I.

CLASSIFICATION OF TAXES The issue raised here was whether the

A. DIFFERENT CLASSIFICATION manufacturer was entitled to claim the refund of
the excise taxes paid on the petroleum products
COMMISSIONER OF INTERNAL sold to international carriers exempt under
REVENUE, Petitioner, Section 135(a) of the NIRC.
vs.
PILIPINAS SHELL PETROLEUM We ruled in the negative, and held that the
CORPORATION, Respondent. exemption from the excise tax under Section
135(a) of the NIRC was conferred on the
SEPARATE OPINION international carriers to whom the petroleum
products were sold. In the decision promulgated
BERSAMIN, J.: onn April 25, 2012,1 the Court granted the
petition for review on certiorari filed by the
In essence, the Resolution written for the Court Commissioner of Internal Revenue (CIR), and
disposed thusly:
by my esteemed colleague, Justice Martin S.
Villarama, Jr., maintains that the exemption from
payment of the excise tax under Section 135(a) WHEREFORE, the petition for review on
of the National Internal Revenue Code (NIRC) is certiorari is GRANTED. The Decision dated
conferred on the international carriers; and that, March 25, 2009 and Resolution dated June 24,
accordingly, and in fulfillment of international 2009 of the Court of Tax Appeals En Banc in
agreement and practice to exempt aviation fuel CTA EB No. 415 are hereby REVERSED and
from the excise tax and other impositions, SET ASIDE. The claims for tax refund or credit
Section 135(a) of the NIRC prohibits the passing filed by respondent Pilipinas Shell Petroleum
of the excise tax to international carriers Corporation are DENIED for lack of basis.
purchasing petroleum products from local
manufacturers/sellers. Hence, he finds merit in No pronouncement as to costs.
the Motion for Reconsideration filed by Pilipinas
Shell Petroleum Corporation (Pilipinas Shell), SO ORDERED.2
and rules that Pilipinas Shell, as the statutory
taxpayer directly liable to pay the excise tax on
We thereby agreed with the position of the
its petroleum products, is entitled to the refund
Solicitor General that Section 135(a) of the
or credit of the excise taxes it paid on the
NIRC must be construed only as a prohibition for
petroleum products sold to international carriers,
the manufacturer-seller of the petroleum
the latter having been granted exemption from products from shifting the tax burden to the
the payment of such taxes under Section 135(a) international carriers by incorporating the
of the NIRC.
previously-paid excise tax in the selling price. As
a consequence, the manufacturer-seller could
I CONCUR in the result. not invoke the exemption from the excise tax
granted to international carriers. Concluding, we
I write this separate opinion only to explain that I said: –
hold a different view on the proper interpretation
of the excise tax exemption under Section Respondent’s locally manufactured petroleum
135(a) of the NIRC. I hold that the excise tax products are clearly subject to excise tax under
exemption under Section 135(a) of the NIRC is Sec. 148. Hence, its claim for tax refund may not
conferred on the petroleum products on which be predicated on Sec. 229 of the NIRC allowing
the excise tax is levied in the first place in view a refund of erroneous or excess payment of tax.
of its nature as a tax on property, the liability for Respondent’s claim is premised on what it
the payment of which is statutorily imposed on determined as a tax exemption "attaching to the
the domestic petroleum manufacturer. goods themselves," which must be based on a
statute granting tax exemption, or "the result of
I submit the following disquisition in support of legislative grace." Such a claim is to be
this separate opinion. construed strictissimi juris against the taxpayer,
meaning that the claim cannot be made to rest
on vague inference. Where the rule of strict
interpretation against the taxpayer is applicable
as the claim for refund partakes of the nature of excise tax, no tax should accordingly be
an exemption, the claimant must show that he collected from the manufacturer, producer or
clearly falls under the exempting statute. importer in instances when the goods or articles
themselves are not subject to the excise
The exemption from excise tax payment on tax;7 and that as a consequence any excise tax
petroleum products under Sec. 135 (a) is paid in advance on products that are exempt
conferred on international carriers who under the law should be considered erroneously
purchased the same for their use or paid and subject of refund.8
consumption outside the Philippines. The only
condition set by law is for these petroleum Pilipinas Shell further contends that the Court’s
products to be stored in a bonded storage tank decision, which effectively prohibits petroleum
and may be disposed of only in accordance with manufacturers from passing on the burden of
the rules and regulations to be prescribed by the the excise tax, defeats the rationale behind the
Secretary of Finance, upon recommendation of grant of the exemption;9 and that without the
the Commissioner.3 benefit of a refund or the ability to pass on the
burden of the excise tax to the international
xxxx carriers, the excise tax will constitute an
additional production cost that ultimately
Because an excise tax is a tax on the increases the selling price of the petroleum
manufacturer and not on the purchaser, and products.10
there being no express grant under the NIRC of
exemption from payment of excise tax to local The CIR counters that the decision has clearly
manufacturers of petroleum products sold to set forth that the excise tax exemption under
international carriers, and absent any provision Section 135(a) of the NIRC does not attach to
in the Code authorizing the refund or crediting of the products; that Pilipinas Shell’s reliance on
such excise taxes paid, the Court holds that the Silkair rulings is misplaced considering that
Sec. 135 (a) should be construed as prohibiting the Court made no pronouncement therein that
the shifting of the burden of the excise tax to the the manufacturers selling petroleum products to
international carriers who buys petroleum international carriers were exempt from paying
products from the local manufacturers. Said the taxes; that the rulings that are more
provision thus merely allows the international appropriate are those in Philippine Acetylene
carriers to purchase petroleum products without Co., Inc. v. Commissioner of Internal
the excise tax component as an added cost in Revenue11 and Maceda v. Macaraig,
the price fixed by the manufacturers or Jr.,12 whereby the Court confirmed the obvious
distributors/sellers. Consequently, the oil intent of Section 135 of the NIRC to grant the
companies which sold such petroleum products excise tax exemption to the international carriers
to international carriers are not entitled to a or agencies as the buyers of petroleum
refund of excise taxes previously paid on the products; and that this intention is further
goods.4 supported by the requirement that the petroleum
manufacturer must pay the excise tax in
In its Motion for Reconsideration filed on May advance without regard to whether or not the
23, 2012, Pilipinas Shell principally contends petroleum purchaser is qualified for exemption
under Section 135 of the NIRC.
that the Court has erred in its interpretation of
Section 135(a) of the 1997 NIRC; that Section
135(a) of the NIRC categorically exempts from In its Supplemental Motion for Reconsideration,
the excise tax the petroleum products sold to Pilipinas Shell reiterates that what is being
international carriers of Philippine or foreign exempted under Section 135 of the NIRC is the
registry for their use or consumption outside the petroleum product that is sold to international
Philippines;5 that no excise tax should be carriers; that the exemption is not given to the
imposed on the petroleum products, whether in producer or the buyer but to the product itself
the hands of the qualified international carriers considering that the excise taxes, according to
or in the hands of the manufacturer-seller;6 that the NIRC, are taxes applicable to certain specific
although it is the manufacturer, producer or goods or articles for domestic sale or
importer who is generally liable for the excise tax consumption or for any other disposition,
when the goods or articles are subject to the whether manufactured in or imported into the
Philippines; that the excise tax that is passed on The payment of excise taxes is the direct
to the buyer is no longer in the nature of a tax liability of the manufacturer or producer
but of an added cost to the purchase price of the
product sold; that what is contemplated under The production, manufacture or importation of
Section 135 of the NIRC is an exemption from the goods belonging to any of the categories
the excise tax, not an exemption from the enumerated in Title VI of the NIRC (i.e., alcohol
burden to shoulder the tax; and that inasmuch products, tobacco products, petroleum products,
as the exemption can refer only to the imposition automobiles and non-essential goods, mineral
of the tax on the statutory seller, like Pilipinas products) are not the sole determinants for the
Shell, a contrary interpretation renders Section proper levy of the excise tax. It is further
135 of the NIRC nugatory because the NIRC required that the goods be manufactured,
does not impose the excise tax on subsequent produced or imported for domestic sale,
holders of the product like the international consumption or any other disposition.19 The
carriers. accrual of the tax liability is, therefore,
contingent on the production, manufacture or
As I earlier said, I agree to GRANT Pilipinas importation of the taxable goods and the
Shell’s motions for reconsideration. intention of the manufacturer, producer or
importer to have the goods locally sold or
Excise tax is essentially a tax consumed or disposed in any other manner.
on goods, products or articles This is the reason why the accrual and liability
for the payment of the excise tax are imposed
directly on the manufacturer or producer of the
Taxes are classified, according to subject matter
taxable goods,20 and arise before the removal of
or object, into three groups, to wit: (1) personal,
the goods from the place of their production.21
capitation or poll taxes; (2) property taxes; and
(3) excise or license taxes. Personal, capitation
or poll taxes are fixed amounts imposed upon The manufacturer’s or producer’s direct liability
residents or persons of a certain class without to pay the excise taxes similarly operates
regard to their property or business, an example although the goods produced or manufactured
of which is the basic community tax.13 Property within the country are intended for export and
taxes are assessed on property or things of a are "actually exported without returning to the
certain class, whether real or personal, in Philippines, whether so exported in their original
proportion to their value or other reasonable state or as ingredients or parts of any
method of apportionment, such as the real manufactured goods or products." This is
estate tax.14 Excise or license taxes are imposed implied from the grant of a tax credit or refund to
upon the performance of an act, the enjoyment the manufacturer or producer by Section
of a privilege, or the engaging in an occupation, 130(4)(D) of the NIRC, thereby presupposing
profession or business.15 Income tax, value- that the excise tax corresponding to the goods
added tax, estate and donor’s tax fall under the exported were previously paid. Section
third group. 130(4)(D) reads:

Excise tax, as a classification of tax according to xxxx

object, must not be confused with the excise tax
under Title VI of the NIRC. The term "excise tax" (D) Credit for Excise Tax on Goods Actually
under Title VI of the 1997 NIRC derives its Exported. - When goods locally produced or
definition from the 1986 NIRC,16 and relates to manufactured are removed and actually
taxes applied to goods manufactured or exported without returning to the Philippines,
produced in the Philippines for domestic sale or whether so exported in their original state or as
consumption or for any other disposition and to ingredients or parts of any manufactured goods
things imported.17 In contrast, an excise tax that or products, any excise tax paid thereon shall be
is imposed directly on certain specified goods – credited or refunded upon submission of the
goods manufactured or produced in the proof of actual exportation and upon receipt of
Philippines, or things imported – is undoubtedly the corresponding foreign exchange payment:
a tax on property.18 Provided, That the excise tax on mineral
products, except coal and coke, imposed under
Section 151 shall not be creditable or refundable
even if the mineral products are actually SEC. 135. Petroleum Products Sold to
exported. (Emphasis supplied.) International Carriers and Exempt Entities or
Agencies. - Petroleum products sold to the
Simply stated, the accrual and payment of the following are exempt from excise tax:
excise tax under Title VI of the NIRC materially
rest on the fact of actual production, (a) International carriers of Philippine or foreign
manufacture or importation of the taxable goods registry on their use or consumption outside the
in the Philippines and on their presumed or Philippines: Provided, That the petroleum
intended domestic sale, consumption or products sold to these international carriers shall
disposition. Considering that the excise tax be stored in a bonded storage tank and may be
attaches to the goods upon the accrual of the disposed of only in accordance with the rules
manufacturer’s direct liability for its payment, the and regulations to be prescribed by the
subsequent sale, consumption or other Secretary of Finance, upon recommendation of
disposition of the goods becomes relevant only the Commissioner; x x x
to determine whether any exemption or tax relief
may be granted thereafter. xxxx

