from the national territory J except specifically declared areas J to an eco.one. "ales made by a VA -registered person in the customs territory to a PAHA-registered entity are considered exports to a foreign country9 conversely, sales by a PAHA-registered entity to a VA -registered person in the customs territory are deemed imports from a foreign country. An eco.one J indubitably a geographical territory of the Philippines J is, however, regarded in law as foreign soil. his legal fiction is necessary to give meaningful effect to the policies of the special law creating the .one. ,f respondent is located in an export processing .one within that eco.one, sales to the export processing .one, even without being actually exported, shall in fact be viewed as constructively exported under A= &&$. /onsidered as export sales, such purchase transactions by respondent would indeed be subject to a .ero rate. ax Axemptions Froad and Axpress Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal revenue laws and regulations. his exemption covers both direct and indirect taxes, stemming from the very nature of the VA as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another. 5espondent, as an exempt entity, can neither be directly charged for the -.T on its sales nor indirectly made to bear, as added cost to such sales, the equivalent -.T on its purchases( @%i lex non distinguit, nec nos distinguere de%emus . Dhere the law does not distinguish, we ought not to distinguish. >oreover, the exemption is both express and pervasive for the following reasons4 Girst, )A *71$ states that Ino taxes, local and national, shall be imposed on business establishments operating within the eco.one.I %1 "ince this law does not exclude the VA from the prohibition, it is deemed included. Axceptio firmat regulam in casibus non exceptis. An exception confirms the rule in cases not excepted9 that is, a thing not being excepted must be regarded as coming within the purview of the general rule. >oreover, even though the VA is not imposed on the entity but on the transaction, it may still be passed on and, therefore, indirectly imposed on the same entity J a patent circumvention of the law. hat no VA shall be imposed directly upon business establishments operating within the eco.one under )A *71$ also means that no VA may be passed on and imposed indirectly. Nuando ali2uid prohibetur ex directo prohibetur et per obli2uum. Dhen anything is prohibited directly, it is also prohibited indirectly. "econd, when )A %*0% was enacted to amend )A *71$, the same prohibition applied, except for real property taxes that presently are imposed on land owned by developers. his similar and repeated prohibition is an unambiguous ratification of the lawOs intent in not imposing local or national taxes on business enterprises within the eco.one. hird, foreign and domestic merchandise, raw materials, e2uipment and the li(e Ishall not be subject to . . . internal revenue laws and regulationsI under P; $$ J the original charter of PAHA (then APHA! that was later amended by )A *71$. 'o provisions in the latter law modify such exemption. Although this exemption puts the government at an initial disadvantage, the reduced tax collection ultimately redounds to the benefit of the national economy by enticing more business investments and creating more employment opportunities. Gourth, even the rules implementing the PAHA law clearly reiterate that merchandise J except those prohibited by law J Ishall not be subject to . . . internal revenue laws and regulations . . .I if brought to the eco.oneOs restricted area for manufacturing by registered export enterprises, of which respondent is one. hese rules also apply to all enterprises registered with the APHA prior to the effectivity of such rules.

Page 16 of .2

Gifth, export processing .one enterprises registered with the Foard of ,nvestments (F=,! under A= &&$ patently enjoy exemption from national internal revenue taxes on imported capital e2uipment reasonably needed and exclusively used for the manufacture of their products9 on re2uired supplies and spare part for consigned e2uipment9 and on foreign and domestic merchandise, raw materials, e2uipment and the li(e J except those prohibited by law J brought into the .one for manufacturing. ,n addition, they are given credits for the value of the national internal revenue taxes imposed on domestic capital e2uipment also reasonably needed and exclusively used for the manufacture of their products, as well as for the value of such taxes imposed on domestic raw materials and supplies that are used in the manufacture of their export products and that form part thereof. "ixth, the exemption from local and national taxes granted under )A *&&* are ipso facto accorded to eco.ones. ,n case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in favor of the eco.one. And seventh, the tax credits under )A *%00 J given for imported raw materials primarily used in the production of export goods, and for locally produced raw materials, capital e2uipment and spare parts used by exporters of non-traditional products J shall also be continuously enjoyed by similar exporters within the eco.one. ,ndeed, the latter exporters are li(ewise entitled to such tax exemptions and credits. ax )efund as ax Axemption o be sure, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. ax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the burden of proving the factual basis of their claims9 and of showing, by words too plain to be mista(en, that the legislature intended to exempt them. ,n the present case, all the cited legal provisions are teeming with life with respect to the grant of tax exemptions too vivid to pass unnoticed. ,n addition, respondent easily meets the challenge. )espondent, which as an entity is exempt, is different from its transactions which are not exempt. he end result, however, is that it is not subject to the VA . he non-taxability of transactions that are otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as an entity, not upon the transactions themselves. 'onetheless, its exemption as an entity and the non-exemption of its transactions lead to the same result for the following considerations4 Girst, the contemporaneous construction of our tax laws by F,) authorities who are called upon to execute or administer such laws will have to be adopted. heir prior tax issuances have held inconsistent positions brought about by their probable failure to comprehend and fully appreciate the nature of the VA as a tax on consumption and the application of the destination principle. )evenue >emorandum /ircular 'o. ()>/! *0-77, however, now clearly and correctly provides that any VA -registered supplierOs sale of goods, property or services from the customs territory to any registered enterprise operating in the eco.one J regardless of the class or type of the latterOs PAHA registration J is legally entitled to a .ero rate. "econd, the policies of the law should prevail. )atio legis est anima. he reason for the law is its very soul. ,n P; $$, the urgent creation of the APHA which preceded the PAHA, as well as the establishment of export processing .ones, see(s Ito encourage and promote foreign commerce as a means of . . . strengthening our export trade and foreign exchange position, of hastening industriali.ation, of reducing domestic unemployment, and of accelerating the development of the country.I )A *71$, as amended by )A %*0%, declared that by creating the PAHA and integrating the special economic .ones, Ithe government shall actively encourage, promote, induce and accelerate a sound and balanced industrial, economic and social development of the country . . . through the establishment, among others, of special economic .ones . . . that shall effectively attract legitimate and productive foreign investments.I

Page 17 of .2

:nder A= &&$, the I"tate shall encourage . . . foreign investments in industry . . . which shall . . meet the tests of international competitivenessK,L accelerate development of less developed regions of the countryK,L and result in increased volume and value of exports for the economy.I Giscal incentives that are costefficient and simple to administer shall be devised and extended to significant projects Ito compensate for mar(et imperfections, to reward performance contributing to economic development,I and Ito stimulate the establishment and assist initial operations of the enterprise.I Disely accorded to eco.ones created under )A *71$ was the governmentOs policy J spelled out earlier in )A *&&* J of converting into alternative productive uses the former military reservations and their extensions, as well as of providing them incentives to enhance the benefits that would be derived from them in promoting economic and social development. Ginally, under )A *%00, the "tate declares the need Ito evolve export development into a national effortI in order to win international mar(ets. Fy providing many export and tax incentives, the "tate is able to drive home the point that exporting is indeed Ithe (ey to national survival and the means through which the economic goals of increased employment and enhanced incomes can most expeditiously be achieved.I he ax /ode itself see(s to Ipromote sustainable economic growth . . .9 . . . increase economic activity9 and . . . create a robust environment for business to enable firms to compete better in the regional as well as the global mar(et.I After all, international competitiveness re2uires economic and tax incentives to lower the cost of goods produced for export. "tate actions that affect global competition need to be specific and selective in the pricing of particular goods or services. All these statutory policies are congruent to the constitutional mandates of providing incentives to needed investments, 1&% as well as of promoting the preferential use of domestic materials and locally produced goods and adopting measures to help ma(e these competitive. 1&7 ax credits for domestic inputs strengthen bac(ward lin(ages. )ightly so, Ithe rule of law and the existence of credible and efficient public institutions are essential prere2uisites for sustainable economic development.I VA )egistration, 'ot Application for Affective Hero )ating, ,ndispensable to VA )efund )egistration is an indispensable re2uirement under our VA law. Petitioner alleges that respondent did register for VA purposes with the appropriate )evenue ;istrict =ffice. <owever, it is now too late in the day for petitioner to challenge the VA -registered status of respondent, given the latterOs prior representation before the lower courts and the mode of appeal ta(en by petitioner before this /ourt. he PAHA law, which carried over the provisions of the APHA law, is clear in exempting from internal revenue laws and regulations the e2uipment J including capital goods J that registered enterprises will use, directly or indirectly, in manufacturing. A= &&$ even reiterates this privilege among the incentives it gives to such enterprises. Petitioner merely asserts that by virtue of the PAHA registration alone of respondent, the latter is not subject to the VA . /onse2uently, the capital goods and services respondent has purchased are not considered used in the VA business, and no VA refund or credit is due. his is a non se2uitur. Fy the VA Os very nature as a tax on consumption, the capital goods and services respondent has purchased are subject to the VA , although at .ero rate. )egistration does not determine taxability under the VA law. >oreover, the facts have already been determined by the lower courts. <aving failed to present evidence to support its contentions against the income tax holiday privilege of respondent, petitioner is deemed to have conceded. ,t is a cardinal rule that Iissues and arguments not ade2uately and seriously brought below cannot be raised for the first time on appeal.I his is a Imatter of procedureI and a I2uestion of fairness.I Gailure to assert Iwithin a reasonable time warrants a presumption that the party entitled to assert it either has abandoned or declined to assert it.I he F,) regulations additionally re2uiring an approved prior application for effective .ero rating cannot prevail over the clear VA nature of respondentOs transactions. he scope of such regulations is not Iwithin the statutory authority . . . granted by the legislature.

Page 18 of .2

Girst, a mere administrative issuance, li(e a F,) regulation, cannot amend the law9 the former cannot purport to do any more than interpret the latter. he courts will not countenance one that overrides the statute it see(s to apply and implement. =ther than the general registration of a taxpayer the VA status of which is aptly determined, no provision under our VA law re2uires an additional application to be made for such taxpayerOs transactions to be considered effectively .ero-rated. An effectively .ero-rated transaction does not and cannot become exempt simply because an application therefor was not made or, if made, was denied. o allow the additional re2uirement is to give unfettered discretion to those officials or agents who, without fluid consideration, are bent on denying a valid application. >oreover, the "tate can never be estopped by the omissions, mista(es or errors of its officials or agents. "econd, grantia argumenti that such an application is re2uired by law, there is still the presumption of regularity in the performance of official duty. )espondentOs registration carries with it the presumption that, in the absence of contradictory evidence, an application for effective .ero rating was also filed and approval thereof given. Fesides, it is also presumed that the law has been obeyed by both the administrative officials and the applicant. hird, even though such an application was not made, all the special laws we have tac(led exempt respondent not only from internal revenue laws but also from the regulations issued pursuant thereto. @eniency in the implementation of the VA in eco.ones is an imperative, precisely to spur economic growth in the country and attain global competitiveness as envisioned in those laws. A VA -registered status, as well as compliance with the invoicing re2uirements, is sufficient for the effective .ero rating of the transactions of a taxpayer. he nature of its business and transactions can easily be perused from, as already clearly indicated in, its VA registration papers and photocopied documents attached thereto. <ence, its transactions cannot be exempted by its mere failure to apply for their effective .ero rating. =therwise, their VA exemption would be determined, not by their nature, but by the taxpayerOs negligence J a result not at all contemplated. Administrative convenience cannot thwart legislative mandate. ax )efund or /redit in =rder <aving determined that respondentOs purchase transactions are subject to a .ero VA rate, the tax refund or credit is in order. As correctly held by both the /A and the ax /ourt, respondent had chosen the fiscal incentives in A= &&$ over those in )A *71$ and P; $$. ,t opted for the income tax holiday regime instead of the 5 percent preferential tax regime. he latter scheme is not a perfunctory aftermath of a simple registration under the PAHA law, for A= &&$ also has provisions to contend with. hese two regimes are in fact incompatible and cannot be availed of simultaneously by the same entity. Dhile A= &&$ merely exempts it from income taxes, the PAHA law exempts it from all taxes. herefore, respondent can be considered exempt, not from the VA , but only from the payment of income tax for a certain number of years, depending on its registration as a pioneer or a non-pioneer enterprise. Fesides, the remittance of the aforesaid 5 percent of gross income earned in lieu of local and national taxes imposable upon business establishments within the eco.one cannot outrightly determine a VA exemption. Feing subject to VA , payments erroneously collected thereon may then be refunded or credited. Aven if it is argued that respondent is subject to the 5 percent preferential tax regime in )A *71$, "ection &0 thereof does not preclude the VA . =ne can, therefore, counterargue that such provision merely exempts respondent from taxes imposed on business. o repeat, the VA is a tax imposed on consumption, not on business. Although respondent as an entity is exempt, the transactions it enters into

Page 20 of .2

are not necessarily so. he VA payments made in excess of the .ero rate that is imposable may certainly be refunded or credited. /ompliance with All )e2uisites for VA )efund or /redit As further enunciated by the ax /ourt, respondent complied with all the re2uisites for claiming a VA refund or credit. Girst, respondent is a VA -registered entity. his fact alone distinguishes the present case from /ontex, in which this /ourt held that the petitioner therein was registered as a non-VA taxpayer. <ence, for being merely VA -exempt, the petitioner in that case cannot claim any VA refund or credit. "econd, the input taxes paid on the capital goods of respondent are duly supported by VA invoices and have not been offset against any output taxes. Although enterprises registered with the F=, after ;ecember +1, 1770 would no longer enjoy the tax credit incentives on domestic capital e2uipment J as provided for under Article +7(d!, itle ,,,, Foo( , of A= &&$ J starting ?anuary 1, 177$, respondent would still have the same benefit under a general and express exemption contained in both Article **(1!, Foo( V, of A= &&$9 and "ection 1&, paragraph & (c! of )A *&&*, extended to the eco.ones by )A *71$. here was a very clear intent on the part of our legislators, not only to exempt investors in eco.ones from national and local taxes, but also to grant them tax credits. his fact was revealed by the sponsorship speeches in /ongress during the second reading of <ouse Fill 'o. 10&75, which later became )A *71$, as shown below4 I>). )A/ =. . . . "ome of the incentives that this bill provides are exemption from national and local taxes9 . . . tax credit for locally-sourced inputs . . .I xxx xxx xxx

I>). ;A@ >A). . . . o advance its cause in encouraging investments and creating an environment conducive for investors, the bill offers incentives such as the exemption from local and national taxes, . . . tax credits for locally sourced inputs . . .I And third, no 2uestion as to either the filing of such claims within the prescriptive period or the validity of the VA returns has been raised. Aven if such a 2uestion were raised, the tax exemption under all the special laws cited above is broad enough to cover even the enforcement of internal revenue laws, including prescription. "ummary o summari.e, special laws expressly grant preferential tax treatment to business establishments registered and operating within an eco.one, which by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VA , and regulations pertaining thereto. ,t has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be 2uestioned. ,ts sales transactions intended for export may not be exempt, but li(e its purchase transactions, they are .ero-rated. 'o prior application for the effective .ero rating of its transactions is necessary. Being -.T-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input -.T paid on capital goods purchased, respondent is entitled to such -.T refund or credit( <G.R. N$. =>=?>7. A(r+# @?& @22>.A CALAMBA STEEL CENTER& INC. (4$rmer#% BS STEEL CORPORATION)& (et+t+$!er& 5). COMMISSIONER O* INTERNAL REVENUE& re)($!/e!t. ;A/,",='

