Manila Memorial Park Inc. et al v. Secretary of DSWD and DOF, G.R. No. 175356, December 3, 2013

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Manila Memorial Park Inc. et al v. Secretary of DSWD and DOF

 G.R. No. 175356, December 3, 2013

Subject: Taxation Law

Principle: The power to tax is "a principal attribute of sovereignty." Such inherent power of the State anchors on its "social contract with its citizens which obliges it to promote public interest and common good."

 

Facts: This case involves the constitutionality of Section 4 of Republic Act No. 7432 as amended by Republic Act No. 92571 as well as the implementing rules and regulations issued by respondents DSWD and DOF.

 

The provisions allow the 20% discount given by business establishments to senior citizens only as a tax deduction from their gross income. The provisions amend an earlier law that allows the senior citizen discount as a tax credit from their total tax liability. Thus, the petitioners assailed he constitutionality of the tax deduction scheme prescribed under RA 9257 and the IRR issued by the DSWD and the DOF.

 

The petitioners posit that the tax deduction scheme contravenes Article III, Section

9 of the Constitution, which provides that: "private property shall not be taken for public use without just compensation."

On the other hand, the respondents maintain that the tax deduction scheme is a legitimate exercise of the State’s police power.

 

Issue: Whether or not Section 4 of Republic Act No. 7432 as amended by Republic Act No. 9257, as well as its IRR is invalid and unconstitutional.

Ruling: No. The enactment of the provision as well as its implementing rules is a proper exercise of the inherent power to tax and police power. The determination that it will be a tax deduction, not a tax credit, is an exercise of the power to tax. The scope of the legislative power to tax necessarily includes not only the power to determine the rate of tax but the method of its collection as well.

 

Thus, this means that the power to tax also allows Congress to determine matters as whether tax rates will be applied to gross income or net income and whether costs such as discounts may be allowed as a deduction from gross income or a tax credit from net income after tax.

 

In the present case, there is no showing that the tax deduction scheme is confiscatory. The portion of the 20% discount petitioners are made to bear under the tax deduction scheme will not result in a complete loss of business for private establishments.

 

As illustrated earlier, these establishments are free to adjust factors as prices and costs to recoup the 20% discount given to senior citizens. Neither is the scheme arbitrary. In fact, this Court has consistently upheld the doctrine that "taxing power may be used as an implement of police power" in order to promote the general welfare of the people.

 

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Pelizloy Realty Corporation v. Province of Benguet, G.R. No. 183137, April 10, 2013

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Pelizloy Realty Corporation v. Province of Benguet

G.R. No. 183137, April 10, 2013

 

Subject: Taxation Law

Principle: Municipal corporations, unlike a sovereign state, have no inherent power of taxation.

 

Facts: Pelizloy, an owner of a resort, questioned the legality of the ordinance and contended that it is not within the local taxing power of Benguet. Pelizloy posits that said amusement tax is an ultra vires act. However, the province claimed that the amusement tax imposed is already provided under the LGC falling under ‘other places of amusement.’

 

Issue: Whether or not provinces are authorized to impose amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs, and tourist spots for being "amusement places" under the LGC.

 

Ruling: No.

Resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places expressly mentioned in Sec. 140 of the LGC. Thus, the determination of whether it is a valid imposition hinges on whether the phrase ‘other places of amusement’ encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots.

 

Section 131 (c) of the LGC already provides a clear definition: "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or performances. It is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be considered venues primarily "where one seeks admission to entertain oneself by seeing or viewing the show or performances".

 

While it is true that they may be venues where people are visually engaged, they are not primarily venues for their proprietors or operators to actively display, stage or present shows and/or performances.

 

Thus, subject amusement tax imposed was declared null and void.

