WEEKLY TAX UPDATES [AUGUST 20-24, 2018]

SEC LEGAL OPINION

CORPORATE TERM OF RELIGIOUS CORPORATION IS DEEMED PERPETUAL UNLESS ARTICLES OF INCORPORATION STIPULATES OTHERWISE

Philippine Mission Churches of Christ of Northern Luzon, Inc. (PMCCNLI) is a non-stock and non-profit religious corporation with primary purpose of “operating a bible seminary and other Christian educational institutions.” It was registered with the Commission on April 13, 1964 with no corporate term stipulated in its Article of Incorporation (AOI). On March 3, 2000, PMCCNLI’s AOI and By-laws were amended. Specifically, a provision limiting its corporate term to fifty (50) years from the date of its incorporation was added. Thus, an issue as to when PMCCNLI’s corporate term shall expire. The Commission previously held in an opinion that, the corporate term of a religious corporation is NOT required to be specified in its Articles of Incorporation (AOI) under the OLD CORPORATION LAW, the applicable law when the church was incorporated. Furthermore, even the present Corporation Code has specific provisions for religious corporations both of which do not provide for a term of existence of Religious Corporation, whether classified as Corporation Sole or Religious Society. Hence, they may be allowed to exist perpetually. However, while perpetual term is allowed, if the AOI of the religious corporation stipulate to limit its term of existence to a fixed period, such stipulation should be followed. In the case of PMCCNLI, while initially they had perpetual term, it however, limited its corporate term to 50 years reckoned from the date of its incorporation, when it amended its AOI to such effect. Hence, PMCCNLI should have extended its corporate term by amending its AOI on or before April 13, 2014, the expiration date of its existence. By failing to do so, its corporate term has already expired. Accordingly, PMCCNLI is deemed legally dissolved. [SEC OFFICE  OF THE GENERAL COUNSEL OPINION NO. 18-12, AUGUST 06, 2018]

 

SUPREME COURT DIGEST

JUST SHARE ENTITLEMENTS OF LOCAL GOVERNMENT UNITS (LGU) PERTAINS TO ALL NATIONAL TAXES & NOT ONLY INTERNAL REVENUE TAXES

The Petitioners filed a Special Civil Action challenging the manner in which the just share (i.e. Internal Revenue Allotment-IRA) to national taxes of LGU has been computed. They argued that the General Appropriations Act (GAA) for Fiscal Year 2012 was improperly computed since certain collections of National Internal Revenue Taxes (NIRTs) by the Bureau of Customs such as the Excise Tax, Value Added Tax, and Documentary Stamp Tax have not been included in the base amounts for the computation of IRA. Likewise, they argued that the just share of the LGUs should be based on all national taxes basing the literal reading of the provisions of the Constitution. Further, they argued that the insertion by Congress of the words ‘internal revenue’ in the phrase ‘national taxes’ found in Section 284 of the LGC caused the diminution of the base for determining the just share of the LGUs, and should be declared unconstitutional. On the other hand, herein Respondents as represented by the Solicitor General argued that the just share of LGU is properly computed and that the determination of just share is within the discretion of Congress since the limitation under the Local Government Code (LGC) of the basis for the just share in the NIRTs was within the powers granted to Congress by the 1987 Constitution. Further, they argued that the Congress has the authority to exclude certain taxes from the base amount in computing the IRA. In resolving the Petition, the Supreme Court partially ruled in favour of the Petitioners noting that Section 284 of LGC deviates from the plain language of the Constitution which commands to the LGUs of a just share in the ‘national taxes’. The Court went further in saying that the Congress has infringed the constitutional boundary when it limits to the NIRTs the base from which to compute the just share of the LGUs, which is clearly proscribed in the absence of any authority granted under the Constitution. Consequently, the Court DECLARES the phrase "internal revenue" appearing in Section 284 of LGC UNCONSTITUTIONAL and DELETES the phrase from Section 284 and ORDERING the Respondents to automatically release prospectively the allotment to include all collections of national taxes in the computation of the base of the just share. [CONGRESSMAN HERMILANDO I. MANDANAS ET.AL. VS. EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR. ET. AL, G.R. NO. 199802 & G.R. NO. 208488, JULY 3, 2018]

 

COURT OF TAX APPEALS DIGESTS

 

EXERCISE OF OPTION TO CARRY OVER EXCESS & UNUTILIZED CREDITABLE WITHHOLDING TAX PRECLUDES THE TAXPAYER FROM SEEKING A REFUND OR TAX CREDIT CERTIFICATE