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PA'1A',FA', ? p4 A tax refund may be claimed even beyond the taxable year following that in which the tax credit arises. <ence, excess income taxes paid in 1775 that have not been applied to or used in 177$ may still be the subject of a tax refund in 177*, provided that the claim for such refund is filed with the internal revenue commissioner within two years after payment of said taxes. As a caveat, the /ourt stresses that the recognition of the entitlement to a tax refund does not necessarily mean the automatic payment of the sum claimed in the final adjustment return of the taxpayer. he amount of the claim must still be proven in the normal course. he /ase Fefore us is a Petition for )eview 1 under )ule 05 of the )ules of /ourt, assailing the ?anuary 1#, &##& ;ecision & of the /ourt of Appeals (/A! in /A-1) "P 'o. 5%%+%. he assailed ;ecision disposed as follows4 I,' V,AD =G A@@ <A G=)A1=,'1, the instant petition is ;,">,""A; and the assailed ;ecision and )esolution are AGG,)>A;. /osts against Petitioner.I he Gacts Nuoting the /ourt of ax Appeals (/ A!, the /A narrated the antecedents as follows4 IPetitioner is a domestic corporation engaged in the manufacture of steel blan(s for use by manufacturers of automotive, electrical, electronics in industrial and household appliances. IPetitioner filed an Amended /orporate Annual ,ncome ax )eturn on ?une 0, 177$ declaring a net taxable income of P7,0$1,57*.##, tax credits of P$,0*1,&0$.## and tax due in the amount of P+,+11,557.##. IPetitioner also reported 2uarterly payments for the second and third 2uarters of 1775 in the amounts of P&,+&%,*0*.&$ and P1,#%&,1#%.##, respectively. I,t is the proposition of the KpLetitioner that for the year 1775, several of its clients withheld taxes from their income payments to KpLetitioner and remitted the same to the Fureau of ,nternal )evenue (F,)! in the sum of P+,157,$%*.##. Petitioner further alleged that due to its income6loss positions for the three 2uarters of 177$, it was unable to use the excess tax paid for and in its behalf by the withholding agents. I hus, an administrative claim was filed by the KpLetitioner on April 1#, 177* for the refund of P+,157,$%*.## representing excess or unused creditable withholding taxes for the year 1775. he instant petition was subse2uently filed on April 1%, 177*. I)espondent, in his Answer, averred, among others, that4 O1! Petitioner has no cause of action9 O&! Petitioner failed to comply with the procedural re2uirements set out in "ection 5 of )evenue )egulations 'o. K())!L 1&-709 O+! ,t is incumbent upon KpLetitioner to prove by competent and sufficient evidence that the tax refund or tax credit being sought is allowed under the 'ational ,nternal )evenue /ode and its implementing rules and regulations9 and O0! /laims for tax refund or tax credit are construed strictly against the taxpayer as they parta(e the nature of tax exemption. I o buttress its claim, KpLetitioner presented documentary and testimonial evidence. )espondent, on the other hand, presented the KrLevenue KoLfficer who conducted the examination of KpLetitionerOs claim and found petitioner liable for deficiency value added tax. Petitioner also presented rebuttal evidence. I he sole issue submitted for KoLur determination is whether or not KpLetitioner is entitled to the refund of P+,157,$%*.## representing excess or overpaid income tax for the taxable year 1775.I

Page 22 of .2

)uling of the /ourt of Appeals ,n denying petitionerOs refund, the /A reasoned out that no evidence other than that presented before the / A was adduced to prove that excess tax payments had been made in 1775. Grom the inception of the case to the formal offer of its evidence, petitioner did not present its 177$ income tax return to disclose its total income tax liability, thus ma(ing it difficult to determine whether such excess tax payments were utili.ed in 177$. <ence, this Petition. he ,ssue Petitioner raises this sole issue for our consideration4 IDhether the /ourt of Appeals gravely erred when, while purportedly re2uiring petitioner to submit its 177$ annual income tax return to support its claim for refund, nonetheless ignored the existence of the tax return extant on the record the authenticity of which has not been denied or its admissibility opposed by the /ommissioner of ,nternal )evenue.I $ he /ourtOs )uling he Petition is partly meritorious. "ole ,ssue4 Antitlement to ax )efund "ection $7 of the 'ational ,nternal )evenue /ode (',)/! * provides4 I"ec. $7. Ginal adjustment return. J Avery corporation liable to tax under "ection &0 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. ,f the sum of the 2uarterly tax payments made during the said taxable year is not e2ual to the total tax due on the entire taxable net income of that year the corporation shall either4 O(a! Pay the excess tax still due9 or O(b! Fe refunded the excess amount paid, as the case may be. I,n case the corporation is entitled to a refund of the excess estimated 2uarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated 2uarterly income tax liabilities for the taxable 2uarters of the succeeding taxable year.I ax )efund Allowed by ',)/ A perusal of this provision shows that a taxable corporation is entitled to a tax refund when the sum of the 2uarterly income taxes it paid during a taxable year exceeds its total income tax due also for that year. /onse2uently, the refundable amount that is shown on its final adjustment return may be credited, at its option, against its 2uarterly income tax liabilities for the next taxable year. Petitioner is a corporation liable to pay income taxes under "ection &0 of the ',)/. <ence, it is a taxable corporation. ,n 1775, it reported that it had excess income taxes that had been paid for and on its behalf by its withholding agents9 and that, applying the above-2uoted "ection $7, this excess should be credited against its income tax liabilities for 177$. <owever, it claimed in 177* that it should get a refund, because it was still unable to use the excess income taxes paid in 1775 against its tax liabilities in 177$. ,s this possibleR "tating the argument otherwise, may excess income taxes paid in 1775 that could not be applied to taxes due in 177$ be refunded in 177*R he answer is in the affirmative. <ere are the reasons4 /laim of ax )efund Feyond the

Page 25 of .2

"ucceeding axable Qear Girst, a tax refund may be claimed even beyond the taxable year following that in which the tax credit arises. 'o provision in our tax law limits the entitlement to such a refund, other than the re2uirement that the filing of the administrative claim for it be made by the taxpayer within a two-year prescriptive period. "ection &#0(+! of the ',)/ states that no refund of taxes Ishall be allowed unless the taxpayer files in writing with the /ommissioner KtheL claim for . . . refund within two years after the payment of the tax.I Applying the afore2uoted legal provisions, if the excess income taxes paid in a given taxable year have not been entirely used by a taxable corporation against its 2uarterly income tax liabilities for the next taxable year, the unused amount of the excess may still be refunded, provided that the claim for such a refund is made within two years after payment of the tax. Petitioner filed its claim in 177* J well within the two-year prescriptive period. hus, its unused tax credits in 1775 may still be refunded. Aven the phrase Isucceeding taxable yearI in the second paragraph of the said "ection $7 is a limitation that applies only to a tax credit, not a tax refund. Petitioner herein does not claim a tax credit, but a tax refund. herefore, the statutory limitation does not apply. ,ncome Payments >erely ;eclared Part of 1ross ,ncome "econd, to be able to claim a tax refund, a taxpayer only needs to declare the income payments it received as part of its gross income and to establish the fact of withholding. "ection 5 of )) 1&-70 % states4 xxx xxx xxx

I(a! /laims for ax /redit or )efund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the Dithholding ax "tatement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. I(b! Axcess /redits. J A taxpayerOs excess expanded withholding tax credits for the taxable 2uarter6taxable year shall automatically be allowed as a credit for purposes of filing his income tax return for the taxable 2uarter6taxable year immediately succeeding the taxable 2uarter6taxable year in which the aforesaid excess credit arose, provided, however, he submits with his income tax return a copy of his income tax return for the aforesaid previous taxable period showing the amount of his aforementioned excess withholding tax credits. I,f the taxpayer, in lieu of the aforesaid automatic application of his excess credit, wants a cash refund or a tax credit certificate for use in payment of his other national internal tax liabilities, he shall ma(e a written re2uest therefor. :pon filing of his re2uest, the taxpayerOs income tax return showing the excess expanded withholding tax credits shall be examined. he excess expanded withholding tax, if any, shall be determined and refunded6credited to the taxpayer-applicant. he refund6credit shall be made within a period of sixty ($#! days from date of the taxpayerOs re2uest provided, however, that the taxpayer-applicant submitted for audit all his pertinent accounting records and that the aforesaid records established the veracity of his claim for a refund6credit of his excess expanded withholding tax credits.I hat petitioner filed its amended 1775 income tax return in 177$ is uncontested. ,n addition, the resulting investigation by the F,) on August 15, 177*, reveals that the income accounts were Icorrectly declared based on the existing supporting documents.I 7 herefore, there is no need for petitioner to show again the income payments it received in 1775 as part of its gross income in 177$. hat petitioner filed its 177$ final adjustment return in 177* is the crux of the controversy. <owever, as will be demonstrated shortly, the lac( of such a return will not defeat its entitlement to a refund.

Page 2, of .2

ax )efund Provisions4 Nuestion of @aw hird, it is a cardinal rule that Ionly legal issues may be raisedI 1# in petitions for review under )ule 05. he proper interpretation of the provisions on tax refund is a 2uestion of law that Idoes not call for an examination of the probative value of the evidence presented by the parties-litigants.I <aving been unable to use the excess income taxes paid in 1775 against its other tax liabilities in 177$, petitioner clearly deserves a refund. ,t cannot by any sweeping denial be deprived of what rightfully belongs to it. he truth or falsity of the contents of or entries in the 177$ final adjustment return, which has not been formally offered in evidence and examined by respondent, involves, however, a 2uestion of fact. his /ourt is not a trier of facts. 'either is it a collection agency for the government. Although we rule that petitioner is entitled to a tax refund, the amount of that refund is a matter for the / A to determine judiciously based on the records that include its own copy of petitionerOs 177$ final adjustment return. @iberal /onstruction of )ules Gourth, ordinary rules of procedure frown upon the submission of final adjustment returns after trial has been conducted. <owever, both the / A law and jurisprudence mandate that the proceedings before the tax court Ishall not be governed strictly by technical rules of evidence.I As a rule, its findings of fact (as well as that of the /A! are final, binding and conclusive on the parties and upon this /ourt9 however, as an exception, such findings may be reviewed or disturbed on appeal when they are not supported by evidence. =ur )ules of /ourt apply Iby analogy or in a suppletory character and whenever practicable and convenientI and Ishall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding.I After all, IKtLhe paramount consideration remains the ascertainment of truth.I ,n the present case, the 177$ final adjustment return was attached as Annex A to the )eply to /omment filed by petitioner with the /A. he return shows a negative amount for its taxable income that year. herefore, it could not have applied or used the excess tax credits of 1775 against its tax liabilities in 177$. ?udicial 'otice of Attached )eturn Gifth, the /A and / A could have ta(en judicial notice of the 177$ final adjustment return which had been attached in / A /ase 'o. 5*77. I?udicial notice ta(es the place of proof and is of e2ual force.I As a general rule, courts are not authori.ed to ta(e judicial notice of the contents of records in other cases tried or pending in the same court, even when those cases were heard or are actually pending before the same judge. <owever, this rule admits of exceptions, as when reference to such records is sufficiently made without objection from the opposing parties4 OI. . . K,Ln the absence of objection, and as a matter of convenience to all parties, a court may properly treat all or any part of the original record of a case filed in its archives as read into the record of a case pending before it, when, with the (nowledge of the opposing party, reference is made to it for that purpose, by name and number or in some other manner by which it is sufficiently designated9 or when the original record of the former case or any part of it, is actually withdrawn from the archives by the courtOs direction, at the re2uest or with the consent of the parties, and admitted as a part of the record of the case then pending.OI Prior to rendering its ;ecision on ?anuary 1&, &###, the / A was already well-aware of the existence of another case pending before it, involving the same subject matter, parties and causes of action. Fecause of the close connection of that case with the matter in controversy, the / A could have easily ta(en judicial notice of the contested document attached in that other case.

Page 2. of .2

Gurthermore, there was no objection raised to the inclusion of the said 177$ final adjustment return in petitionerOs )eply to /omment before the /A. ;espite clear reference to that return, a reference made with the (nowledge of respondent, the latter still failed to controvert petitionerOs claim. he appellate court should have cast aside strict technicalities and decided the case on the basis of such uncontested return. Verily, it had the authority to Ita(e judicial notice of its records and of the facts KthatL the record establishes.I "ection & of )ule 1&7 provides that courts Imay ta(e judicial notice of matters . . . ought to be (nown to judges because of their judicial functions.I ,f the lower courts really believed that petitioner was not entitled to a tax refund, they could have easily re2uired respondent to ascertain its veracity and accuracy and to prove that petitioner did not suffer any net loss in 177$. /ontrary to the contention of petitioner, FP,-Gamily "avings Fan( v. /A (on which it rests its entire arguments! is not on all fours with the facts of this case. Dhile the petitioner in that case also filed a written claim for a tax refund, and li(ewise failed to present its 177# corporate annual income tax return, it nonetheless offered in evidence its top-ran(ing officialOs testimony and certification pertaining to only two taxable years (17%7 and 177#!. he said return was attached only to its >otion for )econsideration before the / A. Petitioner in this case offered documentary and testimonial evidence that extended beyond two taxable years, because the excess credits in the first (1775! taxable year had not been used up during the second (177$! taxable year, and because the claim for the refund of those credits had been filed during the third (177*! taxable year. ,ts final adjustment return was instead attached to its )eply to /omment filed before the /A. >oreover, in FP,-Gamily "avings Fan(, petitioner was able to show Ithe undisputed fact4 that petitioner had suffered a net loss in 177# . . .I ,n the instant case, there is no such Iundisputed factI as yet. he mere admission into the records of petitionerOs 177$ final adjustment return is not a sufficient proof of the truth of the contents of or entries in that return. ,n addition, the F,) in FP,-Gamily "avings Fan( did not controvert the veracity of the return or file an opposition to the >otion and the return. ;espite the fact that the return was ignored by both the /A and the / A, the latter even declared in another case (/ A /ase 'o. 0%7*! that petitioner had suffered a net loss for taxable year 177#. Dhen attached to the Petition for )eview filed before this /ourt, that ;ecision was not at all claimed by the F,) to be fraudulent or nonexistent. he Fureau merely contended that this /ourt should not ta(e judicial notice of the said ;ecision. ,n this case, however, the F,) has not been given the chance to challenge the veracity of petitionerOs final adjustment return. 'either has the / A decided any other case categorically declaring a net loss for petitioner in taxable year 177$. After this return was attached to petitionerOs )eply to /omment before the /A, the appellate court should have re2uired the filing of other responsive pleadings from respondent, as was necessary and proper for it to rule upon the return. Admissibility Versus Deight ,ndeed, IKaLdmissibility . . . is one thing, weight is another.I I o admit evidence and not to believe it are not incompatible with each other . . .I >ere allegations by petitioner of the figures in its 177$ final adjustment return are not a sufficient proof of the amount of its refund entitlement. hey do not even constitute evidence adverse to respondent, against whom they are being presented. Dhile it seems that the IKnon-productionL of a document which courts almost invariably expect will be produced Ounavoidably throws a suspicion over the cause,OI this is not really the conclusion to be arrived at here. Dhen petitioner purportedly filed its administrative claim for a tax refund on April 1#, 177*, the deadline for filing the 177$ final adjustment return was not yet over. <ence, it could not have attached this return to its claim. Gor reasons un(nown even to this /ourt, petitioner failed to offer such return as evidence during the trial phase of this case. Gor its negligence, petitioner Icannot be allowed to see( refuge in a liberal application of