The actual sale, consumption or disposition As the taxpayer statutorily and directly liable for
of the taxable goods confirms the proper tax the accrual and payment of the excise tax on the
treatment of goods previously subjected petroleum products it manufactured and it
to the excise tax intended for future domestic sale or
consumption, Pilipinas Shell paid the
Conformably with the foregoing discussion, the corresponding excise taxes prior to the removal
accrual and payment of the excise tax on the of the goods from the place of production.
goods enumerated under Title VI of the NIRC However, upon the sale of the petroleum
prior to their removal from the place of products to the international carriers, the goods
production are absolute and admit of no became exempt from the excise tax by the
exception. As earlier mentioned, even locally express provision of Section 135(a) of the NIRC.
manufactured goods intended for export cannot In the latter instance, the fact of sale to the
escape the imposition and payment of the international carriers of the petroleum products
excise tax, subject to a future claim for tax credit previously subjected to the excise tax confirms
or refund once proof of actual exportation has the proper tax treatment of the goods as exempt
been submitted to the Commissioner of Internal from the excise tax.
Revenue (CIR).22 Verily, it is the actual sale,
consumption or disposition of the taxable goods It is worthy to note that Section 135(a) of the
that confirms the proper tax treatment of goods NIRC is a product of the 1944 Convention of
previously subjected to the excise tax. If any of International Civil Aviation, otherwise known as
the goods enumerated under Title VI of the the Chicago Convention, of which the
NIRC are manufactured or produced in the Philippines is a Member State. Article 24(a) of
Philippines and eventually sold, consumed, or the Chicago Convention provides –
disposed of in any other manner domestically,
therefore, there can be no claim for any tax relief
Article 24
inasmuch as the excise tax was properly levied
Customs duty
and collected from the manufacturer-seller.
(a) Aircraft on a flight to, from, or across the
Here, the point of interest is the proper tax
territory of another contracting State shall be
treatment of the petroleum products sold by
admitted temporarily free of duty, subject to the
Pilipinas Shell to various international carriers.
customs regulations of the State. Fuel,
An international carrier is engaged in
lubricating oils, spare parts, regular equipment
international transportation or contract of and aircraft stores on board an aircraft of a
carriage between places in different territorial contracting State, on arrival in the territory of
jurisdictions.23
another contracting State and retained on board
on leaving the territory of that State shall be
Pertinent is Section 135(a) of the NIRC, which exempt from customs duty, inspection fees or
provides: similar national or local duties and charges. This
exemption shall not apply to any quantities or consumer who ultimately pays for it. When the
articles unloaded, except in accordance with the seller passes on the tax to his buyer, he, in
customs regulations of the State, which may effect, shifts the tax burden, not the liability to
require that they shall be kept under customs pay it, to the purchaser, as part of the price of
supervision. x x x (Bold emphasis supplied.) goods sold or services rendered.27

This provision was extended by the ICAO In another ruling, the Court has observed:
Council in its 1999 Resolution, which stated that
"fuel … taken on board for consumption" by an Accordingly, the party liable for the tax can shift
aircraft from a contracting state in the territory of the burden to another, as part of the purchase
another contracting State departing for the price of the goods or services. Although the
territory of any other State must be exempt from manufacturer/seller is the one who is statutorily
all customs or other duties. The Resolution liable for the tax, it is the buyer who actually
broadly interpreted the scope of the Article 24 shoulders or bears the burden of the tax, albeit
prohibition to include "import, export, excise, not in the nature of a tax, but part of the
sales, consumption and internal duties and purchase price or the cost of the goods or
taxes of all kinds levied upon . . . fuel."24 services sold.28

Given the nature of the excise tax on petroleum Accordingly, the option of shifting the burden to
products as a tax on property, the tax exemption pay the excise tax rests on the statutory
espoused by Article 24(a) of the Chicago taxpayer, which is the manufacturer or producer
Convention, as now embodied in Section 135(a) in the case of the excise taxes imposed on the
of the NIRC, is clearly conferred on the aviation petroleum products. Regardless of who
fuel or petroleum product on-board international shoulders the burden of tax payment, however,
carriers. Consequently, the manufacturer’s or the Court has ruled as early as in the 1960s that
producer’s sale of the petroleum products to the proper party to question or to seek a refund
international carriers for their use or of an indirect tax is the statutory taxpayer, the
consumption outside the Philippines operates to person on whom the tax is imposed by law and
bring the tax exemption of the petroleum who paid the same, even if he shifts the burden
products into full force and effect. thereof to another.29 The Court has explained:

Pilipinas Shell, the statutory taxpayer, is In Philippine Acetylene Co., Inc. v.

the proper party to claim the refund of Commissioner of Internal Revenue, the Court
the excise taxes paid on petroleum held that the sales tax is imposed on the
products sold to international carriers manufacturer or producer and not on the
purchaser, "except probably in a very remote
The excise taxes are of the nature of indirect and inconsequential sense." Discussing the
taxes, the liability for the payment of which may "passing on" of the sales tax to the purchaser,
fall on a person other than whoever actually the Court therein cited Justice Oliver Wendell
bears the burden of the tax.25 Holmes’ opinion in Lash’s Products v. United
States wherein he said:
In Commissioner of Internal Revenue v.
Philippine Long Distance Telephone "The phrase ‘passed the tax on’ is inaccurate, as
Company,26 the Court has discussed the nature obviously the tax is laid and remains on the
of indirect taxes in the following manner: manufacturer and on him alone. The purchaser
does not really pay the tax. He pays or may pay
[I]ndirect taxes are those that are demanded, in
the first instance, from, or are paid by, one the seller more for the goods because of the
person in the expectation and intention that he seller’s obligation, but that is all. x x x The price
can shift the burden to someone else. Stated is the sum total paid for the goods. The amount
elsewise, indirect taxes are taxes wherein the added because of the tax is paid to get the
liability for the payment of the tax falls on one goods and for nothing else. Therefore it is part of
person but the burden thereof can be shifted or the price x x x."
passed on to another person, such as when the
tax is imposed upon goods before reaching the
Proceeding from this discussion, the Court went Section 129 of the NIRC provides that excise
on to state: taxes refer to taxes imposed on specified goods
manufactured or produced in the Philippines for
It may indeed be that the economic burden of domestic sale or consumption or for any other
the tax finally falls on the purchaser; when it disposition and to things imported. The excise
does the tax becomes a part of the price which taxes are collected from manufacturers or
the purchaser must pay. It does not matter that producers before removal of the domestic
an additional amount is billed as tax to the products from the place of production. Although
purchaser. x x x The effect is still the same, excise taxes can be considered as taxes on
namely, that the purchaser does not pay the tax. production, they are really taxes on property as
He pays or may pay the seller more for the they are imposed on certain specified goods.
goods because of the seller’s obligation, but that
is all and the amount added because of the tax Section 148(g) of the NIRC provides that there
is paid to get the goods and for nothing else. shall be collected on aviation jet fuel an excise
tax of ₱3.67 per liter of volume capacity. Since
But the tax burden may not even be shifted to the tax imposed is based on volume capacity,
the purchaser at all. A decision to absorb the the tax is referred to as "specific tax." However,
burden of the tax is largely a matter of excise tax, whether classified as specific or ad
economics. Then it can no longer be contended valorem tax, is basically an indirect tax imposed
that a sales tax is a tax on the purchaser.30 on the consumption of a specified list of goods
or products. The tax is directly levied on the
manufacturer upon removal of the taxable goods
The Silkair rulings involving the excise taxes on
from the place of production but in reality, the
the petroleum products sold to international
tax is passed on to the end consumer as part of
carriers firmly hold that the proper party to claim
the refund of excise taxes paid is the the selling price of the goods sold
manufacturer-seller.
xxxx
In the February 2008 Silkair ruling, 31 the Court
declared: When Petron removes its petroleum products
from its refinery in Limay, Bataan, it pays the
excise tax due on the petroleum products thus
The proper party to question, or seek a refund
removed. Petron, as manufacturer or producer,
of, an indirect tax is the statutory taxpayer, the
is the person liable for the payment of the excise
person on whom the tax is imposed by law and
who paid the same even if he shifts the burden tax as shown in the Excise Tax Returns filed
thereof to another. Section 130 (A) (2) of the with the BIR. Stated otherwise, Petron is the
taxpayer that is primarily, directly and legally
NIRC provides that "[u]nless otherwise
liable for the payment of the excise taxes.
specifically allowed, the return shall be filed and
However, since an excise tax is an indirect tax,
the excise tax paid by the manufacturer or
Petron can transfer to its customers the amount
producer before removal of domestic products
from place of production." Thus, Petron of the excise tax paid by treating it as part of the
Corporation, not Silkair, is the statutory taxpayer cost of the goods and tacking it on to the selling
price.
which is entitled to claim a refund based on
Section 135 of the NIRC of 1997 and Article 4(2)
of the Air Transport Agreement between RP and As correctly observed by the CTA, this Court
Singapore. held in Philippine Acetylene Co., Inc. v.
Commissioner of Internal Revenue:
Even if Petron Corporation passed on to Silkair
the burden of the tax, the additional amount It may indeed be that the economic burden of
billed to Silkair for jet fuel is not a tax but part of the tax finally falls on the purchaser; when it
the price which Silkair had to pay as a purchaser does the tax becomes part of the price which the
purchaser must pay.
In the November 2008 Silkair ruling,32 the Court
reiterated: Even if the consumers or purchasers ultimately
pay for the tax, they are not considered the
taxpayers. The fact that Petron, on whom the
excise tax is imposed, can shift the tax burden to Even before the aviation jet fuel is purchased
its purchasers does not make the latter the from Petron, the excise tax is already paid by
taxpayers and the former the withholding agent. Petron. Petron, being the manufacturer, is the
"person subject to tax." In this case, Petron,
Petitioner, as the purchaser and end-consumer, which paid the excise tax upon removal of the
ultimately bears the tax burden, but this does not products from its Bataan refinery, is the "person
transform petitioner's status into a statutory liable for tax." Petitioner is neither a "person
taxpayer. liable for tax" nor "a person subject to tax."
There is also no legal duty on the part of
petitioner to pay the excise tax; hence, petitioner
In the refund of indirect taxes, the statutory
cannot be considered the taxpayer.
taxpayer is the proper party who can claim the
refund.
Even if the tax is shifted by Petron to its
Section 204(c) of the NIRC provides: customers and even if the tax is billed as a
separate item in the aviation delivery receipts
and invoices issued to its customers, Petron
Sec. 204. Authority of the Commissioner to remains the taxpayer because the excise tax is
Compromise, Abate, and Refund or Credit imposed directly on Petron as the manufacturer.
Taxes. The Commissioner may – Hence, Petron, as the statutory taxpayer, is the
proper party that can claim the refund of the
xxxx excise taxes paid to the BIR.33