The Petitioner Sonoma Services, Inc. filed a Petition for Review seeking refund or issuance of Tax Credit Certificate for its excess and unutilized CWT for the year 2013. In resolving the Petition, the Court ruled that there are two options available for the taxpayer whenever it overpays its income tax for the taxable year: (1) to carry over and apply the overpayment as tax credit against the estimated quarterly income tax liabilities of the succeeding taxable years (also known as automatic tax credit) until fully utilized (meaning, there is no prescriptive period); and (2) to apply for a cash refund or issuance of a tax credit certificate within the prescribed period. In exercising its option, the taxpayer must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, either to carry over the excess credit or to claim a refund. These remedies are in the alternative and the choice of one precludes the other. In addition, the following requisites must be complied with: 1) The claim or refund must be filed within the two-year prescriptive period; 2) The fact of withholding must be established by a copy of a statement duly issued by the payor; 3) The income upon which the taxes were withheld must be included in the return of the recipient. The Petitioner has clearly provided and supported its claims and has fully complied with the foregoing requirements resulting to a favorable judgment. [SONOMA SERVICES, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9249, AUGUGST 15, 2018]

 

FAILURE TO FORMALLY OFFER, AS EVIDENCE, THE WRITTEN ADMINISTRATIVE CLAIM FOR REFUND WOULD RESULT TO THE DENIAL OF THE SAME

The Petitioners Shenilyn Abalos et al., Filipinos and regular employees of Asian Development Bank (ADB), filed a Petition for Review seeking refund of alleged erroneously paid income taxes for 2012 onwards. The claim stemmed from the Respondent Commissioner of Internal Revenue issuance of Revenue Memorandum Circular (RMC) No. 31-2013 ordering Filipino employees of ADB to pay income taxes for 2012 and onwards. Meantime, RTC of Mandaluyong City, in a separate case instituted by other employees of ADB, promulgated a decision declaring that Section 2(d)(1) of RMC No. 31-2013 as void for being issued without legal basis, in excess of authority and/or without due process of law due to the absence of legislation and/or regulation to the contrary.  Armed with favourable RTC decision, Petitioners filed their administrative claims for refund which was objected by the Respondent arguing that the decision of the RTC is still pending on appeal and therefore not yet final and executory. On the other hand, for the taxes paid covering the period of 2013, to prevent the lapse of the two-year period to a refund claim, the Petitioners prompted to file a Petition for Review before the CTA. In resolving the Petition, the Court considered all the evidences presented by the Petitioners. However, it is noted that the written administrative claims for refund filed with the Respondent CIR were not FORMALLY OFFERED as evidence. Accordingly, the mere fact that a particular document is identified and marked as an exhibit does not mean that it has already been offered as part of the evidence of a party. In effect, the Court considered that the Petitioner FAILED to comply with requirements mandated by Sec. 229 as if there is no prior administrative claim has been made because the administrative claims that there were allegedly filed were not identified, marked, and formally offered as evidence. The petitioners therefore, failed to prove that their administrative claims were filed within the two (2) year period as prescribed by Sec. 204. Consequently, the Petition is DENIED. [SHENILYN ABALOS ET AL. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9089 AUGUST 10, 2018]

 

ADB EMPLOYEES WHO ARE PHILIPPINE NATIONALS ARE SUBJECT TO INCOME TAX STARTING ONLY IN 2013 PURSUANT TO RMC NO. 31-13

The Petitioner Erwin Casaclang, a Filipino Citizen and employee of ADB filed a Petition for Review praying for the refund of his alleged erroneously paid and illegally collected income tax for the taxable year 2012. In compliance with RMC No. 31-2013, which was previously interpreted to have a retroactive effect, Petitioner paid the amount of Php 228,916.81 representing his income tax due arising from his compensation income. In the previous case, it was ruled that RMC No. 31-2013 states that “only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax.” However, in this Petition for Review, the court now ruled that “While RMC No. 31-13 is a mere interpretation of an existing law, justice and equity dictates that it should be applied prospectively.” Considering that RMC No. 31-13 was issued only in the year of 2013 and applies prospectively, it therefore supports the Petitioner’s claim on exemption on income tax for the taxable year of 2012. Thus, the Petition for Review is GRANTED. [ERWIN CASACLANG VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9091, AUGUST 6, 2018]

 