Page 26 of .2

the KrLulesI by giving it a blan(et approval of the total refund it claims. IDhile in certain instances, we allow a relaxation in the application of the rules, we never intend to forge a weapon for erring litigants to violate the rules with impunity. he liberal interpretation and application of rules apply only in proper cases of demonstrable merit and under justifiable causes and circumstances.I ,t would not be proper to allow petitioner to simply prevail and compel a refund in the amount it claims, without affording the government a reasonable opportunity to contest the formerOs allegations. 'egligence consisting of the unexplained failure to offer the exhibit should not be rewarded with undeserved leniency. Petitioner still bears the burden of proving the amount of its claim for tax refund. After all, IKtLax refunds are in the nature of tax exemptionsI and are to be construed strictissimi juris against the taxpayer. Ginally, even in the absence of a final adjustment return or any claim for a tax refund, respondent is authori.ed by law to examine any boo(, paper, record or other data that may be relevant or material to such in2uiry. Gailure to ma(e an assessment of petitionerOs proper tax liability or to contest the return could be errors or omissions of administrative officers that should never be allowed to jeopardi.e the governmentOs financial position. Verily, Ithe officers of the Fureau of ,nternal )evenue should receive the support of the courts when these officers attempt to perform in a conscientious and lawful manner the duties imposed upon them by law.I =nly after it is shown that Iif something is received when there is no right to demand it, and it was duly delivered through mista(e, the obligation to return it arises.I ,n brief, we hold that petitioner is entitled to a refund9 however, the amount must still be proved in proper proceedings before the / A. Other Per-e!t",e T"'e) PERCENTAGE TAX /e4+!e/ A tax imposed on a fixed ratio between the gross sales or receipts and the burden imposed upon the taxpayer. '= A4 here are in addition to income and other taxes paid, unless specifically excepted. :nder the present provisions of the ',)/, almost all taxes are percentage taxes. <owever, itle V (other percentage taxes! of the ',)/ as amended by ).A. 'o. %0&0 specifically provides of different (inds of percentage taxes. OTCER PERCENTAGE TAX UNDER TITLE V O* TCE NIRC AS AMENDED BD R.A NO. ?E@E a. tax on persons exempt from the value-added tax b. percentage tax on domestic carriers and (eepers of garages c. percentage tax on international carriers d. tax on franchises e. tax on overseas dispatch, message or conversation originating from the Philippines f. tax on ban(s and non-ban( financial institutions g. tax on finance companies h. tax on insurance premiums i. tax on agents of foreign insurance companies j. amusement taxes (. tax on winnings l. tax on sale, barter, or exchange of shares of stoc( listed and traded through the local stoc( exchange or through initial public offering. AP =' PA)"='" APA>P G)=> VA a. any persons whose sales or receipts b. who are exempt from the payment of value added tax c. who is not a VA registered person d. shall pay a tax e2uivalent to +3 of his gross 2uarterly sales or receipts e. provided, that cooperatives shall be exempt from the said +3 gross receipts tax PA)/A' A1A AP =' ;=>A" ,/ /A)),A)" A'; MAAPA)" =G 1A)A1A". a. cars for rent or hire driven by the lessee

Page 26 of .2

b. c. d. e. f.

transportation contractors, including persons who transport passengers for hire other domestic carriers by land, air, water, for the transport of passengers except owners of bancas and owners of animal-drawn two wheeled vehicles (eepers of garages shall pay a tax e2uivalent to +3 of their 2uarterly gross receipts

COTEL NOT A COMMON CARRIER A hotel is not engaged in business as a common carrier just because it transports its hotel guests. )AA"='4 ,t is engaged in the hotel business and not in the business or transporting passengers. =n the occasion when it extends transportation services li(e providing limousine service and the li(e, it does so only for its hotel guest and not to the public in general. PERCENTAGE TAX ON INTERNATIONAL CARRIERS. a. ,nternational air carriers doing business n the Philippines shall pay a tax of +3 of their 2uarterly gross receipts. b. ,nternational shipping carriers doing business in the Philippines shall pay a tax of +3 of their 2uarterly gross receipts. TAX ON *RANCCISES a. any provision of general or special law to the contrary notwithstanding b. there shall be levied, assessed and collected in respect to all franchises c. on radio and6or television broadcasting companies 1. whose annual gross receipts of the preceding year do not exceed P1# million. &. A tax of +3 on the gross receipts derived from the business covered by the law granting the franchise. d. on electric, gas, and water utilities 1. a tax of &3 on the gross receipts derived from the business covered by the law granting the franchise. OPTION *OR RADIO:TV *RANCCISE a. b. radio and television broadcasting companies shall have an option to be registered as value-added tax payer and pay the tax thereon provided, that once the option is exercised, it shall not be revo(ed

TAX ON OVERSEAS DISPATCC& MESSAGE OR CONVERSATION ORIGINATING *ROM TCE PCILIPPINES. a. b. c. d. there shall be collected upon every overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication service a tax of 1#3 on the amount paid for such services

PERSON LIABLE *OR TCE ABOVE COMMUNICATION TAX. a. b. c. the person paying the service rendered shall be paid to the person rendering the services who is re2uired to collect and pay the tax within twenty (&#! days after the end of each 2uarter

ENTITIES FCOSES COMMUNICATIONS ARE EXEMPTED *ROM TCE TAX a. b. 1overnment. Amounts paid for messages transmitted by the 1overnment of the )epublic of the Philippines or any of its political subdivisions or instrumentalities ;iplomatic "ervices. Amounts paid for messages transmitted by an embassy and consular offices of foreign government.

Page 27 of .2

c. d.

,nternational organi.ations. Amounts paid for messages transmitted by a public international organi.ation or any of its agencies based in the Philippines enjoying privileges, exemption and immunities which the government of the Philippines is committed to recogni.ed pursuant to an international agreement. 'ew "ervices. Amounts paid for messages from any newspaper, press association, radio or television newspaper, broadcasting agency, or news tic(er service or top a bona fide correspondent, which messages deal exclusively with the collection of news items for, or the dissemination of news item trough public press, radio, or television broadcasting or a news tic(er service furnishing a general news service similar to that of the public press.

TAX ON BANGS AND NON8BANGS *INANCIAL INTERMEDIARIES here shall be collected a tax o the gross receipts derived from sources within the Philippines by all ban(s and non-ban( financial intermediaries li(e4 a. ,nterest, commissions and discounts from lending activities as well as income from the financial leasing, on the basis of the remaining maturities of instruments from which such receipts are derived. b. )oyalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income COMMISSINER O* INTERNAL REVENUE MAD IMOSE TCE ABOVE TAX ON SIMILARLD SITUATED PERSONS 'othing in the ',)/ shall preclude the /ommissioner of ,nternal )evenue from imposing the above tax on persons performing the same ban(ing activities. TAX ON *INACE COMPANIES a. b. c. d. e. there shall be collected a tax of 53 on the gross receipts derived by all finance companies as well as by other financial intermediaries not performing 2uasi-ban(ing functions doing business in the Philippines form interests, discounts and all other items treated as gross income under the ',)/ Provided, that interest, commissions and discounts from landing activities, as well as income from financial leasing shall be taxed on the basis of the remaining maturities of the instruments from which such receipts are derived.

COMMISSIONER O* INTERNAL REVENUE MAD IMPOSE TCE ABOVE TAX ON SIMILARLD SITUATED PERSONS. 'othing in the ',)/ shall preclude the /ommissioner of ,nternal )evenue from imposing the above tax on persons performing similar financing activities TAX ON LI*E INSURANCE PREMIUMS a. b. c. d. e. there shall be collected from every person, company or corporation (except purely cooperative companies or associations! doing life insurance business of any sort in the Philippines a tax of 53 of the total premiums collected whether such premiums are paid in money

/==PA)A ,VA /=>PA',A" defined a. b. c. d. cooperative companies or associations are such are conducted by the members thereof with the money collected from among themselves solely for their own protection and not for profit

MUTUAL INSURANCE COMPAND IS A PURELD COOPERATIVE COMPAND EXEMPT *ROM TCE TAX ON LINE INSURANCE PREMIUMS he ,nsular @ife Assurance /ompany, @td., v. /ommissioner of ,nternal )evenue, / A /ase 'o. 5++$, prom. ;ecember &7, 177* adopted the following and other :.". cases cited by the petitioner4 a. S a policy holder in a mutual insurance association stands in a two-fold relation towards the company. he is a policy holder and he is a memberT.

Page 28 of .2

b.

S it may be stated generally that a mutual insurance company is a cooperative enterprise, wherein the members are both insurer and insured, the policy holders constituting the membership inter se, with a two-fold interest as both insurer and insured to contribute to payment of losses and entitled to payment of loss and to a proportionate share in the profitsT

LI*E INSURANCE PREMIUMS NOT SUBBECT TO TAX a. b. c. d. e. premiums refunded within six($! months after payment on account of rejection of ris(s or returned or some other reason in the taxable receipts )einsurance premiums received by a company that has already paid the tax. Premiums received as a result of doing business outside the Philippines on account of any life insurance of the insured who is nonresident, if any tax on such premiums is imposed by the foreign country Premiums collected or received on account n any reinsurance of the insured, in case of personal insurance, resides outside the Philippines, if any tax on such premium is imposed by the foreign country where the original insurance has been issued of perfected. he portion of the premiums collected or received by the insurance companies on variable contracts in excess of the amounts necessary to insure the lives of the variable contract wor(ers

VARIABLE COTRACT /e4+!e/ Any policy or contract on either a group or on individual basis issued by an insurance companies providing for benefits of other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investments or of a designated separate account in which amounts received in connection with such contracts shall been placed and accounted for separately and apart from other investments or accounts. TAX ON AGENTS O* *OREIGN INSURANCE COMPANIES a. b. c. d. e. every fire, marine or miscellaneous insurance agent authori.ed under the insurance code to procure policies of insurance as he may have previously been authori.ed to transact on ris(s located in the Philippines for companies not authori.ed to transact business in the Philippines shall pay a tax e2ual to twice the tax imposed in "ection 1&+

RIGCT O* ASSURED TO SECURE INSURACE DIRECTLD *ROM *OREIGN INSURER he taxation of agents of foreign insurance companies shall not affect the right of an owner of property to apply for and obtain for himself policies in foreign companies in case where said owner does not ma(e use of the services of any agent, company or corporation residing in or doing business in the Philippines. ,n all cases where owners of property obtain insurance directly with foreign companies. AMUSEMENT TAX /e4+!e/ A percentage tax collected from the proprietor, lessee or operator of duly designated places or activities for pleasurable diversion or entertainment. PLACES AND ACTIVITIES SUBBECT TO AMUSEM&ENT TAX here shall be collected from the proprietor, lessee of operator of coc(pits, cabarets, night or day clubs, boxing exhibitions, professional bas(etball games, ?ai-Alai and racetrac(s CONDITIONS *OR EXEMPTION O* BOXING EXCIBITIONS a. Foxing exhibitions wherein Dorld or =riental championships in any division is at sta(e b. At least one of the contenders for Dorld or =riental /hampionship is a citi.en of the Philippines c. "aid exhibitions are promoted by citi.ens of the Philippines or by a corporation or association at least ($#3! of the capital of which is owned by citi.ens TAX ON FINNINGS a. Avery person who wins in horse races shall pay a tax e2uivalent to 1#3 of his winnings or SdividendsT, the tax to base on actual amount paid to him for every winning tic(et after deducting the cost of the tic(et. b. Provided, that in the case of winnings from double, forecast62uinella and trifecta bets, the tax be 03

Page 50 of .2

c.

,n the case of owners of winning race horses, the tax shall be 1#3 or pri.es

TAX ON SALE& BARTER OR EXCCANGE O* SCARES O* STOCG LISTED AND TRADED TCROUGC TCE LOCAL STOCG EXCCANGE a. b. c. d. e. there shall be levied, assessed and collected on every sale, barter, exchange or other disposition of shares of stoc( listed and traded trough the local stoc( exchange other than the sale by a dealer in securities a tax at the rate of U of 13 of the gross selling price or gross value in money of the shares of stoc( sold, bartered, exchanged or otherwise disposed of

FCO PADS TCE TAX he seller or the transferor S"<A)A" =G " =/M @," A; A'; )A;A; )=:1< <A " =/M AP/<A'1AT defined in del )osario, ?r. v. /ommissioner of ,nternal )evenue, / A /ase 'o. 0*7$, prom. ;ec. 1,1770, the /ourt of ax Appeals held that the phrase must be given its literal meaning. he conjunction SandT in the phrase Sshares of stoc(s listed and traded through the stoc( exchangeT, means that the shares listed must also be traded in the stoc( exchange. Dhile it is true that only shares listed can be traded in the stoc(s exchange, it does not however mean that listed shares cannot be sold over-thecounter, in a privately negotiated sale or exchange, or outside the stoc( exchange. TAX ON SCARES O* STOCG SOLD OR EXCCANGED TCROUGC INITIAL PUBLIC O**ERING a. b. c. d. e. f. g. there shall be levied, assessed and collected on every sale, barter, exchange or disposition through initial public offering of shares of stoc(s in closely held corporations a tax at the rates below based on the gross selling price or gross value in money of the shares of stoc( sold, bartered, exchanged or otherwise disposed in accordance with the proportion shares of stoc( sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stoc( after the listing in the local stoc( exchange :p to &53VVVVVVVVVVVVV...03 =ver &53 but not over ++ 16+3VVVVV..&3 =ver ++ 16+3VVVVVVVVVVVV. 13

D<= PAQ" <A AP a. b. the issuing corporation in primary offering the seller in secondary offering

/@="A@Q <A@; /=)P=)A ,=' defined a. b. c. any corporation at 5#3 in the value of outstanding capital stoc( at least 5#3 of the total combined voting power of all classes of stoc(s entitled to vote is owned directly or indirectly by or for not more than &# individuals

):@A" G=) ;A A)>,','1 D<A <A) A /=)P=A) ,=' ," A S/@="A@Q <A@; /=)P=)A ,='T a. b. c. "toc( not owned by individuals. "toc( owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by its shareholders, partners or beneficiaries. Gamily and partnership ownership. An individual shall be considered as owning the stoc( owned, directly or indirectly, by or for his family, or by of for his partner. he family of an individual includes only his brothers and sisters, spouse, ancestors and by lineal descendants. =ption. ,f any person has an option to ac2uire stoc(, such stoc( shall be considered as owned by such person. An option to ac2uire such an option and each one of a series of options shall be considered as an option to ac2uire such stoc(.

Page 51 of .2

d.

/onstructive ownership as actual ownership. "toc( constructively owned by reason of the application of paragraph a, or c, above for purposes of applying paragraph a or b above shall be treated as actually owned by such person, F: stoc( constructively owned by the individual by reason of the application of paragraph & shall not be treated as owned by him by purposes of again in applying such paragraph in order to ma(e another the constructive owner of such stoc(.