(b) Credit or refund taxes erroneously or illegally It is noteworthy that the foregoing
received or penalties imposed without authority, pronouncements were applied in two more
refund the value of internal revenue stamps Silkair cases34 involving the same parties and
when they are returned in good condition by the the same cause of action but pertaining to
purchaser, and, in his discretion, redeem or different periods of taxation.
change unused stamps that have been rendered
unfit for use and refund their value upon proof of The shifting of the tax burden by manufacturers-
destruction. No credit or refund of taxes or sellers is a business prerogative resulting from
penalties shall be allowed unless the taxpayer the collective impact of market forces. Such
files in writing with the Commissioner a claim for forces include government impositions like the
credit or refund within two (2) years after the excise tax. Hence, the additional amount billed
payment of the tax or penalty: Provided, to the purchaser as part of the price the
however, That a return filed showing an purchaser pays for the goods acquired cannot
overpayment shall be considered as a written be solely attributed to the effect of the tax liability
claim for credit or refund. (Emphasis and imposed on the manufacture-seller. It is
underscoring supplied) erroneous to construe Section 135(a) only as a
prohibition against the shifting by the
The person entitled to claim a tax refund is the manufacturers-sellers of petroleum products of
statutory taxpayer. Section 22(N) of the NIRC the tax burden to international carriers, for such
defines a taxpayer as "any person subject to construction will deprive the manufacturers-
tax." In Commissioner of Internal Revenue v. sellers of their business prerogative to determine
Procter and Gamble Phil. Mfg. Corp., the Court the prices at which they can sell their products.
ruled that:
Section 135(a) of the NIRC cannot be further
A "person liable for tax" has been held to be a construed as granting the excise tax exemption
"person subject to tax" and properly considered to the international carrier to whom the
a "taxpayer." The terms "liable for tax" and petroleum products are sold considering that the
"subject to tax" both connote a legal obligation international carrier has not been subjected to
or duty to pay a tax. excise tax at the outset. To reiterate, the excise
tax is levied on the petroleum products because
The excise tax is due from the manufacturers of it is a tax on property. Levy is the act of
the petroleum products and is paid upon imposition by the Legislature such as by its
removal of the products from their refineries. enactment of a law.35 The law enacted here is
the NIRC whereby the excise tax is imposed on (C) Credit or refund taxes erroneously or illegally
the petroleum products, the liability for the received or penalties imposed without authority,
payment of which is further statutorily imposed refund the value of internal revenue stamps
on the domestic petroleum manufacturer. when they are returned in good condition by the
Accordingly, the exemption must be allowed to purchaser, and, in his discretion, redeem or
the petroleum products because it is on them change unused stamps that have been rendered
that the tax is imposed. The tax status of an unfit for use and refund their value upon proof of
international carrier to whom the petroleum destruction. No credit or refund of taxes or
products are sold is not based on exemption; penalties shall be allowed unless the taxpayer
rather, it is based on the absence of a law files in writing with the Commissioner a claim for
imposing the excise tax on it. This further credit or refund within two (2) years after
supports the position that the burden passed on payment of the tax or penalty: Provided,
by the domestic petroleum manufacturer is not however, That a return filed showing an
anymore in the nature of a tax – although overpayment shall be considered as a written
resulting from the previously-paid excise tax – claim for credit or refund.
but as an additional cost component in the
selling price. Consequently, the purchaser of the IN VIEW OF THE FOREGOING, I VOTE TO
petroleum products to whom the burden of the GRANT the Motion for Reconsideration and
excise tax has been shifted, not being the Supplemental Motion for Reconsideration of
statutory taxpayer, cannot claim a refund of the Pilipinas Shell Petroleum Corporation and,
excise tax paid by the manufacturer or producer. accordingly:

Applying the foregoing, the Court concludes (a) TO AFFIRM the decision dated
that: (1) the exemption under Section 135(a) of March 25, 2009 and resolution dated
the NIRC is conferred on the petroleum products June 24, 2009 of the Court of Tax
on which the excise tax was levied in the first Appeals En Banc in CTA EB No. 415;
place; (2) Pilipinas Shell, being the manufacturer and
or producer of petroleum products, was the
statutory taxpayer of the excise tax imposed on
(b) TO DIRECT petitioner Commissioner
the petroleum products; (3) as the statutory of Internal Revenue to refund or to issue
taxpayer, Pilipinas Shell’s liability to pay the a tax credit certificate to Pilipinas Shell
excise tax accrued as soon as the petroleum
Petroleum Corporation in the amount of
products came into existence, and Pilipinas
₱95,014,283.00 representing the excise
Shell accordingly paid its excise tax liability prior
taxes it paid on the petroleum products
to its sale or disposition of the taxable goods to
sold to international carriers in the
third parties, a fact not disputed by the CIR; and period from October 2001 to June 2002.
(3) Pilipinas Shell’s sale of the petroleum
products to international carriers for their use or
consumption outside the Philippines confirmed LUCAS P. BERSAMIN
the proper tax treatment of the subject goods as Associate Justice
exempt from the excise tax.1âwphi1

Under the circumstances, therefore, Pilipinas

Shell erroneously paid the excise taxes on its
petroleum products sold to international carriers,
and was entitled to claim the refund of the
excise taxes paid in accordance with prevailing
jurisprudence and Section 204(C) of the NIRC,
viz:

Section 204. Authority of the Commissioner to

Compromise, Abate and Refund or Credit
Taxes. – The Commissioner may – x x x

xxxx
 total of P826,662.99 and the Building Permit and
other documents were issued afterwards.
II. FEES VS CHARGES VS TAXES
Petitioner formally requested the respondents to
ANGELES UNIVERSITY refund the fees it paid under protest through
FOUNDATION, Petitioner, letters dated June 15, 2006 and August 7, 2006.
vs. But the respondents denied the claim for refund.
CITY OF ANGELES, JULIET G. QUINSAAT, in
her capacity as Treasurer of Angeles City On August 31, 2006, petitioner filed a Complaint
and ENGR. DONATO N. DIZON, in his before the trial court seeking for the refund
capacity as Acting Angeles City Building of P826,662.99 plus interest at a rate of 12% per
Official, Respondents. annum, and for attorneys fee in the amount
of P300,000.00 and litigation expenses.

On September 21, 2007, the trial court rendered

Facts: judgment in favor of the petitioner. Respondents
appeal to the CA which reversed the trial court’s
Petitioner Angeles University Foundation (AUF)
decision. Petitioner filed a motion for
is an educational institution established on May
reconsideration but was denied.
25, 1962 and was converted into a non-stock,
non-profit education foundation under the So the petitioner filed a petition for review on
provisions of Republic Act (RA) No. 6055 on certiorari before the Supreme Court.
December 4, 1975.

On August 2005, petitioner filed with the Office

of the City Building Official in the City of Angeles Issue:
Pampanga an application for a building permit
for the construction of an 11-storey building in its Whether or not the building permit fee is a tax
main Campus. A Building Permit Fee from which petitioner is exempt.
Assessment and an order of payment for
Locational Clearance Fees was issued by the
said office. Discussion:
Petitioner claimed, through a letter addressed to The building permit fee is neither a tax nor a
respondents City Treasurer and Acting City charge on property. Based on Sections 102, 103
Building Official, that it is exempted from the and 104, the building permit fee is a regulatory
payment of the building permit and locational imposition on certain activities the owner may
clearance fees and cited legal opinions rendered conduct either to build such structures or to
by the Department of Justice (DOJ). repair, alter, renovate or demolish the same.
Since building permit fees are not charges on
Respondents referred the matter to the Bureau
property, they are not impositions from which
of Local Government Finance (BLGF) of the
petitioner is exempt.
Department of Finance, which in turn endorsed
the query to the DOJ. DOJ replied and affirmed As to petitioner’s argument that the building
the claim of the petitioner. permit fees collected by respondents are in
reality taxes because the primary purpose is to
Despite the petitioner’s plea, however,
raise revenues for the local government unit, the
respondents refused to issue the building permit.
same does not hold water.
Petitioner then appealed the matter to the City
Mayor but received no written response. A charge of a fixed sum which bears no relation
Consequently, petitioner paid under protest a at all to the cost of inspection and regulation
may be held to be a tax rather than an exercise The petition was denied and the decision of the
of the police power. In this case, the Secretary Court of Appeals was affirmed.
of Public Works and Highways who is mandated
to prescribe and fix the amount of fees and other
charges that the Building Official shall collect in
connection with the performance of regulatory
functions, has promulgated and issued the
Implementing Rules and Regulations which
provide for the bases of assessment of such
fees.

The court cited the case of CHEVRON

PHILIPPINES, INC. VS. BASES CONVERSION
DEVELOPMENT AUTHORITY and explained
the difference between tax and regulation:

IN DISTINGUISHING TAX AND REGULATION

AS A FORM OF POLICE POWER, THE
DETERMINING FACTOR IS THE PURPOSE
OF THE IMPLEMENTED MEASURE. IF THE
PURPOSE IS PRIMARILY TO RAISE
REVENUE, THEN IT WILL BE DEEMED A TAX
EVEN THOUGH THE MEASURE RESULTS IN
SOME FORM OF REGULATION. ON THE
OTHER HAND, IF THE PURPOSE IS
PRIMARILY TO REGULATE, THEN IT IS
DEEMED A REGULATION AND AN EXERCISE
OF THE POLICE POWER OF THE STATE,
EVEN THOUGH INCIDENTALLY, REVENUE IS
GENERATED.

In GEROCHI V. DEPARTMENT OF ENERGY,

the Court stated:

THE CONSERVATIVE AND PIVOTAL

DISTINCTION BETWEEN THESE TWO (2)
POWERS RESTS IN THE PURPOSE FOR
WHICH THE CHARGE IS MADE. IF
GENERATION OF REVENUE IS THE
PRIMARY PURPOSE AND REGULATION IS
MERELY INCIDENTAL, THE IMPOSITION IS A
TAX; BUT IF REGULATION IS THE PRIMARY
PURPOSE, THE FACT THAT REVENUE IS
INCIDENTALLY RAISED DOES NOT MAKE
THE IMPOSITION A TAX.