ONLY THE COMMISSIONER OF INTERNAL REVENUE (CIR) OR HIS DULY AUTHORIZED REPRESENTATIVES IS GRANTED THE AUTHORITY TO EFFECT MODIFICATION OR AMENDMENT TO A PREVIOUSLY-ISSUED LETTER OF AUTHORITY

The Petitioner Orient Overseas Container Line Ltd., represented by OOCL (Philippines), Inc. filed a Petition for Review seeking the cancellation of the Respondent CIR assessment. Several issues have been raised but the main issue is centered on the absence of the authority on the part of the examiners to conduct audit. In resolving the Petition, the Court ruled that the assessment issued by the Respondent is intrinsically void due to the absence of authority on the part of the revenue officers who conducted the examination. Under Revenue Memorandum Order (RMO) No. 43-90, the CIR identifies those officials who are authorized to issue and sign LOA. The Court noted that the Chief of LTS-RLTAD II is not included therein. As OIC-Chief of LTS-RLTAD II, in his capacity, he is bereft of any power to authorize the examination of taxpayers or to effect any modification or amendment to a previously issued LOA because only the CIR or his duly authorized representatives are granted such power. The Petition for Review is GRANTED resulting to the cancellation of the assessment. [ORIENT OVERSEAS CONTAINER LINE LTD., REPRESENTED BY OOCL (PHILIPPINES), INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9179, AUGUST 02, 2018]

 

ALLEGATIONS OF FRAUD OR FALSITY MATERIAL TO JUSTIFY THE APPLICATION OF 10-YEAR PRESCRIPTIVE PERIOD

The Petitioner MIFFI Logistics Company, Inc. filed a Petition for Review praying for the cancellation of Warrant of Distraint and Levy and withdrawal of the assessment issued by the Respondent Commissioner of Internal Revenue. Petitioner asserts that the income tax assessment embodied in the Formal Letter of Demand (FLD) was issued beyond the three-year prescriptive period. Additionally, the Petitioner asserts that there were no allegations of fraud or falsity of the return that would justify the application of the ten-year prescriptive period to assess deficiency income tax. In resolving the Petition, the Court finds that the FLD for year 2006 falls outside the three-year prescriptive period making such assessment void and without any effect. As a result, the assessment is CANCELLED and SET ASIDE. [MIFFI LOGISTICS COMPANY, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9122, AUGUST 1, 2018]

 

30-DAY PERIOD WITHIN WHICH TO APPEAL FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) TO CTA IS JURISDICTIONAL WHICH BARS THE COURT FROM ENTERTAINING THE APPEAL IF NOT COMPLIED

The Petitioner Loadstar International Shipping, Inc. filed a Petition for Review seeking the cancellation of the Final Decision on Disputed Assessment (FDDA) issued by the Respondent Commissioner of Internal Revenue. Several issues were raised but the main issue is centred on the timeliness of filing of the Petition. The Respondent argued that the assessment should be sustained citing that the assessment has already attained finality after the lapse of the thirty (30) day period within which to file an appeal to the CTA reckoned from the date of receipt of FDDA. In resolving the Petition, the Court noted that the Petitioner failed to appeal within 30 days from the date of receipt of FDDA. Accordingly, the 30-day period within which to file an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same. Consequently, Petition for Review is DENIED for lack of Jurisdiction. [LOADSTAR INTERNATIONAL SHIPPING, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9176, JULY 30, 2018]

 

ASSESSMENT NULL & VOID FOR LACK OF DEFINITE DATE TO SETTLE

The Petitioner South Luzon Tollway Corporation filed a Petition for Review to cancel and set aside the deficiency Documentary Stamp Tax (DST) Assessment issued by the Respondent Commissioner of Internal Revenue and declare the Petitioner entitled to refund or issuance of TCC representing erroneously and illegally collected by the Respondent. In resolving the Petition, the Court ruled that the assessment issued is void since it does not indicate the specific period within which the DST should be paid. Their decision is in line with the Supreme Court case in Commissioner of Internal Revenue vs. Fitness by Design, lnc., wherein the Supreme Court invalidated an assessment after noting its failure to state the due date for the payment of the tax liabilities. In this premise alone, the Petition for Review is GRANTED ordering the Respondent to refund or issue a TCC in favor of the Petitioner. [SOUTH LUZON TOLLWAY CORPORATION VS. COMMISIONER OF INTERNAL REVENUE, CTA CASE NO. 9272, JULY 27, 2018]