Luzon Drug Corp. v DSWD [GR 199669 April 25, 2017]

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Luzon Drug Corp. v DSWD

[GR 199669 April 25, 2017]

Subject: Taxation Law

Facts:

Southern Luzon Drug Corp’s petition sought to prohibit the implementation of Section 4(a) of Republic Act (R.A.) No. 9257, otherwise known as the "Expanded Senior Citizens Act of 2003" and Section 32 of R.A. No. 9442, which amends the "Magna Carta for Disabled Persons," particularly the granting of 20% discount on the purchase of medicines by senior citizens and persons with disability (PWD), respectively, and treating them as tax deduction, instead of tax credit under the previous law. The claim the is unconstitutional and it impairs their right to earn profit

 

The petitioner is a domestic corporation engaged in the business of drugstore operation in the Philippines while the respondents are government agencies, office and bureau tasked to monitor compliance with R.A. Nos. 9257 and 9442.

 

Issue: Whether or not the questioned law by the petitioner is unconstitutional. (No)

 

Ruling:

Petitioner’s argument the law is confiscatory in the sense that the State takes away a portion of its supposed profits does not hold ground because the subject provisions only affect the petitioner's right to profit, and not earned profits.

 

Unfortunately for the petitioner, the right to profit is not a vested right or an entitlement that has accrued on the person or entity such that its invasion or deprivation warrants compensation. Vested rights are "fixed, unalterable, or irrevocable."

 

In the exercise of police power, "property rights of private individuals are subjected to restraints and burdens in order to secure the general comfort, health, and prosperity of the State." Even then, the State's claim of police power cannot be arbitrary or unreasonable. The proper exercise of the police power requires the concurrence of a lawful subject and a lawful method.

 

More importantly, it is in the exercise of its police power that the Congress enacted R.A. Nos. 9257 and 9442, the laws mandating a 20% discount on purchases of medicines made by senior citizens and PWDs. It is also in further exercise of this power that the legislature opted that the said discount be claimed as tax deduction, rather than tax credit, by covered establishments.

 

The subjects of R.A. Nos. 9257 and 9442, i.e., senior citizens and PWDs, are individuals whose well-being is a recognized public duty. As a public duty, the responsibility for their care devolves upon the concerted efforts of the State, the family and the community.

 

The 20% Sales Discount for Senior Citizens and PWDs is a valid exercise of police power.

After all, the overriding purpose of the exercise of the power is to promote general welfare, public health and safety, among others. It is a measure, which by sheer necessity, the State exercises, even to the point of interfering with personal liberties or property rights in order to advance common good.

 

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Tiu vs. Arriesgado G.R. No. 138060, September 1, 2004

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Tiu vs. Arriesgado 

G.R. No. 138060

September 1, 2004

Subject: Insurance Law

Principle: Where the insurance contract provides for indemnity against liability to third person, such persons can directly sue the insurer, as an exception to the rule on mutuality of contract.

 

FACTS: On March 15, 1987, a truck owned by Condor was travelling along Poblacion, Compostela, Cebu blew one of its rear tires.  The truck driver parked the truck on the right side of the highway, left the rear lights on, and instructed the helper to place spare tire on the road few meters away from the truck to serve as warning device. The driver went to get assistance.

 

Thereafter, D’Rough Riders passenger bus was cruising along the highway in the same direction. Its driver saw the stalled truck 25 meters away but it was too late. The bus rammed on the rear part of the truck resulting in the injury of its passengers, including Arriesgado and his wife, who eventually died from her injuries.

 

Arriesgado filed a complaint for breach of contract of carriage against D’Rough Riders and its driver. For its part, Tiu (owner of D’Rough Riders) filed a third party complaint against its insurer, PPSII, the owner of the truck and its driver. He claimed that PPSII, as insurer, should be held solidarily liable with Tiu. PPSII’s argument: There is a contract of insurance (TPL) but it had already settled the claims of those injured in the incident.

 

The trial court and the CA held in favor of Arriesgado. As to the liability of PPSII, CA held that no evidence was presented against PPSII so it cannot be held liable for Arriesgado’s claim

 

 

ISSUE: In third-party liability insurance, would it be possible for a third party to sue the insurer directly?