Held:
 III.ARE TAXES SUBJECT TO SET-OFF? sale and the final bill of sale were both
annotated at the back of TCT No. 4739 (37795)
ENGRACIO FRANCIA, petitioner, by the Register of Deeds.
vs.
INTERMEDIATE APPELLATE COURT and HO On March 20, 1979, Francia filed a
FERNANDEZ, respondents. complaint to annul the auction sale. He later
amended his complaint on January 24, 1980.
The petitioner invokes legal and
equitable grounds to reverse the questioned On April 23, 1981, the lower court
decision of the Intermediate Appellate Court, to dismissed the amended complaint and ordered
set aside the auction sale of his property which The Register of Deeds of Pasay City to issue a
took place on December 5, 1977, and to allow new TCT in favor of the defendant Ho
him to recover a 203 square meter lot which Fernandez over the parcel of land including the
was, sold at public auction to Ho Fernandez and improvements thereon, subject to whatever
ordered titled in the latter's name. encumbrances appearing at the back of TCT
No. 4739 (37795) and ordering the same TCT
FACTS:
The Intermediate Appellate Court
Engracio Francia is the registered owner affirmed the decision of the lower court in toto.
of a 328 square meters residential lot described Hence, this petition for review.
and covered by Transfer Certificate of Title No.
4739 (37795) of the Registry of Deeds of Pasay ISSUE: WHETHER OR NOT THE
City and a two-story house built upon it situated EXPROPRIATION MAY COMPENSATE FOR
at Barrio San Isidro (now District of Sta. Clara, THE REAL ESTATE TAXES DUE.
Pasay City, Metro Manila).
HELD: NO. There can be no off-setting of taxes
On October 15, 1977, a 125 square against the claims that the taxpayer may have
meter portion of Francia's property was against the government.
expropriated by the RP for the sum of P4,116.00
representing the estimated amount equivalent to Francia’s argument is that the
the assessed value of the aforesaid portion. government owed him P4, 116.00 when a
portion of his land was expropriated on October
Since 1963 up to 1977 inclusive, 15, 1977. Hence, his tax obligation had been
Francia failed to pay his real estate taxes. Thus,
on December 5, 1977, his property was sold at set-off by operation of law as of October 15,
public auction by the City Treasurer of Pasay 1977.
City pursuant to Section 73 of Presidential
Decree No. 464 known as the Real Property Tax Following Article 1278 of the Civil Code,
Code in order to satisfy a tax delinquency of there is legal compensation when obligations of
P2,400.00. Ho Fernandez was the highest persons, who in their own right are reciprocally
bidder for the property (Francia was not present
debtors and creditors of each other, are
during the auction sale since he was in Iligan
City at that time helping his uncle ship bananas). extinguished. The circumstances in the instant
case do not satisfy the requirements provided by
On March 3, 1979, Francia received a Article 1279, to wit:
notice of hearing of LRC Case No. 1593-P "In
re: Petition for Entry of New Certificate of Title" (1) that each one of the obligors be bound
filed by Ho Fernandez, seeking the cancellation principally and that he be at the same time a
of TCT No. 4739 (37795) and the issuance in his principal creditor of the other;
name of a new certificate of title. Upon (3) that the two debts be due.
verification through his lawyer, Francia
discovered that a Final Bill of Sale had been
issued in favor of Ho Fernandez by the City A taxpayer cannot refuse to pay his
Treasurer on December 11, 1978. The auction tax when called upon by the collector
because he has a claim against the construed uniformly, in the light of public policy,
governmental body not included in the tax to exclude the remedy in an action or any
levy. indebtedness of the state or municipality to one
who is liable to the state or municipality for
taxes. Neither are they a proper subject of
A person cannot refuse to pay a tax on recoupment since they do not arise out of the
the ground that the government owes him an contract or transaction sued on.
amount equal to or greater than the tax being
collected. The collection of a tax cannot await On the issue that the selling price of P2,
the results of a lawsuit against the government. 400.00 was grossly inadequate, the same is not
tenable. The Supreme Court said: “alleged gross
inadequacy of price is not material when the law
As stated in the case of Republic v. gives the owner the right to redeem as when a
Mambulao Lumber Co. (4 SCRA 622), internal sale is made at public auction, upon the theory
revenue taxes cannot be the subject of set-off or that the lesser the price, the easier it is for the
compensation, thus: "A claim for taxes is not owner to effect redemption.” If mere inadequacy
such a debt, demand, contract or judgment as is of price is held to be a valid objection to a sale
allowed to be set-off under the statutes of set- for taxes, the collection of taxes in this manner
would be greatly embarrassed, if not rendered
off, which are construed uniformly, in the light of
altogether impracticable. “Where land is sold for
public policy, to exclude the remedy in an action taxes, the inadequacy of the price given is not a
or any indebtedness of the state or municipality valid objection to the sale.” This rule arises from
to one who is liable to the state or municipality necessity, for, if a fair price for the land were
for taxes. Neither are they a proper subject of essential to the sale, it would be useless to offer
recoupment since they do not arise out of the the property. Indeed, it is notorious that the
contract or transaction sued on. . . . . (80 C.J.S., prices habitually paid by purchasers at tax sales
are grossly out of proportion to the value of the
73-74). "The general rule based on grounds of land.
public policy is well-settled that no set-off
admissible against demands for taxes levied for WHEREFORE, IN VIEW OF THE
general or local governmental purposes. The FOREGOING, the petition for review is
reason on which the general rule is based, is DISMISSED. The decision of the respondent
that taxes are not in the nature of contracts court is affirmed.
between the party and party but grow out of duty
to, and are the positive acts of the government PHILEX MINING CORPORATION vs.
to the making and enforcing of which, the COMMISSIONER OF INTERNAL REVENUE,
personal consent of individual taxpayers is not
FACTS:
required. ..."

On August 5, 1992, the BIR sent a letter to

As reiterated in the case of Corders v. Philex asking it to settle its excise tax liabilities
Gonda internal revenue taxes cannot be the
amounting to P123,821,982.52. Philex protested
subject of compensation: Reason: government the demand for payment of the tax liabilities
and taxpayer are not mutually creditors and stating that it has pending claims for VAT input
debtors of each other' under Article 1278 of the credit/refund for the taxes it paid for the years
Civil Code and a "claim for taxes is not such a 1989 to 1991 in the amount of P119,977,037.02
debt, demand, contract or judgment as is plus interest. Therefore, these claims for tax
allowed to be set-off." credit/refund should be applied against the tax
liabilities.

In reply, the BIR held that since these pending

The Supreme Court emphasized: A
claims have not yet been established or
claim for taxes is not such a debt, demand,
determined with certainty, it follows that no legal
contract or judgment as is allowed to be set-off
compensation can take place. Hence, the BIR
under the statutes of set-off, which are
reiterated its demand that Philex settle the
amount plus interest within 30 days from the Philex’s claim is an outright disregard of the
receipt of the letter. basic principle in tax law that taxes are the
lifeblood of the government and so should be
Philex raised the issue to the Court of Tax collected without unnecessary hindrance.
Appeals and in the course of the proceedings, Evidently, to countenance Philex’s whimsical
the BIR issued a Tax Credit Certificate SN reason would render ineffective our tax
001795 in the amount of P13,144,313.88 which, collection system.
applied to the total tax liabilities of Philex of
P123,821,982.52; effectively lowered the latter’s Philex is not allowed to refuse the payment of its
tax obligation of P110,677,688.52. tax liabilities on the ground that it has a pending
tax claim for refund or credit against the
Despite the reduction of its tax liabilities, the government which has not yet been granted. It
CTA still ordered Philex to pay the remaining must be noted that a distinguishing feature of a
balance of P110,677,688.52 plus interest, tax is that it is compulsory rather than a matter
elucidating its reason that “taxes cannot be of bargain. Hence, a tax does not depend upon
subject to set-off on compensation since claim the consent of the taxpayer.If any payer can
for taxes is not a debt or contract. defer the payment of taxes by raising the
defense that it still has a pending claim for
Philex appealed the case before the Court of refund or credit, this would adversely affect the
Appeals. Nonetheless, the Court of Appeals government revenue system. A taxpayer cannot
refuse to pay his taxes when they fall due simply
affirmed the Court of Tax Appeals observation.
because he has a claim against the government
Philex filed a motion for reconsideration which
or that the collection of the tax is contingent on
was again denied. However, a few days after the
the result of the lawsuit it filed against the
denial of its motion for reconsideration, Philex
was able to obtain its VAT input credit/refund not government. Moreover, Philex's theory that
would automatically apply its VAT input
only for the taxable year 1989 to 1991 but also
credit/refund against its tax liabilities can easily
for 1992 and 1994, computed amounting to
give rise to confusion and abuse, depriving the
205,595,289.20.
government of authority over the manner by
which taxpayers credit and offset their tax
In view of the grant of its VAT input liabilities.
credit/refund, Philex now contends that the
same should, ipso jure, off-set its excise tax
"The power of taxation is sometimes called also
liabilities since both had already become “due
the power to destroy. Therefore it should be
and demandable, as well as fully liquidated;”
hence, legal compensation can properly take exercised with caution to minimize injury to the
place. proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the
tax collector kill the 'hen that lays the golden
ISSUE: Whether or not the petitioner is correct egg.' And, in the order to maintain the general
in its contention that tax liability and VAT input public's trust and confidence in the Government
credit/refund can be subjected to legal this power must be used justly and not
compensation. treacherously."

HELD: The petition is hereby dismissed.

The Supreme Court has already made the

pronouncement that taxes cannot be subject to
compensation for the simple reason that the
government and the taxpayer are not creditors
and debtors of each other. There is a material
distinction between a tax and debt. Debts are
due to the Government in its corporate capacity,
while taxes are due to the Government in its
sovereign capacity.
 DOMINGO VS. GARLITOS takes place by operation of law, in accordance
with Article 1279 and 1290 of the Civil Code,
CASE DOCTRINE: and both debts are extinguished to the
concurrent amount.
COMPENSATION BETWEEN TAXES AND
CLAIMS OF INTESTATE RECOGNIZED AND AIR CANADA v. CIR
APPROPRIATED FOR BY LAW. — The fact
that the court having jurisdiction of the estate G.R. 169507 January 11, 2016
had found that the claim of the estate against
the Government has been appropriated for the
purpose by a corresponding law (Rep Act No.
FACTS:
2700) shows that both the claim of the
Government for inheritance taxes and the claim Air Canada is a foreign corporation organized
of the intestate for services rendered have and existing under the laws of Canada. On April
already become overdue and demandable as 24, 2000, it was granted an authority to operate
well as fully liquidated. Compensation, therefore, as an offline carrier by the Civil Aeronautics
takes place by operation of law, in accordance Board, subject to certain conditions, which
with the Provisions of Articles 1279 and 1290 of authority would expire on April 24, 2005. As an
the Civil Code, and both debts are extinguished off-line carrier, Air Canada does not have flights
to the concurrent amount. originating from or coming to the Philippines and
does not operate any airplane in the Philippines.

FACTS: The Supreme Court declared as final

and executory the order of the Court of First On July 1, 1999, Air Canada engaged the
Instance of Leyte for the payment of estate and services of Aerotel Ltd., Corp. (Aerotel) as its
inheritance taxes, charges and penalties general sales agent in the Philippines. Aerotel
amounting to P40,058.55 by the Estate of the sells Air Canada’s passage documents in the
late Walter Scott Price. The petition for Philippines.
execution filed by the fiscal, however, was
denied by the lower court. The Court held that For the period ranging from the third quarter of
the execution is unjustified as the Government 2000 to the second quarter of 2002, Air Canada,
itself is indebted to the Estate for 262,200; and through Aerotel, filed quarterly and annual
ordered the amount of inheritance taxes be income tax returns and paid the income tax on
deducted from the Government’s indebtedness Gross Philippine Billings in the total amount of
to the Estate. ₱5,185,676.77.

ISSUE: Whether a tax and a debt may be On November 28, 2002, Air Canada filed a
compensated. written claim for refund of alleged erroneously
paid income taxes amounting to ₱5,185,676.77
HELD: The court having jurisdiction of the Estate before the Bureau of Internal Revenue (BIR). It’s
had found that the claim of the Estate against basis was found in the revised definition of
the Government has been recognized and an Gross Philippine Billings under Section
amount of P262,200 has already been 28(A)(3)(a) of the 1997 National Internal
appropriated by a corresponding law (RA 2700). Revenue Code (NIRC)1.
Under the circumstances, both the claim of the
Government for inheritance taxes and the claim
of the intestate for services rendered have
already become overdue and demandable as 1 SEC. 28. Rates of Income Tax on Foreign Corporations. -
well as fully liquidated. Compensation, therefore, (A) Tax on Resident Foreign Corporations. -
....
To prevent the running of the prescriptive period,
Air Canada filed a Petition for Review before the
Court of Tax Appeals (CTA). In this case, the P5,185,676.77 Gross Philippine
Billings tax paid by petitioner was computed at
The CTA denied the petition. It found that Air the rate of 1 ½% of its gross revenues
Canada was engaged in business in the amounting to P345,711,806.08149 from the third
Philippines through a local agent that sells quarter of 2000 to the second quarter of 2002. It
airline tickets on its behalf. As such, it held that is quite apparent that the tax imposable under
while Air Canada was not liable for tax on its Section 28(A)(l) of the 1997 NIRC 32% of
Gross Philippine Billings under Section 28(A)(3), taxable income, that is, gross income less
it was nevertheless liable to pay the 32% deductions will exceed the maximum ceiling of 1
corporate income tax on income derived from ½% of gross revenues as decreed in Article VIII
the sale of airline tickets within the Philippines of the Republic of the Philippines-Canada Tax
pursuant to Section 28(A)(1). On appeal, the Treaty. Hence, no refund is forthcoming
CTA En Banc affirmed the ruling of the CTA
First Division.