AP APA>P ,=' Any gain derived from the sale, barter, exchange or other disposition of shares of stoc( listed and treated through the local stoc( listed and traded through the local stoc( exchange or through initial public offering shall be exempt from4 a. b. he tax imposed on capital gains from the sale of shares of stoc( not traded in the stoc( exchange, and from he regular individual or corporate income tax.

/ases4 EN BANC K1.). 'os. @-$5**+-*0. April +#, 17%*.L /=>>,"",='A) =G ,' A)'A@ )AVA':A, petitioner, vs. F), ,"< =VA)"AA" A,)DAQ" /=)P=)A ,=' and /=:) =G AP APPAA@", respondents. ;A/,",=' >A@A'/,=-<A))A)A, ? p4 Petitioner /ommissioner of ,nternal )evenue (/,)! see(s a review on /ertiorari of the joint ;ecision of the /ourt of ax Appeals (/ A! in / A /ases 'os. &+*+ and &5$1, dated &$ ?anuary 17%+, which set aside petitionerOs assessment of deficiency income taxes against respondent Fritish =verseas Airways /orporation (F=A/! for the fiscal years 1757 to 17$*, 17$%-$7 to 17*#-*1, respectively, as well as its )esolution of 1% 'ovember, 17%+ denying reconsideration. F=A/ is a 1##3 Fritish 1overnment-owned corporation organi.ed and existing under the laws of the :nited Mingdom. ,t is engaged in the international airline business and is a member-signatory of the ,nterline Air ransport Association (,A A!. As such, it operates air transportation service and sells transportation tic(ets over the routes of the other airline members. ;uring the periods covered by the disputed assessments, it is admitted that B&./ had no landing rights for traffic purposes in the Philippines , and was not granted a /ertificate of public convenience and necessity to operate in the Philippines by the /ivil .eronautics Board /.B$, except for a nine-month period, partly in 3H*3 and partly in 3H*), when it was granted a temporary landing permit by the /.B. :onse4uently, it did not carry passengers and-or cargo to or from the Philippines , although during the period covered by the assessments, it maintained a general sales agent in the Philippines I Barner Barnes and /ompany, :td(, and later Jantas .irways I which was responsible for selling B&./ tickets covering passengers and cargoes( 1.). 'o. $5**+ (/ A /ase 'o. &+*+, the Girst /ase! =n * >ay 17$%, petitioner /ommissioner of ,nternal )evenue (/,), for brevity! assessed F=A/ the aggregate amount of P&,07%,+5%.5$ for deficiency income taxes covering the years 1757 to 17$+. his was protested by F=A/. "ubse2uent investigation resulted in the issuance of a new assessment, dated 1$ ?anuary 17*# for the years 1757 to 17$* in the amount of P%5%,+#*.*7. F=A/ paid this new assessment under protest. =n * =ctober 17*#, F=A/ filed a claim for refund of the amount of P%5%,+#*.*7, which claim was denied by the /,) on 1$ Gebruary 17*&. Fut before said denial, F=A/ had already filed a petition for review with the ax /ourt on &* ?anuary 17*&, assailing the assessment and praying for the refund of the amount paid. 1.). 'o. $5**0 (/ A /ase 'o. &5$1, the "econd /ase!

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=n 1* 'ovember 17*1, F=A/ was assessed deficiency income taxes, interests, and penalty for the fiscal years 17$%617$7 to 17*#-17*1 in the aggregate amount of P507,+&*.0+, and the additional amounts of P1,###.## and P1,%##.## as compromise penalties for violation of "ection 0$ (re2uiring the filing of corporation returns! penali.ed under "ection *0 of the 'ational ,nternal )evenue /ode (',)/!. =n &5 'ovember 17*1, F=A/ re2uested that the assessment be countermanded and set aside. ,n a letter, dated 1$ Gebruary 17*&, however, the /,) not only denied the F=A/ re2uest for refund in the Girst /ase but also re-issued in the "econd /ase the deficiency income tax assessment for P5+0,1+&.#% for the years 17$7 to 17*#-*1 plus P1,###.## as compromise penalty under "ection *0 of the ax /ode. F=A/Os re2uest for reconsideration was denied by the /,) on &0 August 17*+. his prompted F=A/ to file the "econd /ase before the ax /ourt praying that it be absolved of liability for deficiency income tax for the years 17$7 to 17*1. his case was subse2uently tried jointly with the Girst /ase. =n &$ ?anuary 17%+, the ax /ourt rendered the assailed joint ;ecision reversing the /,). he ax /ourt held that the proceeds of sales of F=A/ passage tic(ets in the Philippines by Darner Farnes and /ompany, @td., and later by Nantas Airways, during the period in 2uestion, do not constitute F=A/ income from Philippine sources Isince no service of carriage of passengers or freight was performed by F=A/ within the PhilippinesI and, therefore, said income is not subject to Philippine income tax. he / A position was that income from transportation is income from services so that the place where services are rendered determines the source. hus, in the dispositive portion of its ;ecision, the ax /ourt ordered petitioner to credit F=A/ with the sum of P%5%,+#*.*7, and to cancel the deficiency income tax assessments against F=A/ in the amount of P5+0,1+&.#% for the fiscal years 17$%-$7 to 17*#-*1. <ence, this Petition for )eview on /ertiorari of the ;ecision of the ax /ourt. he "olicitor 1eneral, in representation of the /,), has aptly defined the issues, thus4 I1. Dhether or not the revenue derived by private respondent Fritish =verseas Airways /orporation (F=A/! from sales of tic(ets in the Philippines for air transportation, while having no landing rights here, constitute income of F=A/ from Philippine sources, and, accordingly, taxable. I&. Dhether or not during the fiscal years in 2uestion F=A/ is a resident foreign corporation doing business in the Philippines or has an office or place of business in the Philippines. I+. ,n the alternative that private respondent may not be considered a resident foreign corporation but a non-resident foreign corporation, then it is liable to Philippine income tax at the rate of thirty-five per cent (+53! of its gross income received from all sources within the Philippines.I :nder "ection &# of the 17** ax /ode4 I(h! the term Oresident foreign corporationO applies to a foreign corporation engaged in trade or business within the Philippines or having an office or place of business therein. I(i! he term Onon-resident foreign corporationO applies to a foreign corporation not engaged in trade or business within the Philippines and not having any office or place of business therein.I ,t is our considered opinion that F=A/ is a resident foreign corporation. here is no specific criterion as to what constitutes IdoingI or Iengaging inI or ItransactingI business. Aach case must be judged in the light of its peculiar environmental circumstances. he term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or wor(s or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organi.ation. I,n order that a foreign corporation may be regarded as doing business within a "tate, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character.O F=A/, during the periods covered by the subject-assessments, maintained a general sales agent in the Philippines. hat general sales agent, from 1757 to 17*1, Iwas engaged in (1! selling and issuing tic(ets9 (&! brea(ing down the whole trip into series of trips J each trip in the series corresponding to a different airline company9 (+! receiving the

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fare from the whole trip9 and (0! conse2uently allocating to the various airline companies on the basis of their participation in the services rendered through the mode of interline settlement as prescribed by Article V, of the )esolution 'o. %5# of the ,A A Agreement.I 0 hose activities were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its organi.ation as an international air carrier. ,n fact, the regular sale of tic(ets, its main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective. here should be no doubt then that F=A/ was Iengaged inI business in the Philippines through a local agent during the period covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable year from all sources within the Philippines. I"ec. &0. I(b! )ates of tax on corporations. J . . .

ax on foreign corporations. J . . .

I(&! )esident corporations. J A corporation organi.ed, authori.ed, or existing under the laws of any foreign country, except a foreign life insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a! of this section upon the total net income received in the preceding taxable year from all sources within the Philippines. (Amphasis ours! 'ext, we address ourselves to the issue of whether or not the revenue from sales of tic(ets by F=A/ in the Philippines constitutes income from Philippine sources and, accordingly, taxable under our income tax laws. he ax /ode defines Igross incomeI thus4 IO1ross incomeO includes gains, profits, and income derived from salaries, wages or compensation for personal service of whatever (ind and in whatever form paid, or from profession, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property9 also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profit or gains, profits, and income derived from any source whateverI ("ec. &7K+L9 Amphasis supplied! he definition is broad and comprehensive to include proceeds from sales of transport documents. I he words Oincome from any source whateverO disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws.I ,ncome means Icash received or its e2uivalentI9 it is the amount of money coming to a person within a specific time . . .9 it means something distinct from principal or capital. Gor, while capital is a fund, income is a flow. As used in our income tax law, IincomeI refers to the flow of wealth. he records show that the Philippine gross income of F=A/ for the fiscal years 17$%-$7 to 17*#-*1 amounted to P1#,0&%,+$%.##. ;id such Iflow of wealthI come from Isources within the PhilippinesIR he source of an income is the property, activity or service that produced the income. Gor the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. ,n F=A/Os case, the sale of tic(ets in the Philippines is the activity that produces the income. he tic(ets exchanged hands here and payments for fares were also made here in Philippine currency. he situs of the source of payments is the Philippines. he flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. ,n consideration of such protection, the flow of wealth should share the burden of supporting the government. A transportation tic(et is not a mere piece of paper. Dhen issued by a common carrier, it constitutes the contract between the tic(et-holder and the carrier. ,t gives rise to the obligation of the purchaser of the tic(et to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth thereon. he ordinary tic(et issued to members of the travelling public in general embraces within its terms all the elements to constitute it a valid contract, binding upon the parties entering into the relationship. rue, "ection +*(a! of the ax /ode, which enumerates items of gross income from sources within the Philippines, namely4 (1! interest, (&! dividends, (+! service, (0! rentals and royalties, (5! sale of real property, and ($! sale of personal property, does not mention income from the sale of tic(ets for international transportation. <owever, that

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does not render it less an income from sources within the Philippines. "ection +*, by its language, does not intend the enumeration to be exclusive. ,t merely directs that the types of income listed therein be treated as income from sources within the Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive enumeration, and that no other (ind of income may be so considered. F=A/, however, would impress upon this /ourt that income derived from transportation is income for services, with the result that the place where the services are rendered determines the source9 and since F=A/Os service of transportation is performed outside the Philippines, the income derived is from sources without the Philippines and, therefore, not taxable under our income tax laws. he ax /ourt upholds that stand in the joint ;ecision under review. )he a%sence of flight operations to and from the Philippines is not determinative of the source of income or the situs of income taxation' Admittedly, ABA: !as an off line international airline at the time pertinent to this case' The te)t $4 t"'"6+#+t% +) the H)$.r-eHI "!/ the )$.r-e $4 "! +!-$me +) th"t "-t+5+t% . . . 0h+-h (r$/.-e/ the +!-$me . :n2uestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from a business activity regularly pursued within the Philippines. And even if the F=A/ tic(ets sold covered the Itransport of passengers and cargo to and from foreign citiesI, it cannot alter the fact that income from the sale of tickets was derived from the Philippines( The word KsourceK conveys one essential idea, that of origin, and the origin of the income herein is the Philippines . ,t should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the 2uestioned deficiency income tax assessments in these cases, or, from 1757 to 17$*, 17$%-$7 to 17*#-*1. Gor, pursuant to Presidential ;ecree 'o. $7, promulgated on &0 'ovember, 17*&, international carriers are now taxed as follows4 I. . . Provided, however, hat international carriers shall pay a tax of &-16& per cent on their gross Philippine billings.I ("ec. &0KbL K&L, ax /ode!. Presidential ;ecree 'o. 1+55, promulgated on &1 April, 17*%, provided a statutory definition of the term Igross Philippine billings,I thus4 I. . . O1ross Philippine billingsO includes gross revenue reali.ed from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail, provided the cargo or mail originates from the Philippines. . . .I he foregoing provision ensures that international airlines are taxed on their income from Philippine sources. he &16&3 tax on gross Philippine billings is an income tax. ,f it had been intended as an excise or percentage tax it would have been place under itle V of the ax /ode covering axes on Fusiness. @astly, we find as untenable the F=A/ argument that the dismissal for lac( of merit by this /ourt of the appeal in ?A@ vs. /ommissioner of ,nternal )evenue (1.). 'o. @-+##01! on Gebruary +, 17$7, is res judicata to the present case. he ruling by the ax /ourt in that case was to the effect that the mere sale of tic(ets, unaccompanied by the physical act of carriage of transportation, does not render the taxpayer therein subject to the common carrierOs tax. As elucidated by the ax /ourt, however, the common carrierOs tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to another. ,t purports to tax the business of transportation. Feing an excise tax, the same can be levied by the "tate only when the acts, privileges or businesses are done or performed within the jurisdiction of the Philippines. he subject matter of the case under consideration is income tax, a direct tax on the income of persons and other entities Iof whatever (ind and in whatever form derived from any source.I "ince the two cases treat of a different subject matter, the decision in one cannot be res judicata to the other. D<A)AG=)A, the appealed joint ;ecision of the /ourt of ax Appeals is hereby "A A",;A. Private respondent, the Fritish =verseas Airways /orporation (F=A/!, is hereby ordered to pay the amount of P5+0,1+&.#% as deficiency income tax for the fiscal years 17$%-$7 to 17*#-*1 plus 53 surcharge, and 13 monthly interest from April 1$, 17*& for a period not to exceed three (+! years in accordance with the ax /ode. he F=A/ claim for refund in the amount of P%5%,+#*.*7 is hereby denied. Dithout costs. *IRST DIVISION <G.R. N$. E7E@=. M"% =E& =992.A