 

 

HELD: Yes. This is an exception to the rule on mutuality of contract. Whenever a contract contains stipulation for the benefit of a third person and the moment the third person communicates his assent thereto, the contract becomes binding upon him. The fact that a third person demands fulfillment of the insurance policy may be reasonably construed as an assent on his part to the benefit provided in the policy. This provision arms him with the requisite legal personality to bring an action on the insurance policy.

 

While it is true that where the insurance contract provides for indemnity against liability to third persons, and such persons can directly sue the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held liable in solidum with the insured and/or the other parties found at fault. For the liability of the insurer is based on contract; that of the insured carrier or vehicle owner is based on tort.

 

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Sun Insurance Office Ltd. vs. CA, G.R. No. 92383, July 17, 1992

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Sun Insurance Office Ltd. vs. CA

G.R. No. 92383

July 17, 1992

 SUBJECT: INSURANCE LAW

Principle: Contributory negligence of the accused as to his death is not suicide or willful exposure to needless peril that would excuse the insurer from the payment of claims.

 

FACTS: Felix Lim, Jr. had a life insurance policy with Sun Insurance, with his wife Nerissa Lim, as beneficiary. Two months after its issuance, Lim died of gunshot. His secretary testified that, on the eve of his mother’s birthday, Lim was playing with his handgun, he removed the magazine thereon and playfully pointed that gun at her, and the secretary pushed it aside saying the gun might be loaded. Lim assured her that the gun was empty, he pointed it to his temple, what followed was a fatal explosion. Nerissa filed a claim with Sun Insurance. The latter denied on ground that the cause of Lim’s death was not an accident, i.e. it was a death consequent upon “the insured person attempting to commit suicide or willfully exposing himself to needless peril.”

 

ISSUE: Whether or not Sun Insurance be absolved of liability on ground that Lim willfully exposed himself to needless peril.

 

RULING: No. Suicide and willful exposure to needless peril are in pari materia because they both signify a disregard for one’s life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent.

 

In this case, as the secretary testified, Lim had removed the magazine from the gun and believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so.

 

What bars the insured from recovering from the insurer on account of his own acts is a deliberate exposure to a known peril. While Lim was unquestionably negligent, this negligence does not bar his wife from recovering from proceeds of the policy from the insurer. Contributory negligence is not one of the grounds enumerated in the policy exonerating the insurer from liability.

 

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PHILIPPINE GUARANTY CO., INC. v. CIR GR No. L-22074, April 30, 1965

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PHILIPPINE GUARANTY CO., INC. v. CIR

GR No. L-22074, April 30, 1965

 

 TOPIC: NECESSITY THEORY

Principle: The power to tax is an attribute of sovereignty. It is a power emanating from necessity. 

FACTS: 

The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies.

ISSUE:  Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies, which deprives the government from collecting the tax due from them?

RULING:

No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurer’s exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.

The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.

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DOF OPINION NO. 007-19 (Ruling No. ITAD 048-18)

DOF OPINION NO. 007-19

Subject: Request for Review of Bureau of Internal Revenue International Tax Affairs Divisions Ruling No. ITAD 048-18

Principle: A resident foreign corporation, engaged in trade and business within the Philippines through its personnel for more than 183 days, is liable to pay income taxes for income attributable to the permanent establishment.

FACTS:

RP International Resources Pte. Ltd. (RPIR), a foreign corporation organized and existing under the laws of Singapore, is a specialist recruiter to global telecommunication, media, and technology industries, and provides specialist executive search, contingent, contract and launch and transformations resource solutions. RPIR is not licensed to do business in the Philippines. On the other hand, Amdocs Philippines, Inc. (API) is a domestic corporation organized and existing under the laws of the Philippines. API is an affiliate of Amdocs Singapore Pte. Ltd. (ASPL), a foreign corporation organized and existing under the laws of Singapore. RPIR and ASPL entered into a 2- year Professional Service Agreement (PSA) wherein the former agreed to provide professional services to the latter and its affiliates, including API, (collectively hereinafter referred to as the Amdocs Group). The PSA was renewed several times.