1) Whether petitioner Air Canada is entitled

to the refund.

NO. As discussed in South African Airways, the

grant of a refund is founded on the assumption
that the tax return is valid, that is, the facts
stated therein are true and correct. The
deficiency assessment, although not yet final,
created a doubt as to and constitutes a
challenge against the truth and accuracy of the
facts stated in said return which, by itself and
without unquestionable evidence, cannot be the
basis for the grant of the refund.

(3) International Carrier. - An international carrier doing

business in the Philippines shall pay a tax of two and
one-half percent (2 1/2%) on its ‘Gross Philippine
Billings’ as defined hereunder:
(a) International Air Carrier. - ‘Gross Philippine
Billings’ refers to the amount of gross revenue
derived from carriage of persons, excess baggage,
cargo and mail originating from the Philippines in a
continuous and uninterrupted flight, irrespective of
the place of sale or issue and the place of payment
of the ticket or passage document: Provided, That
tickets revalidated, exchanged and/or indorsed to
another international airline form part of the Gross
Philippine Billings if the passenger boards a plane in
a port or point in the Philippines: Provided, further,
That for a flight which originates from the
Philippines, but transshipment of passenger takes
place at any port outside the Philippines on another
airline, only the aliquot portion of the cost of the
ticket corresponding to the leg flown from the
Philippines to the point of transshipment shall form
part of Gross Philippine Billings. (Emphasis supplied)
 IV.DOUBLE TAXATION The Case

A. Kinds of double taxation Before us is a Petition for Review under1

B. Modes of eliminating double Rule 45 of the Rules of Court, seeking to

taxation annul the July 18, 2000 Decision and the
2

May 8, 2001 Resolution of the Court of

3

COMMISSIONER OF INTERNAL Appeals (CA) in CA-GR SP No. 54599. The

4

REVENUE, petitioner, decretal portion of the assailed Decision

vs. reads as follows:
SOLIDBANK CORPORATION, respondent.
"WHEREFORE, we AFFIRM in toto the assailed
PANGANIBAN, J.: decision and resolution of the Court of Tax
Appeals." 5

Under the Tax Code, the earnings of banks from

"passive" income are subject to a twenty percent The challenged Resolution denied petitioner’s
final withholding tax (20% FWT). This tax is Motion for Reconsideration.
withheld at source and is thus not actually and
physically received by the banks, because it is The Facts
paid directly to the government by the entities
from which the banks derived the income. Apart Quoting petitioner, the CA summarized the
6

from the 20% FWT, banks are also subject to a facts of this case as follows:
five percent gross receipts tax (5% GRT) which
is imposed by the Tax Code on their gross "For the calendar year 1995, [respondent]
receipts, including the "passive" income. seasonably filed its Quarterly Percentage Tax
Returns reflecting gross receipts (pertaining to
Since the 20% FWT is constructively received 5% [Gross Receipts Tax] rate) in the total
by the banks and forms part of their gross amount of ₱1,474,691,693.44 with
receipts or earnings, it follows that it is subject to corresponding gross receipts tax payments in
the 5% GRT. After all, the amount withheld is the sum of ₱73,734,584.60, broken down as
paid to the government on their behalf, in follows:
satisfaction of their withholding taxes. That they
do not actually receive the amount does not alter "[Respondent] alleges that the total gross
the fact that it is remitted for their benefit in
satisfaction of their tax obligations. Period Covered Gross Receipts
Gross Receipts
Tax

January to March 1994 ₱ 188,406,061.95 ₱ 9,420,303.10

Stated otherwise, the fact is that if there were no
withholding tax system in place in this country, April to June 1994 370,913,832.70 18,545,691.63
this 20 percent portion of the "passive" income July to September 1994 481,501,838.98 24,075,091.95
of banks would actually be paid to the banks and
October to December
then remitted by them to the government in 1994
433,869,959.81 21,693,497.98

payment of their income tax. The institution of

₱
the withholding tax system does not alter the Total ₱ 73,734,584.60
1,474,691,693.44
fact that the 20 percent portion of their "passive" receipts in the amount of ₱1,474,691,693.44
income constitutes part of their actual earnings, included the sum of ₱350,807,875.15
except that it is paid directly to the government representing gross receipts from passive income
on their behalf in satisfaction of the 20 percent which was already subjected to 20% final
final income tax due on their "passive" incomes. withholding tax.
"On January 30, 1996, [the Court of Tax strength of its earlier pronouncement in x x x
Appeals] rendered a decision in CTA Case No. Asian Bank Corporation vs. Commissioner of
4720 entitled Asian Bank Corporation vs. Internal Revenue x x x, wherein it was held that
Commissioner of Internal Revenue[,] wherein it the 20% [final withholding tax] on [a] bank’s
was held that the 20% final withholding tax on interest income should not form part of its
[a] bank’s interest income should not form part taxable gross receipts for purposes of computing
of its taxable gross receipts for purposes of the [gross receipts tax]."7

computing the gross receipts tax.

Ruling of the CA
"On June 19, 1997, on the strength of the
aforementioned decision, [respondent] filed with The CA held that the 20% FWT on a bank’s
the Bureau of Internal Revenue [BIR] a letter- interest income did not form part of the taxable
request for the refund or issuance of [a] tax gross receipts in computing the 5% GRT,
credit certificate in the aggregate amount of because the FWT was not actually received by
₱3,508,078.75, representing allegedly overpaid the bank but was directly remitted to the
gross receipts tax for the year 1995, computed government. The appellate court curtly said that
as follows: while the Tax Code "does not specifically state
any exemption, x x x the statute must receive a
Gross Receipts Subjected to the sensible construction such as will give effect to
Final Tax the legislative intention, and so as to avoid an
₱ unjust or absurd conclusion." 8
Derived from Passive [Income]
350,807,875.15

Multiply by Final Tax rate 20% Hence, this appeal. 9

20% Final Tax Withheld at Source ₱ 70,161,575.03

Issue
Multiply by [Gross Receipts Tax] rate 5%

Overpaid [Gross Receipts Tax] ₱ 3,508,078.75

Petitioner raises this lone issue for our
consideration:
"Without waiting for an action from the
[petitioner], [respondent] on the same day filed "Whether or not the 20% final withholding tax on
[a] petition for review [with the Court of Tax [a] bank’s interest income forms part of the
Appeals] in order to toll the running of the two- taxable gross receipts in computing the 5%
year prescriptive period to judicially claim for the gross receipts tax." 10

refund of [any] overpaid internal revenue tax[,]

pursuant to Section 230 [now 229] of the Tax
Code [also ‘National Internal Revenue Code’] x x
x. The Court’s Ruling

xxx xxx xxx The Petition is meritorious.

"After trial on the merits, the [Court of Tax Sole Issue:

Appeals], on August 6, 1999, rendered its
decision ordering x x x petitioner to refund in Whether the 20% FWT Forms Part
favor of x x x respondent the reduced amount of of the Taxable Gross Receipts
₱1,555,749.65 as overpaid [gross receipts tax]
for the year 1995. The legal issue x x x was Petitioner claims that although the 20% FWT on
resolved by the [Court of Tax Appeals], with respondent’s interest income was not actually
Hon. Amancio Q. Saga dissenting, on the received by respondent because it was remitted
directly to the government, the fact that the (ii) Over seven (7)
amount redounded to the bank’s benefit makes years………………………………….….0%
it part of the taxable gross receipts in computing
the 5% GRT. Respondent, on the other hand, "(b) On
maintains that the CA correctly ruled otherwise. dividends……………………………….……..0%

We agree with petitioner. In fact, the same issue "(c) On royalties, rentals of property, real or
has been raised recently in China Banking personal, profits from exchange and all other
Corporation v. CA, where this Court held that
11
items treated as gross income under Section
the amount of interest income withheld in 28 of this
14

payment of the 20% FWT forms part of gross Code………..........................................................

receipts in computing for the GRT on banks. ..........5%

The FWT and the GRT: Provided, however, That in case the maturity
period referred to in paragraph (a) is shortened
Two Different Taxes thru pretermination, then the maturity period
shall be reckoned to end as of the date of
The 5% GRT is imposed by Section 119 of 12 pretermination for purposes of classifying the
the Tax Code, which provides:
13
transaction as short, medium or long term and
the correct rate of tax shall be applied
"SEC. 119. Tax on banks and non-bank financial accordingly.
intermediaries. – There shall be collected a tax
on gross receipts derived from sources within "Nothing in this Code shall preclude the
the Philippines by all banks and non-bank Commissioner from imposing the same tax
financial intermediaries in accordance with the herein provided on persons performing similar
following schedule: banking activities."

"(a) On interest, commissions and discounts The 5% GRT is included under "Title V.
15

from lending activities as well as income from Other Percentage Taxes" of the Tax Code
financial leasing, on the basis of remaining and is not subject to withholding. The banks
maturities of instruments from which such and non-bank financial intermediaries liable
receipts are derived. therefor shall, under Section 125(a)(1), file 16

quarterly returns on the amount of gross receipts

Short-term maturity not in excess of two (2) and pay the taxes due thereon within twenty
years……………………5% (20) days after the end of each taxable quarter.
17

Medium-term maturity – over two (2) years The 20% FWT, on the other hand, falls under
18

Section 24(e)(1) of "Title II. Tax on Income." It is

19

but not exceeding four (4) a tax on passive income, deducted and withheld
years………………………………….…...3% at source by the payor-corporation and/or
person as withholding agent pursuant to Section
Long-term maturity: 50, and paid in the same manner and subject to
20

the same conditions as provided for in Section

(i) Over four (4) years but not exceeding 51. 21

seven (7) A perusal of these provisions clearly shows that

years……………………………………………1% two types of taxes are involved in the present
controversy: (1) the GRT, which is a percentage
tax; and (2) the FWT, which is an income tax. As imposed on the same subject matter, for the
a bank, petitioner is covered by both taxes. same purpose, by the same taxing authority,
within the same jurisdiction, during the same
taxing period; and they must be of the same kind
A percentage tax is a national tax measured by
or character.
120

a certain percentage of the gross selling price or

gross value in money of goods sold, bartered or First, the taxes herein are imposed on two
imported; or of the gross receipts or earnings different subject matters. The subject matter of
derived by any person engaged in the sale of the FWT is the passive income generated in the
services. It is not subject to withholding.
22 form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT
An income tax, on the other hand, is a national is the privilege of engaging in the business of
banking.
tax imposed on the net or the gross income
realized in a taxable year. It is subject to
23

A tax based on receipts is a tax on business

withholding. rather than on the property; hence, it is an
excise rather than a property tax. It is not an
121 122

In a withholding tax system, the payee is the income tax, unlike the FWT. In fact, we have
taxpayer, the person on whom the tax is already held that one can be taxed for engaging
imposed; the payor, a separate entity, acts as no in business and further taxed differently for the
income derived therefrom. Akin to our ruling in
123

more than an agent of the government for the

Velilla v. Posadas, these two taxes are entirely
124

collection of the tax in order to ensure its distinct and are assessed under different
payment. Obviously, this amount that is used to provisions.
settle the tax liability is deemed sourced from
the proceeds constitutive of the tax base. These
24
Second, although both taxes are national in
proceeds are either actual or constructive. Both scope because they are imposed by the same
parties herein agree that there is no actual taxing authority -- the national government under
receipt by the bank of the amount withheld. the Tax Code -- and operate within the same
Philippine jurisdiction for the same purpose of
What needs to be determined is if there is
raising revenues, the taxing periods they affect
constructive receipt thereof. Since the payee -- are different. The FWT is deducted and withheld
not the payor -- is the real taxpayer, the rule on as soon as the income is earned, and is paid
constructive receipt can be easily rationalized, if after every calendar quarter in which it is
not made clearly manifest. 25
earned. On the other hand, the GRT is neither
deducted nor withheld, but is paid only after
No Double Taxation every taxable quarter in which it is earned.

