NOTES ON TAXATION 2

3JD-A
THURSDAY 5:30-8:30PM

HIGHLIGHTS OF THE JUNE 10, 2021 CLASS DISCUSSION

The following issues/concerns were discussed during the said class, namely:

a) BIR vs. First E-Bank Tower Condominium Corporation, GR No. 215801/218924,

January 15, 2020;

1. On August 30, 2008, the Court en banc decreed in British American

Tobacco v. Camacho, et al.  that the Court of Tax Appeals did not have
jurisdiction to pass upon the constitutionality or validity of a law or rule,
thus:
“While the above statute confers on the CTA jurisdiction to resolve
tax disputes in general, this does not include cases where the
constitutionality of a law or rule is challenged.”

The prevailing dictum then was only regular courts had jurisdiction to pass

upon the constitutionality or validity of tax laws and regulations.

2. On February 4, 2014, the Court en banc recognized that the Court of Tax

Appeals possessed all such implied, inherent, and incidental powers
necessary to the full and effective exercise of its appellate jurisdiction over
tax cases. City of Manila v. Judge Grecia-Cuerdo  is relevant, thus:

“A grant of appellate jurisdiction implies that there is included in it

the power necessary to exercise it effectively, to make all orders that
will preserve the subject of the action, and to give effect to the final
determination of the appeal.”

3. On August 16, 2016, in Banco de Oro v. Republic of the Phils., et al., the

Court en banc pronounced in no uncertain terms that the Court of Tax
Appeals had jurisdiction to rule on the constitutionality or validity of a tax
law or regulation or administrative issuance, viz.:

“The Court of Tax Appeals has undoubted jurisdiction to pass upon

the constitutionality or validity of a tax law or regulation when
raised by the taxpayer as a defense in disputing or contesting an
assessment or claiming a refund.”

4. Republic Act No. 9282 provides an exception to the original jurisdiction

of the Regional Trial Courts over actions questioning the constitutionality
or validity of tax laws or regulations. Except for local tax cases, actions
directly challenging the constitutionality or validity of a tax law or
regulation or administrative issuance may be filed directly before the Court
of Tax Appeals.

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 5. A condominium corporation, while enjoying such powers of ownership,
is prohibited by law from transacting its properties for the purpose of
gainful profit. Under Section 22 of of RA 4726, the condominium
corporation, as the management body, may only act for the benefit of the
condominium owners in disposing tangible and intangible personal
property by sale or otherwise in proportion to the condominium owners'
respective interests in the common areas.

6. Capital is a fund or property existing at one distinct point in time while

income denotes a flow of wealth during a definite period of time. Income
is gain derived and severed from capital. Case law provides that in order to
constitute "income," there must be realized "gain." Clearly, because of the
nature of membership fees and assessment dues as funds inherently
dedicated for the maintenance, preservation, and upkeep of the clubs'
general operations and facilities, nothing is to be gained from their
collection.

7. Association dues, membership fees, and other assessments/charges do not

arise from transactions involving the sale, barter, or exchange of goods or
property. Nor are they generated by the performance of services. Both
under RA 8424 (Sections 106, 107 and 108) and the TRAIN Law, there,
too, is no mention of association dues, membership fees, and other
assessments/charges collected by condominium corporations being subject
to VAT.

b) Association of Non-Profit Clubs, Inc. (ANPC) v. BIR, G.R. No. 228539, June 26,
2019

c) CIR v. Federation of Golf Clubs of the Philippines, G.R. No. 226449, July 28, 2020

d) Sec. 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2)

hereof, the following transactions shall be exempt from the value-added tax:
"(Y) Association dues, membership fees, and other assessments and charges
collected by homeowners associations and condominium corporations;”

e) Cross Border Doctrine mandates that NO VAT shall be imposed to form part of the
cost of the goods destined for consumption outside the territorial border of the taxing
authority.

f) Difference between Zero Rate Transactions and Exempt Transactions

Zero Rated Transaction Exempt Transactions
Legal Basis Sec 108 Sec 109
Claim for Tax Tax Credit/Refund allowed No Tax Credit/Refund
Credit/Refund
Taxable Transaction Yes @ 0% No
VAT Registration Required Optional

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g) Filing for Refunds or Tax Credits of Input Tax
(Sec 112) - within 2 years after the close of the taxable quarter when the sales were
made

h) Retirement/Cessation of business – unutilized input tax subject to refund

Basis - Revenue Regulation 13-2018
“SEC. 4.112-1. Claims for Refund/Credit of Input Tax. –
(b) Cancellation of VAT registration
A VAT-registered person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Sec.
106 (C) of the Tax Code may, within two (2) years from the date of cancellation,
… Provided, further, that the date of cancellation being referred hereto is the date
of issuance of TAX CLEARANCE by the BIR, after full settlement of all tax
liabilities relative to cessation of business or change of status of the concerned
taxpayer: …”

i) Two types of Percentage Tax

1. Transactions Exempt from VAT

"(BB) Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the amount of Three million
pesos (₱3,000,000).