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COMMISSIONER O* INTERNAL REVENUE& (et+t+$!er& 5). CON. COURT O* TAX APPEALS AND MANILA GOL* J COUNTRD CLUB& INC.& re)($!/e!t). ;A/,",=' >A;,A@;AA, ? p4 ,n /ommissioner of ,nternal )evenue v. >anila <otel /orporation, et al., 1.). 'o. %+&5#, "eptember &$, 17%7, De overruled a decision of the /ourt of ax Appeals which declared the collection of catererOs tax under "ection 171-A of )epublic Act 'o. $11# illegal because "ec. 0& of <ouse Fill 'o. 1*%+7, which carries that proviso, was vetoed by then President Gerdinand A. >arcos when the bill was presented to him and /ongress had not ta(en any step to override the presidential veto. De held thus4 I he power of the "tate to impose the +3 catererOs tax is not debatable. he /ourt of ax Appeals erred, however, in holding that the tax was abolished as a result of the presidential veto of August 0, 17$7. ,t failed to examine the law then, and up to now, existing on the subject which has always imposed a +3 catererOs tax on operators of restaurants. "ince the >anila <otel operates restaurants in its premises, it is liable to pay the tax provided in paragraph (1!, "ection &#$ of the ax /ode.I (/ommissioner of ,nternal )evenue v. >anila <otel /orporation and the /ourt of ax Appeals, 1.). 'o . %+&5#, "eptember &$, 17%7!. he petition now before :s presents an identical 2uestion4 whether the presidential veto referred to the entire section or merely to the imposition of &#3 tax on gross receipts of operators or proprietors of restaurants, refreshments parlors, bars and other eating places which are maintained within the premises or compound of a hotel, motel or resthouses. )eference to the >anila <otel case, therefore, might have been sufficient to dispose of this petition were it not for the position of the / A that a chief executive has no power to veto part of an item in a bill9 either he vetoes an entire section or approves it but not a fraction thereof. 8erein private respondent, 9anila =olf L /ountry /lub, 7nc( is a non-stock corporation( True, it maintains a golf course and operates a clubhouse with a lounge, bar and dining room, but these facilities are for the exclusive use of its members and accompanied guests, and it charges on cost-plus-expense basis( .s such, it claims it should have been exempt from payment of privilege taxes were it not for the last paragraph of Section 3H3-. of 5(.( 'o( *33", otherwise known as the K&mnibus Tax :aw(K Section 3H3-. readsC I"ec. 171-A. /aterer. J A catererOs tax is hereby imposed as follows4 I(1! =n proprietors or operators of restaurants, refreshment parlors and other eating places, including clubs, and caterers, three per cent of their gross receipts. I(&! =n proprietors or operators of restaurants, bars, cafes and other eating places, including clubs, where distilled spirits, fermented li2uors, or wines are served, three per cent of their gross receipts from sale of food or refreshments and seven per cent of their gross receipts from sale of distilled spirits, fermented li2uors or wines. wo sets of commercial invoices or receipts serially numbered in duplicate shall be separately prepared and issued, one for sale of refreshments served, and another for each sale of distilled spirits, fermented li2uors or wines served, the originals of the invoices or receipts to be issued to the purchaser or customer. I(+! =n proprietors or operators of restaurants, refreshment parlors, bars, cafes and other eating places which are maintained within the premises or compound of a hotel, motel, resthouse, coc(pit, race trac(, jai-alai, cabaret, night or day club by means of a connecting door or passage twenty per cent of their gross receipts. IDhere the establishments are operated or maintained by clubs of any (ind or nature (irrespective of the disposition of their net income and whether or not they cater exclusively to members or their guests! the (eepers of the establishments shall pay the corresponding tax at the rate fixed above.I (Amphasis ours! )epublic Act 'o. $11# too( effect on "eptember 1, 17$7. Fy this virtue, petitioners assessed the club fixed taxes as operators of golf lin(s and restaurants, and also percentage tax (catererOs tax! for its sale of foods and fermented li2uors6wines for the period covering "eptember 17$7 to ;ecember 17*# in the amount of P+&,5#0.7$. he club

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protested claiming the assessment to be without basis because "ection 0& was vetoed by then President >arcos. he veto message reads4 I>A@A/AWA'1 >anila August 0, 17$7 I1entlemen of the <ouse of )epresentatives4 I, have the honor to inform you that , have this day signed <.F. 'o. 1*%+7, entitled4 OA' A/ A>A';,'1 /A) A,' P)=V,",='" =G <A 'A ,='A@ ,' A)'A@ )AVA':A /=;A, A" A>A';A;O IPursuant to the provisions of "ection &#-(+!, Article V,, of the /onstitution, however, , have vetoed the following items in this bill4 xxx xxx xxx pp. 00, "A/. 0&. ,nserting a new "ection 171-A which imposes a catererOs tax of three percent of the gross receipts of proprietors or operators of restaurants, refreshment parlors and other eating places9 three percent of gross receipts from sale of food or refreshment and seven percent on gross receipts from the sale of distilled spirits, fermented li2uors or wines, on proprietors or operators of restaurants, bars, cafes and other eating places, including clubs, where distilled spirits, fermented li2uors, or wines are served9 and twenty percent of gross receipts on proprietor or operators of restaurants, refreshment parlors, bars, cafes and other eating places maintained within the premises or compound of a hotel, motel, resthouse, coc(pit, race trac(, jai-alai, cabaret, night or day club, or which are accessible to patrons of said establishments by means of a connecting door or passage. O he burden of taxation will be shifted to the consuming public. O he development of hotels, essential to our tourist industry, may be restrained considering that a big portion of hotel earnings comes from food sale. . . .O I his bill, <.F. 'o. 1*%+7, has become )epublic Act 'o. $11#. I)espectfully, I("1;.! GA);,'A'; A. >A)/="I KAmphasis oursL

he protestation of the club was denied by the petitioner who maintains that "ection 0& was not entirely vetoed but merely the words Ihotels, motels, resthousesI on the ground that it might restrain the development of hotels which is essential to the tourism industry. his in fact was the position of the <ouse Days and >eans /ommittee which reported, to wit4 IDhen /ongress decided to split "ection 171 into two parts, one dealing with contractors, and the other dealing with those who serve food and drin(s, the intention was to classify and to improve. Dhile the /ongress expanded the coverage of both 171 and 171-A, it also provided for certain exemptions. he veto message seems to object to certain additions to 171-A. Dhat additions are objectionables can be gleaned from the reasons given4 a general reason that this sort of tax is passed on to the consuming public, and a particular reason that hotel developments, so essential to the tourist industry, may be restrained. hese reasons have been ta(en together in the interpretations of the veto message and the deletions of such enterprises as are connected with the tourist industry has therefore been recommended.

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I o interpret the veto message otherwise would result in the exemption of entities already subject of tax. his would be absurd. Dhere the /ongress wanted to exempt, it was so provided in the bill. Dhile the President may veto any item or items in a revenue bill, the constitution does not give him the power to repeal an existing tax. (&nd ,ndorsement dated ;ecember 7, 17$7, /hairman on Days and >eans, "ixth /ongress of the )epublic of the Phil.! (Axhs. 10, p. %5, F.,.). rec.!.I (pp. &#-&1, )ollo! ,t was by reason of this interpretation of the /ommittee that ).A. 'o. $11# was published in Volume $$, 'o. 1%, p. 05+1 of the =fficial 1a.ette (>ay 0, 17*#! in such a way that "ection 171-A was included in the text save for the words Ihotels, motels resthouses.I As already mentioned, the /ourt of ax Appeals, upon petition by the club, sustained the latterOs position reasoning that the veto message was clear and un2ualified, as in fact it was confirmed three years later, after much controversy, by the =ffice of the President, thus4 I>r. Antero >. "ison, ?r. "an >artin Fuilding, 15$0, A. >abini, P.=. Fox &&%% >anila, Philippines I;ear "ir4 IDith reference to your letter dated ?uly 10, 17*&, we wish to inform you that "ection 0& (which contains "ec. 171-A! of <ouse Fill 'o. 1*%+7, now ).A. $11# was one of the "ections vetoed by the President in his veto message dated August 0, 17$7, vetoing certain sections of the said revenue bill. Very ruly Qours, I("1;.! ,),'A= . A1:,))A, ?). Presidential "taff AssistantI (p. 07, )ollo! As mentioned earlier, Be have already ruled that the presidential veto referred merely to the inclusion of hotels, motels and resthouses in the )"# catererEs tax bracket but not to the whole section . Fut, as mentioned earlier also, the / A opined that the President could not veto words or phrases in a bill but only an entire item. B%viously, !hat the :)A meant %y CitemC !as an entire section' Be do not agree( But even assuming it to be so, it would also be to petitionerEs favor( The ineffectual veto by the President rendered the whole section 3H3-. as not having been vetoed at all and it, therefore, became law as an unconstitutional veto has no effect, whatsoever( ("ee Folinao Alectronics /orp. v. Valeria, 'o. @-&#*0#, ?une +#, 17$0, 11 "/)A 0%$!. <owever, De agree with then "olicitor 1eneral Astelito >endo.a and his associates that inclusion of hotels, motels and resthouses in the &#3 catererOs tax brac(et are IitemsI in themselves within the meaning of "ec. &#(+!, Art. V, of the 17+5 /onstitution which, therefore, the President has the power to veto. .n KitemK in a revenue bill does not refer to an entire section imposing a particular kind of tax, but rather to the subDect of the tax and the tax rate( 7n the portion of a revenue bill which actually imposes a tax, a section identifies the tax and enumerates the persons liable therefor with the corresponding tax rate( To construe the word KitemK as referring to the whole section would tie the PresidentEs hand in choosing either to approve the whole section at the expense of also approving a provision therein which he deems unacceptable or veto the entire section at the expense of foregoing the collection of the kind of tax altogether( The evil which was sought to be prevented in giving the President the power to disapprove items in a revenue bill would be perpetrated rendering that power inutile ("ee /ommonwealth ex rel. Al(in v. Farnett, 177 Pa. 1$1, 55 @)A %%& K17#1L!. A//=);,'1@Q, the petition is 1)A' A; and the decision of the /ourt of ax Appeals in / A /ase 'o. &$+# is set aside. "ection 171-A of )A 'o. $11# is valid and enforceable and, hence, the >anila 1olf 8 /ountry /lub ,nc. is liable for the amount assessed against it. EN BANC

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<G.R. N$. L8=K?>2. M"% 32& [email protected] COMMISSIONER O* INTERNAL REVENUE& (et+t+$!er& 5). UNITED STATES LINES COMPAND& re)($!/e!t. "Q@@AF:" 1. APA ,='9 PA)/A' A1A APA"9 /=@@A/ G)A,1< GAA"9 )A A =G /='VA)",=' =G ;=@@A) ,' = PA"=". J he IcollectI freight fees (or those earned in the Philippines but actually paid in the :nited "tates in dollars! should be at the rate of P&.## to X1.## as established by "ection 0%, )epublic Act 'o. &$5, and not the rate of exchange fixed by the >onetary Foard, if no foreign exchange operations were involved. &. ,;.9 ,;.9 PA)/A' A1A =' )A'"P=) A ,=' F:",'A""9 @,AF,@, Q =G A1A' . J .lthough under Section 3H) of the Tax /ode, which taxes the business of transportation, the person liable is the owner or operator, whoever acts on his behalf and for his benefit may be held liable to pay, for and in behalf of the carrier or operator, the percentage tax on the business( +. ,;.9 ,;.9 ,;.9 ,;.9 AGGA/ D<A)A A "<,PP,'1 /=>PA'Q <=@;" , "A@G A" "<,P=D'A)O" A1A' . J . shipping company that holds to the public and to the =overnment as the shipownerEs local agent, and in fact renders services as such, is under obligation to pay, for and in behalf of its principal, whatever tax is due from the latter, especially where the principal is a non-resident corporation beyond the Durisdiction of the Philippines( 0. VA""A@"9 >AA','1 =G I<:"FA';,'1 A1A' I. J . Khusbanding agentK is the general agent of the owner in relation to the ship, with powers, among others, to engage the vessel for general freight and the usual conditions, and settle for freight and adDust averages with the merchant BouvierEs :aw 0ictionary, p( >"*@, citing @ B( L .d( >!4+ 3 F( L /( >)*+ Turner vs( Burrows, G Bend( '(F($ 3@@+ =ould vs( Stanton, 3* /onn( 3)$( 5. /=' )A/ "9 A'G=)/AAF,@, Q9 PA) ,'A' P)=V,",='" =G @AD ;AA>A; ,'/=)P=)A A;. J Any agreement or contract, to be enforceable, is understood to incorporate therein the provision or provisions of law specifying the obligations of the parties under the contract. ;A/,",=' FA))A)A, ? p4 This is an appeal by the /ommissioner of 7nternal 5evenue from the decision of the /ourt of Tax .ppeals in /T. /ase 'o( 44*$ holding the ;( S( :ines /ompany liable for payment of common carrierEs tax deficiency and surcharges in the total sum of only P4")(!4 instead of P)4,!*H(@3 as originally assessed and demanded by appellant /ommissioner( As found and stated in the decision of the /ourt of ax Appeals, the @' S' Dines :ompany, a foreign corporation duly licensed to do %usiness in the Philippines, under the trade name CAmerican Pioneer DinesC "for short hereinafter referred to as the :ompany$, is the operator of ocean going vessels transporting passengers and freight to and from the Philippines' 9t is also the sole agent and representative of the Pacific Far East Dine, 9nc', another shipping company engaged in %usiness in the Philippines as a common carrier %y !ater . ,n the examination of its boo(s of accounts and other records to determine its tax liabilities for the period from ?anuary 1, 175# to "eptember +#, 1755, it was found that the /ompany also acted in behalf of the Best /oast Trans&ceanic Steamship :ines /o(, 7nc(, a non-resident foreign corporation, in connection with the transportation, on board the KSS Portland TraderK belonging to the latter, on 'ovember )!, 3H43 and .pril )H, 3H4), of chrome ores from 9asinloc, Mambales to the ;nited States, from which carriage or transportation freight revenue in the total sum of N)!),@!"("" was reali,ed by the vesselEs owner, and for which the )# common carrierEs percentage tax imposed by Section 3H) of the 'ational 7nternal 5evenue /ode was never paid . As a conse4uence, the :ommissioner of 9nternal 2evenue assessed and demanded from the :ompany, as deficiency tax, "a$ the sum of P6,681'56 for its o!n %usiness under the name American Pioneer Dines/ "%$ P.,,28'00,

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as agent of Pacific Far East Dine, 9nc', and "c$ P15,6,8'0. on the freight revenue of the ;est :oast )rans Bceanic Steamship Dines :o' from the carriage or transportation of the chrome ores/ or a total of P2.,668',1 . At the instance of the /ompany, a reinvestigation of the case was conducted and a hearing thereon held before the Appellate ;ivision of the Fureau of ,nternal )evenue. hese, notwithstanding, the /ommissioner maintained his demand. hus, the /ompany filed a petition with the /ourt of ax Appeals contesting the correctness of (1! the conversion of IcollectI revenues or those freight and passage receipts, commissions, and agency fees for services in the Philippines, but payable in the :nited "tates, at the rate of P&.##+*5 to X1.## and (&! the demand on the /ompany of the &3 carrierOs percentage tax on the gross receipts of the Dest /oast rans-=ceanic "teamship @ines from the chrome ore shipments of 'ovember &*, 1751 and April &7, 175&. he /ourt of ax Appeals, in its decision, ruled for the /ompany on the first issue, thus J IDe wish to ma(e it clear that from the records of the case, it appears that all the OcollectO revenues, or those freight charges, passage fares, commissions and agency fees, collected in the :nited "tates currency belong to petitionerOs home office in the :nited "tates and were not remitted to petitionerOs local office in the Philippines. ,n short, the :nited "tates dollars collected abroad were not actually converted to and received in Philippine pesos, and therefore there is no occasion nor reason to use a conversion rate aside from the legal rate of exchange, i.e., X1.## to P&.##. ,f we have placed the judicial stamp of approval on the agreed conversion rates X1.## to P&.#15 and X1.## to P&.#& with regard to the OprepaidO freight and passage revenues, respectively, we did so in order to arrive at the actual amounts collected by the petitioner in Philippine pesos J the correct taxable gross receipts.I (Amphasis supplied.! As to the second issue, it ruled that the &3 percentage tax under "ection 17& of the ax /ode is impossible only on owners or operators of the common carrier, and as there is no law constituting the shipping agent the withholding agent of the taxes due from the principal, said shipping agent is not personally liable for the tax obligations of the latter, unless the agent voluntarily assumes such obligation which, in this case, the agent /ompany did not. /onse2uently, the petitioning taxpayer was ordered to pay only a tax deficiency and surcharge in the sum of P5#&.*5. <ence, the institution of this appeal. he ruling by the lower court that the conversion of the IcollectI freight fees (or those earned in the Philippines but actually paid in the :nited "tates in dollar! should be at the rate of P&.## to X1.## as established by law ("ec. 0%, )ep. Act 'o. &$5!, and not the rate of exchange of P&.##+*5 to X1.##, as fixed by the >onetary Foard, must be upheld. 'o evidence was presented rebutting the positive allegation of respondent taxpayer, which was sustained by the ax /ourt, that the IcollectI freightage fees were not remitted to the local office of the :. ". @ines /ompany (in the Philippines! nor actually converted to and received in Philippine pesos. ,n other words, no foreign exchange operations were involved here. he statement made in the /ommissionerOs brief (p. &#! that Iit is uncontroverted that the respondentOs (/ompanyOs! dollar earnings here representing its so-called OcollectO revenues were accounted for thru its ban(, the 'ational /ity Fan( of 'ew Qor( at P&.##+*5 to a dollar, is not borne out by the records. Dhat appears is that the /ompany received certain amounts from its home office in the :nited "tates to meet its local expenses, and these were withdrawn from a letter of credit in the Girst /ity Fan( of 'ew Qor( in >anila at the rate of P&.##+*5 to a dollar. Fut the /ompany asserts J and there is no evidence to the contrary J that there is no relationship whatsoever between these funds and the freight fees collected in the :nited "tates. he other issue is whether on the facts of the case, the /ompany as agent of the vessel I"" Portland raderI in behalf of its owner, the Dest /oast rans-=ceanic "teamship @ines /ompany, can be compelled to pay the &3 percentage tax on the freight revenue earned from the shipment of chrome ores transported from the Philippines to the :nited "tates. As stated earlier, the /ourt of ax Appeals ruled in the negative, citing and adopting a unanimous decision of the defunct Foard of ax Appeals rendered on ?uly +#, 175+, purporting to interpret "ection 17& of the 'ational ,nternal )evenue /ode, in which it held that a shipping agent is not personally responsible for the payment of the tax obligations of its principal, reasoning that there is no law constituting a shipping agent as a withholding agent of the taxes due from its principal. ,f further stated that a shipping agent can only be held liable for the payment of the common carrierOs percentage tax if such obligation is stipulated in the agency agreement, or if the agent voluntarily assumes the tax liability. Be can not agree to this view as applied to the present case , because it adopts a very restrictive interpretation of "ection 17& of the ax /ode. ;hat the legal provision purports to tax is the %usiness of transportation, so much so that the tax is based on the gross receipts. The person liable is of course the owner or operators , %ut this does not mean that he and he alone can %e made actually to pay the tax . 7n other words, whoever acts on his behalf