We have repeatedly said that the two taxes, Third, these two taxes are of different kinds or
subject of this litigation, are different from each characters. The FWT is an income tax subject to
other. The basis of their imposition may be the withholding, while the GRT is a percentage tax
same, but their natures are different, thus not subject to withholding.
leading us to a final point. Is there double
taxation? In short, there is no double taxation, because
there is no taxing twice, by the same taxing
The Court finds none. authority, within the same jurisdiction, for the
same purpose, in different taxing periods, some
of the property in the territory. Subjecting
125

Double taxation means taxing the same property interest income to a 20% FWT and including it in
twice when it should be taxed only once; that is, the computation of the 5% GRT is clearly not
"x x x taxing the same person twice by the same double taxation.
jurisdiction for the same thing." It is obnoxious
117

when the taxpayer is taxed twice, when it should

be but once. Otherwise described as "direct
118
WHEREFORE, the Petition is GRANTED. The
duplicate taxation," the two taxes must be
119
assailed Decision and Resolution of the Court of
Appeals are hereby REVERSED and SET the excise, value-added or percentage taxes
ASIDE. No costs. under the National Internal Revenue Code,
hereinafter referred to as NIRC, as amended, a
NURSERY CARE CORPORATION; tax of FIFTY PERCENT (50%) OF ONE
SHOEMART, INC.; STAR APPLIANCE PERCENT (1%) per annum on the gross sales
CENTER, INC.; H&B, INC.; SUPPLIES or receipts of the preceding calendar year is
STATION, INC.; and HARDWARE hereby imposed:
WORKSHOP, INC., Petitioners,
vs. A) On person who sells goods and services in
ANTHONY ACEVEDO, in his capacity as THE the course of trade or businesses; x x x
TREASURER OF MANILA; and THE CITY OF PROVIDED, that all registered businesses in the
MANILA,Respondents. City of Manila already paying the
aforementioned tax shall be exempted from
DECISION payment thereof.

BERSAMIN, J.: To comply with the City of Manila’s

assessmentof taxes under Section 21, supra,
The issue here concerns double taxation. There the petitioners paid under protest the following
is double taxation when the same taxpayer is amounts corresponding to the first quarter of
1999, to wit:
5
taxed twice when he should be taxed only once
for the same purpose by the same taxing
authority within the same jurisdiction during the (a) Nursery Care Corporation
same taxing period, and the taxes are of the ₱595,190.25
same kind or character. Double taxation is
obnoxious. (b) Shoemart Incorporated
₱3,283,520.14
The Case
(c) Star Appliance Center ₱236,084.03
Under review are the resolution promulgated in
CA-G.R. SP No. 72191 on June 18, (d) H & B, Inc. ₱1,271,118.74
2007, whereby the Court of Appeals (CA)
1

denied petitioners' appeal for lack of jurisdiction; (e) Supplies Station, Inc. ₱239,501.25
and the resolution promulgated on November
14, 2007, whereby the CA denied their motion
2
(f) Hardware Work Shop, Inc.
for reconsideration for its lack of merit.
₱609,953.24

Antecedents By letter dated March 1, 1999, the petitioners

formally requested the Office of the City
The City of Manila assessed and collected taxes Treasurer for the tax credit or refund of the local
from the individual petitioners pursuant to business taxes paid under protest. However,
6

Section 15 (Tax on Wholesalers, Distributors, or then City Treasurer Anthony Acevedo (Acevedo)
Dealers) and Section 17 (Tax on Retailers) of denied the request through his letter of March
the Revenue Code of Manila. At the same time,
3
10, 1999. 7

the City of Manila imposed additional taxes upon

the petitioners pursuant to Section 21 ofthe
On April 8, 1999, the petitioners, through their
Revenue Code of Manila, as amended, as a
4
representative, Cecilia R. Patricio, sought the
condition for the renewal of their respective reconsideration of the denial of their
business licenses for the year 1999. Section 21 request. Still, the City Treasurer did not
8

of the Revenue Code of Manila stated:

reconsider. In the meanwhile, Liberty Toledo
9

succeeded Acevedo as the City Treasurer of

Section 21. Tax on Business Subject to the Manila. 10

Excise, Value-Added or Percentage Taxes

under the NIRC - On any of the following
businesses and articles of commerce subject to
On April 29, 1999, the petitioners filed their or retailers)but is rather a tax against consumers
respective petitions for certiorariin the Regional or end-users of the articles sold by petitioners.
Trial Court (RTC) in Manila. The petitions, This is plain from a reading of the modifying
docketed as Civil Cases Nos. 99-93668 to 99- paragraph of Section 21 which says:
93673, were initially raffled to different
11

branches, but were soon consolidated in Branch "The tax shall be payable by the person paying
34. After the presiding judge of Branch 34
12
for the services rendered and shall be paid to
voluntarily inhibited himself, the consolidated the person rendering the services who is
cases were transferred to Branch 23, but were 13
required to collect and pay the tax within twenty
again re-raffled to Branch 19 upon the (20) days after the end of each quarter."
designation of Branch 23 as a special drugs (Underscoring supplied)
court. 14

In effect, the petitioners only act as the collection

The parties agreed on and jointly submitted the or withholding agent of the City while the ones
following issues for the consideration and actually paying the tax are the consumers or
resolution of the RTC, namely: end-users of the articles being sold by
petitioners. The taxes imposed under Sec. 21
(a) Whether or not the collection of represent additional amounts added by the
taxes under Section 21 of Ordinance business establishment to the basic prices of its
No. 7794, as amended, constitutes goods and services which are paid by the end-
double taxation. users to the businesses. It is actually not taxes
on the business of petitioners but on the
(b) Whether or not the failure of the consumers. Hence, there is no double taxation
petitioners to avail of the statutorily in the narrow, strict or obnoxious sense,involved
provided remedy for their tax protest on in the imposition of taxes by the City of Manila
the ground of unconstitutionality, under Sections 15, 17 and 21 of the questioned
illegality and oppressiveness under Ordinance. This in effect resolves infavor of the
Section 187 of the Local Government constitutionality of the assailed sections of
Code renders the present action Ordinance No. 7807 of the City of Manila.
dismissible for non-exhaustion of
administrative remedy.15
Petitioners, likewise, pray the Court to direct
respondents to cease and desist from
Decision of the RTC implementing Section 21 of the questioned
Ordinance. That the Court cannot do, without
On April 26, 2002, the RTC rendered its doing away with the mandatory provisions of
Section 187 of the Local Government Code
decision, holding thusly:
which distinctly commands that an appeal
questioning the constitutionality or legality of a
The Court perceives of no instance of the tax ordinance shall not have the effectof
constitutionally proscribed double taxation, in the suspending the effectivity of the ordinance and
strict, narrow or obnoxious sense, imposed upon the accrual and payment of the tax, fee or
the petitioners under Section 15 and 17, on the charge levied therein. This is so because an
one hand, and under Section 21, on the other, of ordinance carries with it the presumption of
the questioned Ordinance. The tax imposed validity.
under Section 15 and 17, as against that
imposed under Section 21, are levied against
xxx
different tax objects or subject matter. The tax
under Section 15 is imposed upon wholesalers,
distributors or dealers, while that under Section With the foregoing findings, petitioners’ prayer
17 is imposedupon retailers. In short, taxes for the refund of the amounts paid by them
imposed under Section 15 and 17 is a tax on the under protest must, likewise, fail.
business of wholesalers, distributors, dealers
and retailers. On the other hand, the tax Wherefore, the petitions are dismissed. Without
imposed upon herein petitioners under Section pronouncement as to costs.
21 is not a tax against the business of the
petitioners (as wholesalers, distributors, dealers
SO ORDERED. 16
The petitioners moved for reconsideration, but
the CA denied their motion through the
The petitioners appealed to the CA. 17

resolution promulgated on November 14,

2007.19
Ruling of the CA

On June 18, 2007, the CA deniedthe petitioners’

appeal, ruling as follows: ISSUE:

The six (6) cases were consolidated on a Whether or not the collection of taxes under
common question of fact and law, that is, Section 21 of Ordinance No. 7794, as amended,
whether the act ofthe City Treasurer of Manila of constitutes double taxation. YES
assessing and collecting business taxes under
Section 21of Ordinance 7807, on top of other
business taxes alsoassessed and collected
under the previous sections of the same RULING:
ordinance is a violation of the provisions of
Section 143 of the Local Government Code. There is DOUBLE TAXATION when the same
taxpayer is taxed twice when he should be taxed
Clearly, the disposition of the present appeal in
only once for the same purpose by the same
these consolidated cases does not necessitate
the calibration of the whole evidence as there is taxing authority within the same jurisdiction
no question or doubt as to the truth or the during the same taxing period, and the taxes are
falsehood of the facts obtaining herein, as both of the same kind or character. DOUBLE
parties agree thereon. The present case TAXATION is obnoxious.
involves a question of law that would not lend
itself to an examination or evaluation by this DOUBLE TAXATION means taxing the same
Court of the probative value of the evidence property twice when it should be taxed only
presented. once; that is, "taxing the same person twice by
the same jurisdiction for the same thing." It is
Thus the Court is constrained todismiss the
obnoxious when the taxpayer is taxed twice,
instant petition for lack of jurisdiction under
Section 2,Rule 50 of the 1997 Rules on Civil when it should be but once. Otherwise described
Procedure which states: as "DIRECT DUPLICATE TAXATION," the two
taxes must be imposed on the same subject
"Sec. 2. Dismissal of improper appeal to the matter, for the same purpose, by the same
Court of Appeals. – An appeal under Rule 41 taxing authority, within the same jurisdiction,
taken from the Regional Trial Court to the Court during the same taxing period; and the taxes
of Appeals raising only questions of law shall be must be of the same kind or character.
dismissed, issues purely of law not being
reviewable by said court. similarly, an appeal by Using the aforementioned test, the COURT finds
notice of appeal instead of by petition for review
that there is INDEED DOUBLE TAXATION IF
from the appellate judgment of a Regional Trial
Court shall be dismissed. RESPONDENT IS SUBJECTED TO THE
TAXES UNDER BOTH SECTIONS 14 AND 21
An appeal erroneously taken tothe Court of OF TAX ORDINANCE NO. 7794, since these
Appeals shall not be transferred to the are being imposed: (1) on the same subject
appropriate court but shall be dismissed outright. matter – the privilege of doing business in the
City of Manila; (2) for the same purpose – to
WHEREFORE, the foregoing considered, the make persons conducting business within the
appeal is DISMISSED. City of Manila contribute to city revenues; (3) by
the same taxing authority – petitioner City of
SO ORDERED. 18
Manila; (4) within the same taxing jurisdiction –
within the territorial jurisdiction of the City of of the same kind or character. DOUBLE
Manila; (5) for the same taxing periods – per TAXATION is obnoxious.
calendar year; and (6) of the same kind or
character – a local business tax imposed on
gross sales or receipts of the business.
DOUBLE TAXATION means taxing the same
Based on the foregoing reasons, PETITIONER property twice when it should be taxed only
should not have been subjected to taxes under once; that is, "taxing the same person twice by
Section 21 of the Manila Revenue Code for the the same jurisdiction for the same thing." It is
fourth quarter of 2001, considering that it had obnoxious when the taxpayer is taxed twice,
already been paying local business tax under when it should be but once. Otherwise described
Section 14 of the same ordinance. as "DIRECT DUPLICATE TAXATION," the two
taxes must be imposed on the same subject
Accordingly, respondent’s assessment under matter, for the same purpose, by the same
both Sections 14 and 21 had no basis. taxing authority, within the same jurisdiction,
PETITIONER is indeed liable to pay business during the same taxing period; and the taxes
taxes to the City of Manila; nevertheless, must be of the same kind or character.
considering that the FORMER has already paid
these taxes under Section 14 of the Manila
Revenue Code, it is exempt from the same
REQUISITES OF DOUBLE TAXATION:
payments under Section 21 of the same code.
Hence, payments made under Section 21 must
be refunded in favor of petitioner. It is
undisputed that PETITIONER paid business Using the aforementioned test, the COURT finds
taxes based on Sections 14 and 21 for the fourth that there is INDEED DOUBLE TAXATION IF
quarter of 2001 in the total amount of RESPONDENT IS SUBJECTED TO THE
₱470,932.21. Therefore, it is ENTITLED TO A TAXES UNDER BOTH SECTIONS 14 AND 21
REFUND OF ₱164,552.04 corresponding to the OF TAX ORDINANCE NO. 7794, since these
payment under Section 21 of the Manila are being imposed:
Revenue Code.
(1) On the same subject matter – the privilege of
In fine, the IMPOSITION OF THE TAX UNDER doing business in the City of Manila;
SECTION 21 OF THE REVENUE CODE OF
MANILA constituted double taxation, and the (2) For the same purpose – to make persons
taxes collected pursuant thereto must be conducting business within the City of Manila
refunded. contribute to city revenues;