2. Specific businesses and Transactions provided for under Sections 117 -

127
SECTION COVERAGE
117 Domestic Carriers &
Keepers of Garages
118 International Carriers
119 Franchises
120 Overseas Dispatch,
Message or Conversation
121 Banks & Non Bank
Financial Intermediaries
122 Other Non Bank Financial
Intermediaries
123 Life Insurance Premiums
124 Agents of Foreign
Insurance Companies
125 Amusement Tax
126 Winnings
127 Sale, Barter or Exchange
of Shares of Stock Listed
and Traded through LSE
or IPO

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j) CREATE Law amendment – Percentage Tax new rate
“Sec. 116. Tax on Persons Exempt from Value-added Tax (VAT). - Any person
whose sales or receipts are exempt under Section 109(CC) of this Code from the
payment of value-added tax and who is not a VAT-registered person shall pay a tax
equivalent to three percent (3%) of his gross quarterly sales or
receipts: Provided, That cooperatives, shall be exempt from the three percent (3%)
gross receipts tax herein imposed: Provided, further, That effective July 1, 2020
until June 30, 2023, the rate shall be one percent (1%).”

k) Comparison
VAT PERCENTAGE TAX
Transaction Sale, Barter & Exchange Sale, Barter & Exchange
Kind Business Tax Business Tax
Liability Indirect Direct
Tax Rate 12% 1% (July 1, 2020 – June 30,
2023)

l) Revenue Regulation 13-2018 – LEASE of residential units

“SEC. 4.109-1. VAT-Exempt Transactions. –

(q) Lease of residential units with a monthly rental per unit not exceeding Fifteen
Thousand Pesos (P15,000.00).

“The foregoing notwithstanding, lease of residential units where the monthly

rental per unit exceeds Fifteen Thousand Pesos (P15,000.00), but the aggregate of
such rentals of the lessor during the year do not exceed Three Million Pesos
(P3,000,000.00) shall likewise be exempt from VAT; however, the same shall be
subject to three percent (3%) percentage tax under Section 116 of the Tax Code.

“In cases where a lessor has several residential units for lease, some are leased out
for a monthly rental per unit of not exceeding P15,000.00 while others are leased
out for more than P15,000.00 per unit, his tax liability will be as follows:
The gross receipts from rentals not exceeding P15,000.00 per month per unit
shall be exempt from VAT regardless of the aggregate annual gross receipts. It
is also exempt from the 3% percentage tax.
1. The gross receipts from rentals exceeding P15,000.00 per month per
unit shall be subject to VAT if the aggregate annual gross receipts from said
units only exceeds P3,000,000.00. Otherwise, the gross receipts will be
subject to the 3% tax imposed under Section 116 of the Tax Code.”

RENTAL/MONTH AGGREGATE VAT OPT

> 15,000 > 3M Yes No
< 15,000 < 3M No No
> 15,000 < 3M No Yes

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 < 15,000 > 3M No No

m) Transportation of passengers & goods

VAT OPT
Sec. 108 par B Transactions Subject to Revenue Regulation 13-2018
Zero Percent Rate (6) Transport of passengers and cargo by
6) Transport of passengers and cargo by domestic air or sea vessels from the
domestic air or sea vessels from the Philippines to a foreign country. Gross
Philippines to a foreign country receipts of international air or shipping
carriers doing business in the Philippines
derived from transport of passengers and
cargo from the Philippines to another
country shall be exempt from VAT;
however, they are still liable to a
percentage tax of three percent (3%)
based on their gross receipts derived
from transport of cargo from the
Philippines to another country as provided
for in Sec. 118 of the Tax Code
Sec. 109 Exempt Transaction
paragraph S – Transport of passengers by
international carriers
Sec. 117 …domestic carriers by land for
the transportation of passengers…shall
pay a tax equivalent to 3% of their
quarterly gross receipts

n) Franchise – only franchises granted by the government and not by any private entity

o) Amusement Tax – cabarets and night clubs

Commissioner of Internal Revenue v. Hard Rock Cafe, Inc. CTA EB 1960
"In the case at hand, it was established that although Hard Rock Cafe provides
some form of entertainment, the same are but incidental to its main line of
business of serving food and drinks. … Clearly, CIR failed to present evidence
that Hard Rock Cafe establishment also functions as a night club.”

“Administrative issuances, must be interpreted and implemented in a manner

consistent with statutes, jurisprudence and other rules and cannot amend the law they
merely seek to interpret. Hence, RMC No. 18- 2010 cannot validly change, expand
or widen the scope or meaning of the terms "cabarets" and "night and day
clubs" as defined under the NIRC of 1997, as amended, and in existing
jurisprudence.”

p) Life Insurance Premium subject to 2% OPT (Sec. 123) while Non-Life Insurance
subject to 12% VAT (Sec. 108 par A)

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 q) Sale of Shares of Stocks Listed and Traded through the Local Stock Exchange subject
to 6/10 of 1% of the gross selling price/gross value (Sec. 127) while Sale of Shares of
Stocks Not Traded in the Stock Exchange subject to 15% capital gains tax (Sec. 24
par C)

r) Importation of Goods – VATable (Section 105, 107) regardless of value unless

otherwise provided for by law like importation which fall under De Minimis Value

s) Excise Tax on SIN articles (alcohol, tobacco, petroleum, miscellaneous articles,

mineral products)

Section 129
1. Specified goods manufactured/produced in the Philippines for domestic
sales or consumption or for any other disposition
2. Things imported
3. Services performed in the Philippines

Classis example – A young bachelor billionaire who had plastic surgery (non-
essential service), operates a business in mineral products, consumes alcohol, smokes,
owns a sports car which requires gas

FOR NEXT MEETING –

The following topics will be discussed on:

June 17 & 24 – Documentary Stamp Tax and Remedies
July 1 & 8 – Local Taxation & Real Property Taxation
July 8 – Customs Modernization and Tariff Act