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and for his benefit may be held liable to pay, for and on behalf of the carrier or operator, such percentage tax on the business. ,t is claimed for the /ompany that it merely acted as a Ihusbanding agentI of the vessel with limited powers. his appears not to be so. A Chus%anding agentC is the general agent of the o!ner in relation to the ship, !ith po!ers, among others, to engage the vessel for general freight and the usual conditions, and settle for freight and ad?ust averages !ith the merchant. Fut whatever may be the technical functions of a IshipOs husbandI, the /ompany, in the case at bar, was considered and acted more as a general agent. he agency contract is not extant in the records. "till, from the correspondence between the principal Dest /oast rans-=ceanic "teamship @ines and the /ompany itself, and with other entities regarding the shipment in 2uestion, the real nature of the agency may be gleaned. )hus, in the letter of ;est :oast )rans Bceanic Steamship Dines, dated Bcto%er 20, 18.1 "Exh' 50$, giving instructions to the master of its vessel CSS Portland )raderC, it referred to respondent :ompany as the CB!ner>s agentsC at the loading point "Fasinloc$ to !hich the vessel had to %e consigned' 9n line !ith its designation as the CB!ner>s agentC and the vessel>s consignee, respondent :ompany !rote the master of the vessel "Exh' 25$ advising him that it had secured :ustoms authority for the vessel to proceed to Fasinloc, as !ell as the Export Entry covering the loading of the ore, giving instructions ho! to proceed !ith the loading and to 3eep it closely advised of all movements and daily tonnages laden' 9t also undertoo3 to and did in fact prepare all the cargo documents' )he corresponding %ill of lading for the cargo !as prepared and signed %y the respondent :ompany CAs Agent for ;est :oast )rans Bceanic Steamship DineC !herein it ac3no!ledged the receipt of 8,800 long tons of chrome, a prerogative act of a common carrier itself "p' 11,, A92 record$' Again, signing CAs Agents for ;est :oast )rans Bceanic Steamship DineC, respondent :ompany transmitted the shipping documents covering the shipment of ore to :astle :oo3e, Dtd', the vessel>s agent at <onolulu "Exh' 20$' All these !ere in respect to the first shipment on 0ovem%er 26, 18.1 . /oncerning the second shipment, we have first the letter of Dest /oast rans-=ceanic "teamship @ines, dated Gebruary &1, 175& addressed to respondent /ompany, advising it of the second trip of I"" Portland raderI and stating4 IDe trust that you will handle the vessel at >anila and that your usual fee will applyI, and re2uesting respondent /ompany to act also as supervisory agents at "aigon and <aiphong (p. 5*, F,) records!. he steamship company, li(ewise, advised the master of its vessel that Iits agents for >asinlocI will be the respondent /ompany from which Ifull assistance and informationI could be obtained (Axh. 1%, dated >arch 1&, 175&!. Avidently accepting the designation, respondent /ompany, representing itself as Ithe local agentsI of the vessel (Axh. &1, dated >arch &$, 175&!, secured the entry and clearance of the vessel at the customs. After the loading of ore at >asinloc, again respondent /ompany prepared the shipping documents and signed the bill of lading IAs Agent for the Dest /oast rans-=ceanic "teamship @inesI (p. 110, F,) record!. .ll these documents show that respondent /ompany clearly acted I as it held itself to the public and to the =overnment specifically the Bureau of /ustoms$ I as the shipownerEs local agent or the ship agent representing the ownership of the vessel . o adopt the view of the trial court would be to sanction the doing of business in the Philippines by non-resident corporations over which we have no jurisdiction, !ithout su%?ecting the same to the operation of our revenue and tax la!s, to the detriment and discrimination of local %usiness enterprises . Be, therefore, hold that in the circumstances, said respondent is under obligation to pay, for and in behalf of its principal, the tax due from the latter( .nd, this is but logical, because, as provided in .rticle 4H4 of the /ode of /ommerce, Kthe ship agent shall represent the ownership of the vessel, and may, in his own name and in such capacity, take Dudicial and extraDudicial steps in matters relating to commerceK( 7f the shipping agent represents the ownership of the vessel in matters relating to commerce, then any liability arising in connection therewith may be enforced against the agent who is, as a consequence thereof, authori,ed to take Dudicial or extra-Dudicial steps, either in the prosecution or defense of the ownerEs rights or interests( .s a matter of fact, if a foreign shipping company has a claim against the =overnment in relation to commerce, its local shipping agent, by virtue of .rticle 4H4 of the /ode of /ommerce, can file such a claim in his own name( /onversely, and logically, it must be admitted, the =overnment can hold the local shipping agent liable for the taxes due from his principal( This is, of course, without preDudice to the right of the agent to seek reimbursement from his principal. he contention that the agreement between the principal and agent solely determines the liability of the agent, is not tenable. Any agreement or contract to be enforceable in this jurisdiction is understood to incorporate therein the provision or provisions of law specifying the obligations of the parties under such contract. he contract between herein respondent /ompany and its principal conse2uently imposed upon the parties not only the rights and duties delineated therein, but also the provisions of law such as that of the /ode of /ommerce aforecited.

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As to the third assigned error, i.e., the amount of taxable receipts, the records are not clear. Petitioner /ommissioner of ,nternal )evenue claims that there are contradictions in and among the three sets of summaries submitted by the respondent /ompany and they should not have been considered by the trial court. =n the other hand, we find also that the assessments issued by the /ommissioner are, li(ewise, conflicting. ,n the present petition, the prayer sets the tax delin2uency of the respondent /ompany at P&$,0+$.1*, which is the amount demanded in his letter of demand of ?une $, 175% (Axh. A, also mar(ed as Axh. +0!. ,n his brief, the /ommissioner prays that respondent /ompany be ordered to pay the sum of P&5,*$7.01, the amount demanded in his letter of ?une &%, 175$ (Axh. A, also mar(ed as Axh. &$!. ,n view of these discrepancies, a re-examination and verification of the records is necessary to determine the exact taxable amount on which the &3 common carrierOs percentage tax is to be computed in accordance with the terms of this decision. D<A)AG=)A, the decision of the /ourt of ax Appeals in this case is modified as above-indicated, and the records remanded to the court a 2uo for the purpose herein directed. 'o costs. "o ordered. EN BANC <G.R. N$. L8@32=E. B.!e 32& =972.A ESCUDERO ELECTRIC SERVICE COMPAND& (et+t+$!er& 5). BENBAMIN N. TABIOS& +! h+) -"("-+t% ") C$mm+))+$!er $4 I!ter!"# Re5e!.e& re)($!/e!t. "Q@@AF:" 1. APA ,='9 ,' A)'A@ )AVA':A /=;A9 "A/ ,=' &57 =G <A AP /=;A A>A';A; <A P)=V,",=' =G >:',/,PA@ G)A'/<,"A ,"":A; :';A) A/ '=. $$*. J he provision of municipal franchise issued pursuant to Act 'o. $$* regarding the rate of tax to be paid by the franchise holder have been amended by "ection &57 of the ax /ode, as amended by )epublic Acts 'os. +7 and 01%. &. ,;.9 ,;.9 ,;.9 APP@A,'A;. J ,n effecting such alteration in the rate of tax, our legislative department merely exercised a power expressly reserved thereto by said franchises, and has acted therefore, in conformity therewith, not in violation of the provisions thereof or to the detriment of the rights there vested in the franchise holder. +. ,;.9 ,;.9 1)="" AA)','1" =) )A/A,P /='" ):A;. J he uncollected charges or amounts due from the customers of a franchise holder should be considered part of the taxable gross earnings or receipts. "ection &57 of the ax /ode, as amended by ). A. 'os. +7 and 01%, uses the term Igross earnings or receipts,I so thus that Igross receiptsI as so used has the same meaning as Igross earnings.I 0. ,;.9 ,;.9 ":)/<A)1A =' ;AG,/,A'/Q9 ;,"PA'"A; D, < ,G APPAQA) ,' 1==; GA, <. J his court in ,mus Alectric /o., ,nc. vs. /ourt of ax Appeals. and 1uagua Alectric @ight /o., vs. /ollector of ,nternal )evenue, ruled that when the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed by its franchise, the surcharge may be dispensed with 5. ,;.9 ,;.9 ,;.9 ,'" A' /A"A. J Dhere the delay in the payment of deficiency tax was due to the erroneous view of the petitioner that its franchise had not been amended by "ec. &57 of the 'ational ,nternal )evenue /ode which view was shared by respondent /ommissioner when it made refunds to franchise holders who had paid at the rate of 53, it would not be fair to impose on the petitioner the &53 surcharge on the deficiency tax. ;A/,",=' >AMA@,' A@, ? p4 his is a review of the decision of the /ourt of ax Appeals in its /ase 'o. 1&&$. Pursuant to Act 'o. $$*, as amended, the Ascudero Alectric "ervice was granted municipal franchises to operate and maintain electric light, heat and power systems by the municipal council of /andelaria, Nue.on, under )esolution 'o. $1, dated ?une *, 17&% and by the municipal council of /alauan, @aguna under )esolution 'o. 11, dated >arch 17, 17&7. he franchise for /andelaria fixed the rate of franchise tax at Iuno porciento de los ingresos brutos 2ue

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obtenga por dicho privilegio durante los primeros veinte (&#! aYos y el dos por ciento (&3! de los mismos ingresos durante los 2uince aYos restantes de la vigencia de este mismo privilegio.I As to the franchise of /alauan, since no copy thereof was presented in evidence, the tax court presumed that the rate of franchise tax prescribed therein was &3, as it was the rate being paid by the petitioner. =n 'ovember &, 17$# the respondent assessed against the petitioner deficiency franchise tax and surcharge in the sum of P&#,&&%.++ for the period from ?anuary 1, 170% to ?une +#, 1757, computed as follows4 1ross receipts per audit P%*+,$71.%$ 5 3 tax due thereon 0+,$%0.57 @ess4 Amount already paid &*,5#1.7+ JJJJJ Falance4 P 1$,1%&.$$ Add4 &5 3 surcharge 0,#05,$* JJJJJ = A@ A>=:' ;:A P &#,&&%.++ ZZZZZZZZZ All billings made by the petitioner, regardless of whether paid or not, were made subject to the franchise tax. According to the respondent, the tax of 53 on the gross receipts, as well as the &53 surcharge on the deficiency, was imposed in accordance with "ection &57 of the 'ational ,nternal )evenue /ode, as amended. he petitioner, through its counsel, protested the assessment and re2uested for its withdrawal and cancellation on the following grounds, namely4 (=) th"t the r+,ht t$ "))e)) the "##e,e/ /e4+-+e!-% t"' 4$r the (er+$/ 4r$m B"!."r% =& =9E? t$ Se(tem6er 32& =9>> h"/ "#re"/% (re)-r+6e/I (@) th"t the @3 t"' (re)-r+6e/ +! +t) 4r"!-h+)e (re5"+#e/ $5er the >3 t"' (r$5+/e/ 4$r +! Se-t+$! @>9 $4 the N"t+$!"# I!ter!"# Re5e!.e C$/e& ") "me!/e/I "!/ (3) th"t the .!-$##e-te/ re5e!.e) /$ !$t -$!)t+t.te ("rt $4 the t"'"6#e ,r$)) re-e+(t) $r e"r!+!,). I! h+) #etter /"te/ *e6r."r% =E& =9K=& the re)($!/e!t /e!+e/ the re7.e)t 4$r #"-L $4 #e,"# 6")+). There.($!& the (et+t+$!er 4+#e/ 0+th the C$.rt $4 T"' A((e"#) " (et+t+$! 4$r re5+e0 $4 the re)($!/e!t9) /e-+)+$!. After proper proceedings, the tax court rendered its decision dated ;ecember &$, 17$+, the dispositive portion of which reads4 I,n resume, we are of the opinion that the right of the 1overnment to assess the deficiency franchise tax against petitioner covering the period from ?anuary 1, 170% to "eptember +#, 1755 has already prescribed. Dith respect to the deficiency franchise tax and surcharge covering the period from =ctober 1, 1755 to ?une +#, 1757 in the sum of P15,**&.71 (P1&,$1%.++ deficiency tax plus P+,150.5% as &53 surcharge!, the decision of respondent is hereby affirmed. I,' V,AD =G <A G=)A1=,'1, petitioner is hereby ordered to pay the sum of P15,**&.71 within thirty days from the date this decision becomes final, without pronouncement as to costs.I :nable to secure a reconsideration of the adverse portion of the decision, the petitioner instituted the instant petition for review. he first issue to be resolved in this case is whether or not the provisions of petitionerOs municipal franchises regarding the rate of tax have been amended by "ection &57 of the ax /ode, as amended by )epublic Acts 'os. +7 and 01%, which reads4 I"A/ &57. ax on corporate franchises. J here shall be collected in respect to all existing and future franchises, upon the gross earnings or receipts from the business covered by the law granting the franchise a tax of five per centum or such taxes, charges, and percentages as are specified in the special charters of the grantees upon whom such franchises are conferred, whichever is higher, unless the provisions thereof preclude the imposition of a higher