(3) By the same taxing authority – petitioner City

of Manila;
IMPORTANT PRINCIPLE: WHEN IS THERE
DOUBLE TAXATION; REQUISITES OF (4) Within the same taxing jurisdiction – within
DOUBLE TAXATION the territorial jurisdiction of the City of Manila;

WHEN IS THERE DOUBLE TAXATION? (5) For the same taxing periods – per calendar
year; and
There is DOUBLE TAXATION when the same
taxpayer is taxed twice when he should be taxed (6) Of the same kind or character – a local
only once for the same purpose by the same business tax imposed on gross sales or receipts
taxing authority within the same jurisdiction of the business.
during the same taxing period, and the taxes are
 Court of Tax Appeals (CTA), reiterating its claim
for refund or tax credit certificate representing
Deutsche Bank AG Manila Branch v. the alleged excess BPRT paid. The claim was
Commissioner of Internal Revenue denied on the ground that application for tax
treaty relief was not filed with ITAD prior to the
GR Number 188550
payment of BPRT, thereby violating the fifteen-
day period mandated under Section III,
paragraph 2 of the Revenue Memorandum
Petition: Petition for Review Order No. 1-2000. Also, the CTA Second
Division relied on an en banc decision of the
Petitioner: Deutsche Bank AG Manila Branch CTA that before the benefits of a tax treaty may
be extended to a foreign corporation, the latter
Respondent: Commissioner of Internal
should first invoke the provisions of the tax
Revenue
treaty and prove that they indeed apply to the
Ponente: Sereno, C. J. corporation (Mirant Operations Corporation v
Commissioner of Internal Revenue).
Date: August 28, 2013
Hence this petition.

Issue:
Facts:
Whether or not the failure to strictly comply with
Pursuant to the National Internal Revenue Code the provisions of RMO No. 1-2000 will deprive
of 1997, on October 21, 2003, the petitioner persons or corporations the benefit of a tax
remitted to the respondent the amount of Php treaty.
67,688,553.51, representing fifteen (15) percent
of the branch profit remittance tax (BPRT) on its Ruling:
regular banking unit (RBU) net income remitted
No. The constitution provides for the adherence
to the Deutsche Bank of Germany (DB
to the general principles of international law as
Germany) for 2002 and prior taxable years.
part of the law of the land (Article II, Section 2).
Every treaty is binding upon the parties, and
obligations must be performed (Article 26,
Believing that they made an overpayment of the Vienna Convention on the Law on Treaties).
BPRT, on October 4, 2005, the petitioner filed There is nothing in RMO 1-2000 indicating a
with the BIR Large Taxpayers Assessment and deprivation of entitlement to a tax treaty for
Investigation Division an administrative claim for failure to comply with the fifteen-day period. The
refund or a tax credit certificate representing the denial of availment of tax relief for the failure to
alleged excess BPRT paid (amount of Php apply within the prescribed period (under the
22,562,851.17). The petitioners also requested administrative issuance) would impair the value
from the International Tax Affairs Division (ITAD) of the tax treaty. Also, the obligation to comply
for a confirmation of its entitlement to a with the tax treaty must take precedence over
preferential tax rate of 10% under the RP- the objective of RMO 1-2000 because the non-
Germany Tax Treaty. compliance with tax treaties would have
negative implications on international affairs and
would discourage foreign investments.

Because of the alleged inaction of the BIR on

the administrative claim, on October 18, 2005,
the petitioner filed a petition for review with the
Dispositive: the Fuji Bank, Limited (Fuji Bank), with the
mergedentity being named as Mizuho Corporate
The petition was granted, the CTA en banc Bank (Mizuho Bank). One of the merged banks,
decision was set aside and reversed. The Fuji Bank, had a branch in the Philippines, which
respondent was ordered to refund or issue a tax became a branch of Mizuho Bank as a result of
the merger. The Industrial Bank of Japan and
credit certificate (the amount of Php
Mizuho Bank are residents of Japan for
22,562,851.17) in favor of the petitioner. purposes of income taxation, and recognized as
such under the relevant provisions of the income
COMMISSIONER OF INTERNAL tax treaties between the Philippines and Japan. 9

REVENUE, Petitioner,
vs. Certain portions of the loan were subsequently
CBK POWER COMPANY assigned by the original lenders to various other
LIMITED, Respondent. banks, including Fortis Bank (Nederland) N.V.
(Fortis-Netherlands) and Raiffesen Zentral Bank
DECISION Osterreich AG (Raiffesen Bank). Fortis-
Netherlands, in turn, assigned its portion of the
PERLAS-BERNABE, J.: loan to Fortis Bank S.A./N.V. (Fortis-Belgium), a
resident of Belgium. Fortis Netherlands and
Assailed in these consolidated petitions for Raiffesen Bank, on the other hand, are residents
review on certiorari are the Decision dated
1 2
of Netherlands and Austria, respectively.10

March 29, 2010 and the Resolution dated 3

August 16, 2010 of the Court ofTax Appeals In February 2001, CBK Power borrowed money
(CTA) En Bancin C.T.A. E.B. Nos. 469 and 494, from Industrial Bank of Japan, Fortis-
which affirmed the Decision dated August 28,
4 Netherlands, Raiffesen Bank, Fortis-Belgium,
2008, the Amended Decision dated February
5 and Mizuho Bank for which it remitted interest
12, 2009, and the Resolution dated May 7, 2009
6 payments from May 2001 to May 2003. It 11

of the CTA First Division in CTA Case Nos. allegedly withheld final taxes from said
6699, 6884,and 7166 granting CBK Power payments based on the following rates, and paid
Company Limited (CBK Power) a refund of its the same to the Revenue District Office No. 55
excess final withholding tax for the taxable years of the Bureau of Internal Revenue (BIR): (a)
2001 to 2003. fifteen percent (15%) for Fortis-Belgium, Fortis-
Netherlands, and Raiffesen Bank; and (b) twenty
The Facts percent (20%) for Industrial Bank of Japan and
Mizuho Bank. 12

CBK Power is a limited partnership duly

organized and existing under the laws of the However, according to CBK Power, under the
Philippines, and primarily engaged in the relevant tax treaties between the Philippines and
development and operation of the Caliraya, the respective countries in which each of the
Botocan, and Kalayaan hydro electric power banks is a resident, the interest income derived
generating plants in Laguna (CBK Project). It is by the aforementioned banks are subject only to
registered with the Board of Investments (BOI) a preferential tax rate of 10%, viz.:
13

as engaged in a preferred pioneer area of 1âw phi1

investment under the Omnibus Investment Code COUNTRY OF PREFERENTIAL

of 1987.7 BANK
RESIDENCE UNDER THE RELEVANT TAX TREATY

To finance the CBK Project, CBK

Fortis BankPower
S.A./N.V. Belgium 10% (Article 11[1], RP
obtained in August 2000 a syndicated loan from Tax Treaty)
several foreign banks, i.e., BNP Paribas, Dai-
8

IndustrialBank Bank
ichi Kangyo Bank, Limited, Industrial of of Japan 10% (Article 11[3], RP-Japan Tax Treaty
Japan (original
Japan, Limited, and Societe General
lenders), acting through an Inter-Creditor Agent,
Raiffesen Zentral
Dai-ichi Kangyo Bank, a Japanesebank that Bank Austria 10% (Article 11[3], RP-Austria Tax Treat
Osterreich
subsequently merged with the Industrial AG of
Bank
Japan, Limited (Industrial Bank of Japan) and
 The CTA First Division Rulings
Corporate Bank Japan 10% (Article 11[3], RP-Japan Tax Treaty)

In a Decision dated August 28, 2008, the CTA

17

Accordingly, on April 14, 2003, CBK Power filed First Division granted the petitions and ordered
a claim for refund of its excess final withholding the refund of the amount of 15,672,958.42 upon
taxes allegedly erroneously withheld and a finding that the relevant tax treaties were
collected for the years 2001 and 2002 with the applicable to the case. It cited DA-ITAD Ruling
18

BIR Revenue Region No. 9. The claim for refund No. 099-03 dated July 16, 2003, issued by the
19

of excess final withholding taxes in 2003 was BIR, confirming CBK Power’s claim that the
subsequently filed on March 4, 2005. 14
interest payments it made to Industrial Bank of
Japan and Raiffesen Bank were subject to a
The Commissioner of Internal Revenue’s final withholding tax rate of only 10%of the gross
(Commissioner) inaction on said claims amount of interest, pursuant to Article 11 of the
prompted CBK Power to file petitions for review Republic of the Philippines (RP)-Austria and RP-
before the CTA, viz.: 15 Japan tax treaties. However, in DA-ITAD Ruling
No. 126-03 dated August 18, 2003, also issued
20

(1) CTA Case No. 6699 was filed by by the BIR, interest payments to Fortis-Belgium
CBK Power on June 6, 2003 seeking were likewise subjected to the same rate
the refund of excess final withholding pursuant to the Protocol Amending the RP-
tax in the total amount of ₱6,393,267.20 Belgium Tax Treaty, the provisions of which
covering the year 2001 with respect to apply on income derived or which accrued
interest income derived by [Fortis- beginning January 1, 2000. With respect to
Belgium], Industrial Bank of Japan, and interest payments made to Fortis-Netherlands
[Raiffesen Bank]. An Answer was filed before it assigned its portion of the loan to
by the Commissioner on July 25, 2003. Fortis-Belgium, the CTA First Division likewise
granted the preferential rate. 21