Procurement of experts by the Amdocs Group is done through the submission to RPIR of a "Professional Services Order." Compensation rates, the duration of the assignment, payment instructions, and other terms and conditions of an expert's deployment are embodied in a "Work Order" issued by RPIR. During the life of the PSA between RPIR and ASPL, there were also personnel assigned to API with their respective deployments. Based on the start dates and end dates of each respective expert's Work Order, the aggregate service period in the Philippines by RPIR personnel from 15 December 2015 to 11 June 2018 was 909 days for the duration of the PSA, with each deployment lasting for more than 183 days per expert. 

RPIR, through counsel, Gorriceta Africa Cauton & Saavedra, filed for Tax Treaty Relief Application (TTRA) with the BIR requesting for confirmation that the service fees paid by API to RPIR are exempt from income tax pursuant Article 7 in relation to Article 5 of the Philippines- Singapore Tax Treaty (RP-SG Tax Treaty). However, the TTRA for tax exemption was denied by the BIR in BIR Ruling No. ITAD No. 048-18, reasoning that RPIR carried on its business in the Philippines through a permanent establishment (PE), thereby effectively negating the exemption invoked by RPIR.

The BIR maintains that the performance of services by RPIR employees in the Philippines for more than 183 days, specifically, for 909 days from 2015 to 2018, created a PE therein. Hence, the BIR ruled that the service fees paid by API to RPIR are subject to income tax in the Philippines under paragraph 1, Article 7 of the treaty; specifically, the fees are subject to the rate of 30% under Section 28(B)(1) of the Tax Code. Moreover, the service fees are likewise subject to VAT since the services were rendered in the Philippines under Section 108(A) of the Tax Code. Aggrieved, RPIR filed the instant Request for Review.

ISSUE: Whether or not RPIR is exempt from Philippine taxes under Article 7 of the RP-SG Tax Treaty, if it does not deploy its own employees or other personnel, and not deemed to be maintaining a permanent establishment in the Philippines.

RULING:

No. RPIR carried on its business in the Philippines through a permanent establishment (PE) by furnishing services in the Philippines through its personnel for more than 183 days. 

The Commentaries of the Organization for Economic Cooperation and Development (OECD) Model Tax Convention on Income and on Capital define "personnel'' to refer to "entrepreneur or persons who are in a paid-employment relationship with the enterprise. These personnel include employees and other persons receiving instructions from the enterprise (e.g., dependent agents)."

As such, we agree with the BIR that the services performed by these personnel-experts for more than 183 days in the Philippines created a PE herein. Accordingly, income attributable to that PE is not exempt from Philippine taxation.

We held also that RPIR is engaged in trade and business within the Philippines. Hence, for income tax purposes, it is considered a resident foreign corporation.  Through its personnel, RPIR established a PE in the Philippines thus, doing business therein. Its non-registration with the Securities and Exchange Commission (SEC) does not affect the fact that it is a resident foreign corporation for income tax purposes. The extension of RPIR's service contract (PSA) with ASPL to API and RPIR's act of deploying its personnel to API allowed it to engage in trade and business in the Philippines. Its personnel performed acts or works or exercises functions that are incidental and beneficial to the purpose of RPIR's business. Likewise, the activities or works of RPIR personnel bring profits to RPIR. 

However, in determining the profits of RPIR which will be subjected to income tax, the provisions of the treaty will govern. Article 7 (par. 3) of the RP-SG Treaty provides that: "3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses so incurred, whether included in the State in which the permanent establishment is situated or elsewhere."

Finally, as regards the value added tax aspect of the subject ruling, the same was not raised as an issue by RPIR. Nevertheless, there is no denying that the services were rendered in the Philippines. However, we refer the same to the BIR for proper adjudication as to whether the applicable thresholds were met.

In view of the foregoing, we regret to deny the request for review and hold that RPIR established a permanent establishment in the Philippines thus, income attributable to that permanent establishment is not exempt from Philippine taxation.