Page ,5 of .2

tax. Gor the purpose of facilitating the assessment of this tax, reports shall be made by the respective holders of the franchises in such form and at such times, as shall be re2uired by the regulations of the ;epartment of Ginance. I he taxes, charges, and percentages on corporate franchises, shall be due and payable as specified in the particular franchise, or in case no time limit is specified therein, the provisions of section one hundred and eighty-three shall apply9 and if such taxes, charges, and percentages remain unpaid for fifteen days from and after the date on which they must be paid, twenty-five per centum shall be added to the amount of such taxes, charges, and percentages, which increase shall form part of the tax.O ,n at least four cases similar to the present case, where the franchises were issued by the municipal councils also pursuant to Act 'o. $$*, this /ourt has held that the afore2uoted section of the tax code amended the pertinent provisions of the municipal franchises. ,n Falanga Power Plant /o. vs. /ommissioner of ,nternal )evenue, this /ourt said4 IAt the outset, it should be noted the status of petitionerOs municipal franchises as property and property right is dependent upon or 2ualified by the nature and limitations of the authority under which said franchises were granted by the municipal corporations concerned. Admittedly, such authority, as regards the franchises for Falanga and "amal, emanated from Act 'o. $$*, pursuant to which franchises granted thereunder shall be Osubject to the power of /ongress to alter, modify or repeal the same.O o the extent that "ection &57 of our 'ational ,nternal )evenue /ode is inconsistent with the rate of taxes fixed in said municipal franchises J and the theory that "ection &%7 as applied to petitioner herein is unconstitutional, necessarily implies such inconsistency J it is obvious that, for all intents and purposes, said legal provision alters the pertinent provisions of said franchises. ,n effecting such alteration, our legislative department has merely exercised, however, a power expressly reserved thereto by said franchises, and has acted, therefore, in conformity therewith, not in violation of the provisions thereof or to the detriment of the rights thereby vested in petitioner herein . . . I De now come to the 2uestion as to whether the uncollected amounts due from petitionerOs customers should be excluded in computing the franchise tax. ,n upholding the assessment made by the respondent wherein the franchise tax payable by the petitioner was based on gross receipts, whether collected or not, the tax court relied on the case of Philippine @ong ;istance elephone /ompany vs. /ollector of ,nternal )evenue. ,n that case this /ourt construed Igross receiptsI to mean Igross earnings,I thereby subjecting the uncollected revenues to the tax. hus4 I . . . I)eceiptsI means amount actually received, for otherwise they would not be receipts. ,f the words of the franchise were to be construed in their literal sense, independently of the organic act or the /onstitution, the theory of the plaintiff-appellant may be plausible9 but it should be noted that the Philippine @egislature granted the franchises through Acts 'os. 1+$% and +0+$ under the authority vested in it by "ection *0 of the Philippine Fill of 17#&, the first organic act, and by "ection &% of the ?ones @aw, . . . I he acts of the @egislature granting the franchises should be construed so as not to contravene or violate the organic acts above mentioned, for otherwise said legislative acts would be null and void or unconstitutional. he organic acts use the word Oearnings.O A person may have earned his salary but may not have collected it, or may be unable to collect it from an insolvent employer. A person cannot demand payment of his unpaid salary unless he has earned it. his would show that to collect is a different act from to earn. /onse2uently, the uncollected Ogross receiptsO which should be construed as meaning the same thing as Ogross earningsO should be subject to the franchise tax.I ,ndeed, "ection &57 of the 'ational ,nternal )evenue /ode, as amended by )epublic Acts 'os. +7 and 01%, uses the term Igross earnings or receipts,I so thus that Igross receiptsI as so used has the same meaning as Igross earnings.I Accordingly, the uncollected charges or amounts due from the petitionerOs customers should be considered part of the taxable Igross earnings or receipts.I Bith respect to the imposition of )4# surcharge on the deficiency , this /ourt in ,mus Alectric /o., ,nc. vs. /ourt of ax Appeals, supra, and 1uagua Alectric @ight /o., ,nc. vs. /ollector of ,nternal )evenue, supra, ruled that !hen the taxpayer acted in good faith in paying the franchise tax at the lo!er rate fixed %y its franchise, the surcharge may %e dispensed !ith. 7n the instant case, the delay in the payment of the deficiency tax was due to the erroneous view of the petitioner that its franchises had not been amended by Section )4H of the 'ational 7nternal 5evenue /ode( Since it appears that at one time or another the office of the respondent also shared the view of the petitioner to the extent of making refunds to franchise holders who had paid at the rate of 4# as in the aforecited cases, it would not be fair to impose on the herein petitioner the )4# surcharge( Avidently it was only after our decision in the two cases of <oa <in /o. vs. ;avid, 1.). 'os. @-7$1$ and @-11*%+, >ay &5, 1757,

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wherein we held "ection &57 of the ax /ode to be applicable, that the Fureau of ,nternal )evenue defined its stand accordingly and started assessing municipal franchise taxes at 53 instead of at the lower rates stated in the corresponding franchises. ,n the present case the assessment of the deficiency taxes, made on 'ovember &, 17$# covered a period up to ?une +#, 1757 only9 and it cannot therefore be said that the petitioner had been paying before then at the lower rate of &3 with (nowledge that its payments were deficient. =ur ruling with respect to the surcharge in the ,mus and 1uagua cases should apply herein. D<A)AG=)A, modified by eliminating the &53 surcharge on the amount of P+,150.5%, the decision appealed from is hereby affirmed. 'o pronouncement as to costs. EN BANC <G.R. N$. L8@22K2. A(r+# 32& =9K?.A LILIA DE BESUS8SEVILLA& (et+t+$!er& 5). TCE COLLECTOR O* INTERNAL REVENUE& re)($!/e!t. >eer, >eer 8 >eer for petitioner. "olicitor 1eneral Arturo A. Alafri., "olicitor Alejandro F. Afurong, Atty. Prescilla ). 1on.ales and Atty. ?esus P. @u(ban for respondent. ;A/,",=' >AMA@,' A@, ? p4 he facts of this case are stated in the decision under review (/. .A. /ase 'o. +00!4 I he petitioner is a lawyer and a business-woman, who, sometime in ?une, 1750, was introduced by one )ene 'ieto to ?esus "to. omas /ortes (?es /ortes for short!, now deceased, a well-(nown operator and promoter of sports exhibitions and other entertainments in the Philippines. =n this meeting, ?es /ortes broached the subject of promoting the first bullfight exhibitions in the Philippines and pictured to her its financial success. Fecause the staging of bullfights re2uires a considerable amount of money, and not being in a position to raise the capital, he proposed that petitioner underta(e the raising of wor(ing capital for the venture to which proposal the latter agreed. I=n August &#, 1750, the petitioner gave ?es /ortes a special power to enter into a contract with the representatives of the bullfight troupe from @isbon, Portugal (Axh. 1, p. 1$$, Vol. ,,,, F,) rec.!. =n August &$, 1750, ?es /ortes concluded personally and in his own name a bullfight contract with ;avid )odrigue. Farrote, representing Alfredo ;a "ilva =ver 1 ha, Ampresario and >anager of the Portuguese Fullfight roupe (Axh. A, pp. 51-5$, / A rec.!. I=n =ctober 1#, 1750, ?es /ortes and the petitioner entered into a O/ontract of >anagement,O wherein the former was denominated as promoter and the latter as general manager of the bullfight. Among others, the contract provided4 O hat the said A1A' , as 1eneral >anager, shall arrange and provide a wor(ing capital for the operations of the P)=>= A), by means of an overdraft or overdrafts in one or more of the ban(ing institutions of the /ity of >anila, in such sums as maybe, from time to time, necessary and proper not to exceed in the sum total at any one time, the sum of ='A <:';)A; <=:"A'; (P1##,###.##! PA"=", and does hereby warrant that said wor(ing capital shall be available in said re2uisite sums, promising and agreeing, whenever necessary, to guarantee the repayment of the said overdrafts unto the interested ban(ing institutions the pledge of the faith and credit of the said A1A' , to the entire satisfaction of the interested ban(ing institutions, or other creditors, if any.O (Par. ,,, Axh. ;, pp. 57, $# / A rec.!. I"ubse2uently, the petitioner entered into contracts (Axh. 5, pp. 15$-15*, Vol. ,,,, F,) rec.! with the abacalera granting the latter Oexclusive right to use for the advertisement of its products the bullfights which shall be held in >anila,O and with <arry @yons, ,nc. for the construction by the latter of the bullfight arena. I=n ;ecember +, 1750, ?es /ortes secured from the ;irector of @ands a permit to occupy and construct a bullfight arena in the "un(en 1arden (Axh. <-*, p. *0, / A rec.!.

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I here were actually seven (*! bullfight exhibitions held between ;ecember +1, 1750 to Gebruary $, 1755. Fefore, during and after the exhibitions were held, the petitioner (ept the boo(s of accounts9 caused the printing of handbills and tic(ets and the sale of the latter9 and employed the personnel needed for the operation of the bullfight venture. "he also provided the venture with a wor(ing capital in the total amount of P1*#,###.##. I=n the basis of the gross proceeds derived from the bullfight exhibitions, respondent (/ollector of ,nternal )evenue! assessed and demanded from petitioner the amount of P111,#5$.%0 as amusement tax and surcharge, plus P$##.## as compromise penalty for failure to register the boo(s of accounts with the Fureau of ,nternal )evenue (Axh. &+, pp. &5#-&51, Vol. ,, F,) rec.!. IAfter re2uest for reconsideration of the assessment and demand having been denied by respondent (Axh. ), p. %% / A rec.!, petitioner appealed (to the /ourt of ax Appeals!.I =n >ay &+, 17$& the /ourt of ax Appeals affirmed, with costs against petitioner, the decision of the /ollector of ,nternal )evenue Iexcept with respect to the sum of P$##.## sought to be collected as compromise penalty.I <ence this appeal. here is no dispute as to the correctness of the amount of amusement tax sought to be collected by respondent. he sole issue for determination is whether or not petitioner maybe properly considered the proprietor or operator of the bullfight exhibitions, thus ma(ing her liable for the payment of the amusement tax under "ection &$# of the 'ational ,nternal )evenue /ode. ,n denying her liability for the payment of the amusement tax demanded, petitioner contends that the late ?es /ortes, instead of her, should be considered the operator or promoter. She submits that being merely a financier or capitalist who furnished the necessary funds for the staging of the bullfight exhibitions, she cannot be held liable for the payment of the amusement tax due( 7n this connection, she invokes our ruling in the case of Blaquera vs( .ldaba :-3"4>@, 9arch >", 3H*"$ to the effect that a Kfinancier and capitalistK of a stage presentation cannot be held liable for the payment of the amusement tax( De believe that petitionerOs reliance on the aforecited case is misplaced. ,n that case, it was conclusively shown that the financierOs only participation in the stage presentation was limited to the giving of necessary funds J which really was in the nature of a loan J to the company in-charge of the opera presentation with the understanding that the same would be returned as soon as the company had funds. The instant case presents an entirely different working arrangement( 7n addition to financing the bullfight exhibitions, petitioner assumed active involvement in the agreed business venture . =n August &#, 1750 she expressly gave ?es /ortes authority J as embodied in the special power of attorney executed by petitioner in favor of ?es /ortes J to enter into a contract with the representatives of the bullfight troupe to stage several bullfight exhibitions in >anila. "ix ($! days later, ?es /ortes executed and signed the bullfight contract. Admittedly, petitionerOs participation with respect to the staging of the bullfight exhibitions became more involved after the bullfight contract was perfected. She acknowledged having granted to Tabacalera the exclusive right to use the bullfights for advertisement of its products+ she likewise contracted the services of 8arry :yons, 7nc( for the construction of the bullfight arena( She took charge of the disbursements and gate receipts during the bullfight exhibitions as well as the recording and keeping of the pertinent books of account . "he was therefore more than a mere financier or capitalist in the sense understood in the Fla2uera vs. Aldaba case (supra!. Petitioner cites the provision of the >anagement /ontract executed between her and ?es /ortes on =ctober 1#, 1750, wherein she is referred to as A1A' and /ortes as P)=>= A). "he insists that if ever she attended actively to the details concerning the bullfight exhibitions, thus ma(ing her an active financier, it was primarily in (eeping with her new role as general manager in-charge. "he advances the view that ?es /ortes assumed personal responsibility as principal when he signed the bullfight contract since under the terms thereof, the contemplated bullfight exhibitions would be under the management, control and direction of the "econd Party (?es /ortes!, at such places and at such times as the "econd Party may indicate without any reference to her at all. Pursuing her argument further, petitioner says4 IAfter the contract (Axh.OAO! was executed, ?es /ortes showed the same to the petitioner, informing the latter that he executed the same as principal because, in the meantime, he had changed his mind and he wanted to be the principal himself, and the petitioner to be the manager (t.s.n. p. ++, "ept. &7, 175%!.

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IFecause of the change in the arrangement and in order to protect the large sum of money the petitioner had already spent in preparation for the bullfight exhibitions, she finally agreed to join ?es /ortes as manager, and so, on =ctober 1#, 1750, the petitioner signed the /ontract of >anagement (Axh. O;O! wherein the roles of the parties were reversed . . . I (PetitionerOs brief, p. $! =n this score, we find petitionerOs argument without merit. As correctly noted by respondent, in August of 1750 when ?es /ortes allegedly informed petitioner that he had entered into the bullfight contract for his own account, petitioner had not yet invested any money in the venture since it was only later J "eptember 1, 1750 to be exact J that petitioner put up her initial investment of P7#,###. ,n other words, it is inaccurate to say that petitioner agreed to the demands of ?es /ortes to protect her investment because at that time she had not yet spent any significant amount. ,f there was any person who had valid reason to fear that the proposed bullfight exhibitions might not materiali.e, it was ?es /ortes who must have thought of the serious conse2uences should petitioner bac( out at that stage. =bviously it was for this reason that ?es /ortes caused petitioner to sign the >anagement /ontract, under which petitionerOs financial support was assured and her right as investor well-protected. Dith these facts in mind, the >anagement /ontract could not have been intended to revo(e the special power of attorney9 rather, the former was an added protection to the interests of both parties since it gave petitioner sufficient security and protection of her wor(ing capital and, at the same time, assured ?es /ortes of the availability of necessary funds. he use of the term promoter in describing ?es /ortes under the >anagement /ontract should not be given any undue significance since under the set-up just described, promoter was conveniently used only in the sense that ?es /ortes (new the practical aspects of the business better than petitioner did. ,n a further effort to avoid liability, petitioner points to the fact that it was ?es /ortes, not she, who approved and signed the amusement tax return covering the bullfight exhibitions in 2uestion and that the statement of income and expenses of the venture was signed by ?es /ortes as promoter and operator. his fact can have very little persuasive effect, considering that said documents were prepared and filed after petitioner had been assessed for amusement taxes on ?anuary &1, 1755 in her capacity as operator and promoter. ,n fact, we see in it a subtle attempt to render the collection of the amusement taxes due more difficult. D<A)AG=)A, the judgment appealed from is hereby affirmed. /osts against petitioner. EN BANC <G.R. N$. L8=33?7. M"r-h @?& =9K2.A SD CCIUCO& (et+t+$!er& 5). COLLECTOR O* INTERNAL REVENUE& re)($!/e!t. "Q@@AF:" APA ,='9 A>:"A>A' APA"9 =PA)A ,=' =G /AFA)A "9 " A : =)Q /='" ):/ ,='9 S/&P% &2 T%59 K=5&SS 5%/%7PTSK. J A cabaret is a place of amusement where customers go because of their desire to dance and where the IbailarinasI are the main attraction. ;ancing is the main business and customers patroni.e the place attracted by the IbailarinasI. As a matter of fact, IbailarinasI are the indispensable factor in the operation of the business. Bhatever is paid to them should, therefore, be considered as paid on account of the business, and as such as part of the operatorEs gross receipts . he foregoing interpretation may be gleaned from section &$# of the 'ational ,nternal )evenue /ode which, in referring to the gross receipts the operation of the cabaret may reali,e, includes mainly all receipts Kirrespective of whether or not any amount is charged or paid for admission(K he law undoubtedly mainly contemplates to include the fees that may be paid by the customer for the privilege of dancing for it considers as incidental what may be paid by the customers as admission fee. ,n other words, the law in effect considers the amount charged against the customers for dancing with the IbailarinasI as the main gross receipts of the cabaret, the admission fee thereto being merely incidental. ;A/,",=' FA: ," A A'1A@=, ? p4 Petitioner was the owner and operator of the @a @oma /abaret located at @a @oma, Nue.on /ity from 17&$ to ?anuary, 175$. he customers who patroni.ed the cabaret were charged P#.+# per dance, P#.1# to be paid before entering the dance hall and the remaining P#.&# to be paid to the IbailarinasI after the dance. he customers were informed of the fees to be paid per dance by means of posters found in conspicuous places of the cabaret stating4.