(2) CTA Case No. 6884was filed by

CBK Power on March 5, 2004 seeking The CTA First Division categorically declared in
for the refund of the amount of the August 28, 2008 Decision that the required
8,136,174.31 covering [the] year 2002 International Tax Affairs Division (ITAD) ruling
with respect to interest income derived was not a condition sine qua non for the
by [Fortis- Belgium], Industrial Bank of entitlement of the tax relief sought by CBK
Japan, [Mizuho Bank], and [Raiffesen Power, however,
22
upon motion for
Bank]. The Commissioner filed his reconsideration filed by the Commissioner, the
23

Answer on May 7, 2004. CTA First Division amendedits earlier decision

by reducing the amount of the refund from
₱15,672,958.42 to ₱14,835,720.39 on the
xxxx ground that CBK Power failed to obtain an ITAD
ruling with respect to its transactions with Fortis-
(3) CTA Case No. 7166was filed by Netherlands. In its Amended Decision dated
24 25

CBK [Power] on March 9, 2005 seeking February 12, 2009, the CTA First Division
for the refund of [the amount of] adopted the ruling in the case of Mirant
26

₱1,143,517.21covering [the] year 2003 (Philippines) Operations Corporation (formerly:

with respect to interest income derived Southern Energy Asia-Pacific Operations
by [Fortis Belgium], and [Raiffesen [Phils.], Inc.) v. Commissioner of Internal
Bank]. The Commissioner filed his Revenue (Mirant), cited by the Commissioner in
27

Answer on May 9, 2005. (Emphases his motion for reconsideration, where the Court
supplied) categorically pronounced in its Resolution dated
February 18, 2008 that an ITAD ruling must be
CTA Case Nos. 6699 and 6884 were obtained prior to availing a preferential tax rate.
consolidated first on June 18, 2004.
Subsequently, however, all three cases – CTA CBK Power moved for the reconsideration of 28

Case Nos. 6699, 6884, and 7166 – were the Amended Decision dated February 12, 2009,
consolidated in a Resolution dated August 3, arguing in the main that the Mirantcase, which
2005.16
was resolved in a minute resolution, did not
establish a legal precedent. The motion was Power to have filed said petitions without
denied, however, in a Resolution dated May 7,
29
awaiting the final resolution of its administrative
2009 for lack of merit. claims for refund before the BIR; otherwise, it
would have completely lost its right to seek
Undaunted, CBK Power elevated the matter to judicial recourse if the two-year prescriptive
the CTA En Bancon petition for period lapsed with no judicial claim filed.
review,30 docketed as C.T.A E.B. No. 494. The
Commissioner likewise filed his own petition for CBK Power’s motion for partial reconsideration
review,31 which was docketed as C.T.A. E.B. No. and the Commissioner’s motion for
469. Said petitions were subsequently reconsideration of the foregoing Decision were
consolidated.32 both deniedin a Resolution39 dated August 16,
2010 for lack of merit; hence, the present
CBK Power raised the lone issue of whether or consolidated petitions.
not an ITAD ruling is required before it can avail
of the preferential tax rate. On the other hand,
the Commissioner claimed that CBK Power
failed to exhaust administrative remedies when it The Court rules for CBK Power.
filed its petitions before the CTA First Division,
and that said petitions were not filed within the
two-year prescriptive period for initiating judicial Sections 204 and 229 of the NIRC pertain to the
claims for refund.33 refund of erroneously or illegally collected taxes.
Section 204 applies to administrative claims for
refund, while Section 229 to judicial claims for
The CTA En Banc Ruling refund. In both instances, the taxpayer’s claim
must be filed within two (2) years from the date
In a Decision34 dated March 29, 2010, the CTA of payment of the tax or penalty. However,
En Banc affirmed the ruling of the CTA First Section 229 of the NIRC further states the
Division that a prior application with the ITAD is condition that a judicial claim for refund may not
indeed required by Revenue Memorandum be maintained until a claim for refund or credit
Order (RMO) 1-2000,35 which administrative has been duly filed with the Commissioner.
issuance has the force and effect of law and is These provisions respectively read:
just as binding as a tax treaty. The CTA En Banc
declared the Mirant case as without any binding SEC. 204. Authority of the Commissioner to
effect on CBK Power, having been resolved by Compromise, Abate and Refund or Credit
this Court merely through minute resolutions, Taxes. – The Commissioner may -
and relied instead on the mandatory wording of
RMO 1-2000, as follows:36
xxxx
III. Policies:
(C) Credit or refund taxes erroneously or illegally
received or penalties imposed without authority,
xxxx refund the value of internal revenue stamps
when they are returned in good condition by the
2. Any availment of the tax treaty relief shall be purchaser, and, in his discretion, redeem or
preceded by an application by filing BIR Form change unused stamps that have been rendered
No. 0901 (Application for Relief from Double unfit for use and refund their value upon proof of
Taxation) with ITAD at least 15 days before the destruction. No credit or refund of taxes or
transaction i.e. payment of dividends, royalties, penalties shall be allowed unless the taxpayer
etc., accompanied by supporting documents files in writing with the Commissioner a claim for
justifying the relief. x x x. credit or refund within two (2) years after the
payment of the tax or penalty: Provided,
The CTA En Banc further held that CBK Power’s however, That a return filed showing an
petitions for review were filed within the two-year overpayment shall be considered as a written
prescriptive period provided under Section claim for credit or refund.
22937 of the National Internal Revenue Code of
199738 (NIRC), and that it was proper for CBK xxxx
 SEC. 229. Recovery of Tax Erroneously or prescribe on June 10,2005, CBK Power could
Illegally Collected. – No suit or proceeding shall have waited for, at the most, three (3) months
be maintained in any court for the recovery of from the filing of the administrative claim on
any national internal revenue tax hereafter March 4, 2005 until the last day of the two-year
alleged to have been erroneously or illegally prescriptive period ending June 10, 2005, that is,
assessed or collected, or of any penalty claimed if only togive the BIR at the administrative level
to have been collected without authority, of any an opportunity to act on said claim, the Court
sum alleged to have been excessively or in any cannot, on that basis alone, deny a legitimate
manner wrongfully collected without authority, or claim that was, for all intents and purposes,
of any sum alleged to have been excessively timely filed in accordance with Section 229 of
orin any manner wrongfully collected, until a the NIRC. There was no violation of Section 229
claim for refund or credit has been duly filed with since the law, as worded, only requires that an
the Commissioner; but such suit or proceeding administrative claim be priorly filed.
may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or In the foregoing instances, attention must be
duress. drawn to the Court’s ruling in P.J. Kiener Co.,
Ltd. v. David60 (Kiener), wherein it was held that
In any case, no such suit or proceeding shall be in no wise does the law, i.e., Section 306 of the
filed after the expiration of two (2) years from the old Tax Code (now, Section 229 of the NIRC),
date of payment of the tax or penalty regardless imply that the Collector of Internal Revenue first
of any supervening cause that may arise after act upon the taxpayer’s claim, and that the
payment: x x x. (Emphases and underscoring taxpayer shall not go to court before he is
supplied) notified of the Collector’s action. In Kiener, the
Court went on to say that the claim with the
Indubitably, CBK Power’s administrative and Collector of Internal Revenue was intended
judicial claims for refund of its excess final primarily as a notice of warning that unless the
withholding taxes covering taxable year 2003 tax or penalty alleged to have been collected
were filed within the two-year prescriptive erroneously or illegally is refunded, court action
period, as shown by the table below: 58 will follow, viz.: The controversy centers on the
construction of the aforementioned section of
the Tax Code which reads:
WHEN FINAL WHEN LAST DAY OF WHEN WHEN PETITION
INCOME REMITTANCE THE 2-YEAR ADMINISTRATIVE FOR REVIEW
SEC. 306. Recovery of tax erroneously or
TAXES WERE RETURN PRESCRIPTIVE CLAIM WAS FILED WAS FILED
illegally collected. — No suit or proceeding shall
WITHHELD FILED PERIOD
be maintained in any court for the recovery of
February 2003 03/10/03 03/10/05 March 4, 2005 any national
03/09/05internal revenue tax hereafter
alleged to have been erroneously or illegally
May 2003 06/10/03 06/10/05 March 4, 2005 assessed 03/09/05
or collected, or of any penalty claimed
to have been collected without authority, or of
With respect to the remittance filed on March 10, any sum alleged to have been excessive or in
2003, the Court agrees with the ratiocination of any manner wrongfully collected, until a claim for
the CTA En Banc in debunking the alleged refund or credit has been duly filed with the
failure to exhaust administrative remedies. Had Collector of Internal Revenue; but such suit or
CBK Power awaited the action of the proceeding may be maintained, whether or not
Commissioner on its claim for refund prior to such tax, penalty, or sum has been paid under
taking court action knowing fully well that the protest or duress. In any case, no such suit or
prescriptive period was about to end, it would proceeding shall be begun after the expiration of
have lost not only its right to seek judicial two years from the date of payment of the tax or
recourse but its right to recover the final penalty. The preceding provisions seem at first
withholding taxes it erroneously paid to the blush conflicting. It will be noticed that, whereas
government thereby suffering irreparable the first sentence requires a claim to be filed
damage. 59 with the Collector of Internal Revenue before
any suit is commenced, the last makes
imperative the bringing of such suit within two
Also, while it may be argued that, for the years from the date of collection. But the conflict
remittance filed on June 10, 2003 that was to
is only apparent and the two provisions easily
yield to reconciliation, which it is the office of
statutory construction to effectuate, where
possible, to give effect to the entire enactment.

To this end, and bearing in mind that the

Legislature is presumed to have understood the
language it used and to have acted with full idea
of what it wanted to accomplish, it is fair and
reasonable to say without doing violence to the
context or either of the two provisions, that by
the first is meant simply that the Collector of
Internal Revenue shall be given an opportunity
to consider his mistake, if mistake has been
committed, before he is sued, but not, as the
appellant contends that pending consideration of
the claim, the period of two years provided in the
last clause shall be deemed interrupted.
Nowhere and in no wise does the law imply that
the Collector of Internal Revenue must act upon
the claim, or that the taxpayer shall not go to
court before he is notified of the Collector’s
action. x x x. We understand the filing of the
claim with the Collector of Internal Revenue to
be intended primarily as a notice of warning that
unless the tax or penalty alleged to have been
collected erroneously or illegally is refunded,
court action will follow. x x x.61 (Emphases
supplied)

That being said, the foregoing refund claims of

CBK Power should all be granted, and, the
petition of the Commissioner in G.R. Nos.
193407-08 be denied for lack of merit.

WHEREFORE, the petition in G.R. Nos.

193383-84 is GRANTED. The Decision dated
March 29, 2010 and the Resolution dated
August 16, 2010 of the Court of Tax Appeals
(CTA) En Banc in C.T.A. E.B. Nos. 469 and
494 are hereby REVERSED and SET ASIDE
and a new one entered REINSTATING the
Decision of the CTA First Division dated
August 28, 2008 ordering the refund in favor
of CBK Power Company Limited the amount
of PlS,672,958.42 representing its excess final
withholding taxes for the taxable years 2001
to 2003. On the other hand, the petition in
G.R. Nos. 193407-08 is DENIED for lack of
merit.

SO ORDERED.