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1ate ....................... P#.1# @adies ......................... .&#A ;ance otal ............. P#.+#. ;uring the period from ?anuary, 170* to August, 175#, petitioner declared in his return only the following gross receipts& receipts from gate admissions at P0'10 each, P.8,160',0/ receipts from restaurant sales, P.,558'80/ receipts from %ar sales, P,6,,.8'10, and paid thereon a 10 per cent amusement tax in the amount of P11,186',0' <aving failed to declare for tax purposes the P#.&# dance fee payable to the IbailarinasI which petitioner collected as part of his business, respondent assessed against him a deficiency amusement tax, including 5# per cent surcharge, in the amount of P1*,$1$.#5. )espondent also assessed against petitioner the further sum of P+##.## as penalty in settlement of his violation of "ection &$# of the ax /ode and the Foo((eeping )egulations. Grom the above assessment, petitioner too( the case on appeal to the /ourt of ax Appeals where, after due hearing, said court rendered decision affirming the contention of respondent insofar as he holds petitioner liable to pay the sum of P1*,$1$.#5 as deficiency amusement tax and surcharge for the period from ?anuary, 170* to August, 175#. <owever, the /ourt of ax Appeals rejected the imposition of the penalty in the sum of P+##.## alleging lac( of power or authority to order the payment of such penalty. ,n due time, petitioner filed the present petition for review. he law under which the deficiency amusement tax was collected from petitioner for his alleged gross receipts from ?anuary, 170* to August, 175# is "ection &$# of the ax /ode, the pertinent portion of which reads4 I,n the case of coc(pits, cabarets, and night clubs, there shall be collected from the proprietors, lessees, or operators a tax e2uivalent to ten per centum . . . of the gross receipts, irrespective of whether or not any amount is charged or paid for admission( ( ( ( 2or the purpose of amusement tax, the term Egross receiptsE embraces all the receipts of the proprietor, lessee, or operator of the amusement place( I ,t would appear that the owner or operator of a cabaret is re2uired to pay an amusement tax e2uivalent to 1# per cent of the gross receipts of his business Kirrespective of whether or not any amount is charged or paid for admission. he law further adds that, for the purposes of amusement tax, the term Kgross receiptsK embraces all the receipts of the proprietor or operator of the business( he 2uestion that now arises is4 Dhat should be considered as gross receipts of the @a @oma /abaret operated by petitionerR ;oes this term include only what it collects from its customers as admission fee to the cabaret, or it should also include the dance fee that is charged by the cabaret as compensation for its IbailarinasIR Petitioner contends that it should only include what he collects as admission fee, and not those representing the dance fee %ecause they do not go to the operator, %ut to the C%ailarinasC' 9n other !ords, petitioner contends that %ecause those dance fees go to the C%ailarinasC, they could not %e considered as part of the gross receipts of the ca%aret. Dith this contention we disagree. A cabaret is a place of amusement where customers go because of their desire to dance and where the IbailarinasI are the main attraction. ;ancing is the main business and customers patroni.e the place attracted by the IbailarinasI. As a matter of fact, IbailarinasI are the indispensable factor in the operation of the business. Dhatever is paid to them should, therefore, be considered as paid on account of the business, and as such it should be considered as part of petitionerOs gross receipts. hat the foregoing is the correct interpretation of the term Igross receiptsI can be gleaned from the very terminology of the law wherein in referring to the gross receipts the operation of the cabaret may reali.e it includes mainly all receipts Iirrespective of whether or not any amount is charged or paid for admission.I he law undoubtedly mainly contemplates to include the fees that may be paid by the customer for the privilege of dancing for it considers as incidental what may be paid by the customer as admission fee. ,n other words, the law in effect considers the amount charged against the customers for dancing with the IbailarinasI as the main gross receipts of the cabaret, the admission fee thereto being merely incidental. ,n this respect, we are in full accord with the following pronouncement of the /ourt of ax Appeals4

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IDe hold that when an operator, proprietor or lessee of a cabaret ta(es it upon himself to set a fixed dance fee and thereby tends to the collection of the same for the benefit of his ObailarinasO or hostesses, the income derived therefrom forms part of his gross receipts and therefore subject to amusement tax. Fy such imposition, the operator becomes the principal party to the implied contract of lease of services with his customers in place of the ObailarinasO or hostesses under his employ and therefore subject to the resulting liabilities as such contracting party.I Petitioner, however, contends that the /ourt of ax Appeals erred in charging against him the surcharge of 5# per cent on the amount he allegedly underdeclared for the reason that there is no evidence on record to show that he defrauded the 1overnment. Dhile there is no direct evidence to show actual fraud on the part of petitioner, however, the circumstances found by the /ourt of ax Appeals indicate that he has deliberately omitted in his boo( a si.eable portion of his taxable income which in substance amounts to fraud. ,n the circumstances, we are not prepared to disturb the finding of the /ourt of ax Appeals on this matter even if there is no direct evidence that fraud was committed. As regards the contention that the collection of the tax in 2uestion has already prescribed, it appears that this 2uestion was not raised as an issue in the petition for review filed by petitioner in the /ourt of ax Appeals. ,t was not even touched by him in the memorandum he submitted. here is, therefore, enough reason to believe that petitioner has waived this defense and so it cannot now be entertained. o hold otherwise would be to deprive respondent of his right to show the contrary, this matter being evidentiary in nature. Dherefore, the decision appealed from is affirmed, with costs against petitioner.

EXCISE TAX& /e4+!e/ A tax imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation. ,t may refer to a tax upon property for the privilege to enjoy or the use the same. EXCISE TAX DISTINGUISCED *ROM RODALTD a. b. Axcise tax on the privilege of extracting minerals from the earth D<,@A royalty as the term used and understood in mining and oil operation means a share in the product or profit paid to the owner of the property. )oyalty paid to the government is rightfully based on the amount indicated in the final invoice because it is the amount which will be received by the seller from the buyer as consideration for the sale of mineral products D<,@A excise tax is based on the value of mineral products at the time of removal.

GOODS SUBBECT TO EXCISE TAX Axcise tax apply to4 a. b. 1oods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and o things imported.

he excise tax shall be in addition to the value added tax. PRODUCTS SUBBECT TO EXCISE TAX a. b. c. d. e. Alcohol products obacco products Petroleum products >ineral products and >iscellaneous products li(e4 1. Automobiles &. ?ewelry +. Perfumes and toilet waters 0. Qachts and other vessels intended for pleasure or sports

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GINDS O* EXCISE TAXES a. b. "pecific ax Ad Valorem ax

SPECI*IC TAX /e4+!e/ Axcise tax based on weight or volume capacity or any other physical unit of measurement. AD VALOREM TAX /e4+!e/ Axcise tax based on selling price or other specified value of the good. MEANING O* ACTUAL MARGET VALUE O* TCE GROSS OUTPUT TCEREO* AT TCE TIME O* REMOVAL& *OR EXCISE TAXES ON MINERAL PRODUCTS. he actual mar(et value of the minerals at the time minerals were removed away from the position it occupied, obviously referring to Philippine valuation and analysis because it is this country where these minerals were extracted, removed and eventually shipped abroad. his meaning is consistent with the essence of excise tax. ,t is a charge upon the privilege of severing or extracting minerals from the earth, and it is due and payable upon removal of the mineral products form its bed or mines. he law is clear. ,t does not spea( of actual mar(et value at the time the mineral products are unloaded at the country of destination neither does it spea( of the selling price as the basis of the excise tax. DOCUMENTARD STAMP TAX SUBBECT O* DOCUMENTARD STAMP TAXES a. b. c. upon documents, instruments, loan agreements and papers upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, here shall be levied, collected and paid for, and in respect of the transaction so had or accomplished the corresponding documentary stamp tax.

DOCUMENTS AND PAPERS SUBBECT TO DOCUMFENTARD STAMP TAX. a. b. c. debentures and certificates of indebtedness original issue of shares of stoc( sales, agreements to sell, memoranda of sales, deliveries and transfers of due-bills, certificates of obligation or shares or certificates of stoc(s. d. Fonds, debentures, certificates of stoc(s or indebtedness issued in foreign countries e. /ertificates of profits or interest in property or accumulation f. Fan(s, chec(s, drafts, certificates of deposit not bearing interest or other instruments g. Fonds, loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the 1overnment or any of its instrumentalities, deposit substitute debt instruments, certificates of deposits bearing interest and others not payable on sight or demand h. Acceptance of bills of exchange or others i. Goreign bills of exchange and letters of credit j. Policies of insurance or property (. Gidelity bonds and other insurance policies l. Policies of annuities and pre-need plans m. ,ndemnity bonds n. /ertificates o. Darehouse receipts p. ?ai-alai, horse racing tic(ets, lotto and other authori.ed number games 2. Fills of lading or receipts r. Proxies

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s. t. u. v. w. x.

Powers or Attorney @easing and other hiring arrangements >ortgages, pledges and other deeds of trust ;eeds of sale or other conveyance of real property /harter parties and other instruments Assignments and renewals of certain instruments

*OERCLOSURE SALE SUBBECT TO DOCUMENTARD STAMP TAX "ec 1*+ in relation with "ec 17$ of the ax /ode specifically levies on documentary stamp tax on all conveyances, deeds, instruments, or writings, other than grants, patents of original certificates of adjudication issued by the government, whereby any lands, tenements or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers. /ertificates issued to the foreclosing mortgagees constitute a form of conveyance, deed or instrument whereby the real property so foreclosed and sold in an auction to the foreclosing mortgagee effectively granted, assigned transferred or otherwise to the latter such real Kproperty sold. he law does not distinguished as to what (ind sales, whether absolute or conditional, are included in the word SsalesT as used in "ec 1*+ and 17$. <ence, a foreclosure sale is deemed included with its definition. ,t is of no moment whether the property was subse2uently redeemed. DOCUMENTS AND PAPERS NOT SUBBECT TO DOCUMENTARD STAMP TAX a. Policies of insurance or annuities made or granted by4 1. A fraternal or beneficiary society, order, association of cooperative company &. =perated on the lodge system or local cooperation plan +. =rgani.ed and conducted solely by the members thereof for the benefit of each member and not for profit /ertificates of oath administered to any government official capacity or of ac(nowledgement by any government official in the performance of his official duties. Dritten appearance in any court by any government official in his official capacity /ertificates of the administration of oaths to any person or party thereto, whether the proceedings be civil or criminal Papers and comments filed in courts by or for the national, provincial, city or municipal governments Affidavits of poor persons for the purpose or proving poverty "tatements and other compulsory information re2uired of persons or corporations by the rules and regulations of the national, provincial, city or municipal governments exclusively for statistical purposes and which they are filed, and not at the instance or for the use of benefit of the person filing them /ertified copies and other certificates placed upon documents, instruments and papers for the national, provincial, city or municipal governments made at instance and for the sole use of some other national, provincial,. /ity or municipal governments /ertificates of they assessed value of lands not exceeding P&##.## in value assessed, furnished by the provincial, city, or municipal reasurer to applicants for registration to title the land.

b. c. d. e. f. g. h. i.

NULLI*ICATION O* *ORCLOSURE SALE DOES NOT RESULT IN RE*UND O* DOCUMENTARD STAMPS TAXES PAID ON TCE SALE. he documentary stamp tax on the sale or transfer or real property is imposed on the privilege of transferring real property, in this case the foreclosure sale which was done by public auction. hus, the taxable transaction is the sale. Dhatever documentary stamp is due, is due at the time A subse2uent event that is, the payment of the documentary stamp tax because the privilege was actually used and effected at the time that the title to the property was transferred to the buyer. he subse2uent cancellation of the transaction were the documentary stamp tax liability attaches, does not have the effect of canceling the activity.

Page .1 of .2

CONVEDANCES OR REAL ESTATE BD CORPORATION FITCOUT VALUABLE CONSIDERTION TO AN OFNER O* ALL ITS CAPITAL STOCG NOT SUBBECT TO DOCUMANTARD STAMP TAX here should be no documentary stamp tax due on the conveyance of real property received by a corporation as li2uidating dividend from its wholly owned subsidiary. his is premised on "ections 1%5 and 1%7 of )ev. )egs. 'o. &$, as amended which provides that conveyance of realty, not in connection with a sale, to trustees or other persons without consideration are not taxable. FCO PADS TCE DOCUMENTARD STAMP TAX a. b. c. d. he person ma(ing, signing, issuing, accepting or transferring the obligation, right or property wherever the document is made, signed, issued, accepted or transferred. Dhen the obligation or right arises from the Philippine sources he property is situated in the Philippines At the same time such act is done or transaction had.

FCO PADS INCASE O* EXEMPTION Dhenever one party to taxable document enjoys exemption from the documentary stamp tax, the other party who is not exempt shall be the one directly liable for the tax. MANNER O* PADING TCE DOCUMENTARD STAMP TAX a. ,n general, Any person liable to pay documentary stamp tax shall file a tax return and pay the tax in accordance with the rules and regulations prescribed by the "ecretary of Ginance upon recommendation of the /ommissioner of internal )evenue ,n lieu of the foregoing, the tax may be paid 1. either through purchase or actual affixture &. by imprinting the stamps through a documentary stamp metering machine, on the taxable document.

b.

,n manner as may be prescribed by rules and regulations to be promulgated by the "ecretary of Ginance upon recommendation of the /ommissioner of ,nternal )evenue. E**ECT O* NON8PADMENT O* TCE DOCUMENTARD STAMP TAX. An instrument, document or paper which is re2uired by law to be stamped and which has been signed, issued, transferred or accepted without being duly stamped. a. b. "hall not be recorded 'or shall it any or any copy thereof or any record of transfer of the same be admitted or used in evidence in any court until the re2uisite stamp or stamps are affixed hereto and canceled.

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