Henares v. St. Paul College of Makati G.R. No. 215383 (Resolution) March 8, 2017

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Jacinto-Henares v. St. Paul College of Makati

G.R. No. 215383 (Resolution)

March 8, 2017

 

Principle: Non-stock, non-profit educational institutions are constitutionally exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. Provided that; (1) The school must be non-stock and non-profit; and (2) The income is actually, directly and exclusively used for educational purposes. There are no other conditions and limitations.

 

Facts: Petitioner Kim S. Henares, acting in her capacity as then CIR, issued an RMO - Prescribing the Policies and Guidelines in the Issuance of Tax Exemption Ruling. RMO No. 20-2013 adds a prerequisite to the requirement under Department of Finance Order No. 137-87, and makes failure to file an annual information return a ground for a nonstock, nonprofit educational institution to "automatically lose its income tax-exempt status." Applicants must submit an application for tax exemption to the BIR subject to approval by CIR in the form of a Tax Exemption Ruling (TER) which is valid for a period of three years and subject to renewal."

 

Respondent St. Paul College of Makati SPCM), a non-stock, non-profit educational institution filed action to declare RMO as unconstitutional. SPCM alleged that "RMO No. 20-2013 imposes as a prerequisite to the enjoyment by non-stock, non-profit educational institutions of the privilege of tax exemption under Sec. 4(3) of Article XIV of the Constitution both a registration and approval requirement.

 

Issue: Whether or not the RMO No. 20-2013 is unconstitutional.

 

Ruling: Petition denied; issue has become moot and academic.  The present CIR Caesar R. Dulay issued RMO No. 44-2016; this Order is being issued to exclude nonstock, non-profit educational institutions from the coverage of RMO 20-2013.

 

Non-stock, non-profit educational institutions are constitutionally exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. This constitutional exemption gives the non-stock, non-profit educational institutions a distinct character.

 

And for the constitutional exemption to be enjoyed, jurisprudence and tax rulings affirm the doctrinal rule that there are only two requisites: (1) The school must be non-stock and non-profit; and (2) The income is actually, directly and exclusively used for educational purposes. There are no other conditions and limitations.

 

In this light, the constitutional conferral of tax exemption upon non-stock and non-profit educational institutions should not be implemented or interpreted in such a manner that will defeat or diminish the intent and language of the Constitution.

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CIR v. St. Luke’s Medical Center (G.R. No. 203514, February 13, 2017)

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CIR v. St. Luke’s Medical Center

 G.R. No. 203514, February 13, 2017

 

Income of whatever kind and character' of a charitable institution 'from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax. ADE Rules is the test of exemption.

 

Facts: St. Luke's Medical Center, Inc (SLMC)is a non-stock and non-profit charitable institution earning revenues from services to paying patients. SLMC received a tax payment Assessment from the BIR.  Based on the assessment the respondent SLMC has a deficiency income tax.

 

SMLC protested. SLMC claimed that as a nonstock, non-profit charitable and social welfare organization under Section 30 (E) and (G) of the 1997 NIRC, as amended, it is exempt from paying income tax. However, SLMC received CIR’s final decision on the disputed Assessment increasing the deficiency income for the taxable years of 2005 and 2006.

 

Issue: Whether or not SLMC is liable for income tax under Section 27 (B) of the 1997 NIRC insofar as its revenues from paying patients are concerned.

 

Ruling: St. Luke's is organized as a non-stock and non-profit charitable institution.

However, this does not automatically exempt St. Luke's from paying taxes. St. Luke’s is a corporation that is not operated exclusively for charitable or social welfare purposes in so far as its revenues from paying patients are concerned.

 

A charitable institution is not ipso facto tax exempt. To be exempt from real property taxes, Article VI of the Constitution requires that a charitable institution use the property ‘actually, directly and exclusively’ for charitable purposes.

 

To be exempt from income taxes, Section 30(e) of the NIRC requires that a charitable institution must be organized and operated exclusively for charitable purposes.

The said provision qualifies the words ‘organized and operated exclusively’ which would mean that if a tax exempt charitable institution conducts any activity for profit such activity is not tax exempt even as it's not-for-profit activities remain tax exempt. It likewise qualifies the requirement that the civic organization must be operated exclusively for the promotion of social welfare.

 

But in case an exempt institution under Section 30 (E) or (G) of the Tax Code earns income from its for-profit activities, it will not lose its tax exemption. However, its income from for profit activities will be subject to income tax at the preferential 10% rate pursuant to Section 27 (B) thereof.

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Mitsubishi Corporation-Manila Branch v. CIR, G.R. No. 175772, June 5, 2017

 

Mitsubishi Corporation-Manila Branch v. CIR

G.R. No. 175772, June 5, 2017

 

 Subject: Taxation Law

Principle: Assumption of taxes differs from Exemption of taxes. The constitutional prohibition on the grant of tax exemptions without the concurrence of the senate applies only to tax treaty, but not applicable in cases of tax assumption which is a form of executive agreement.

 

Facts: On June 11, 1987, the governments of Japan and the Philippines executed an exchange of notes where Japan agreed to extend a loan of Forty Billion Four Hundred Million Japanese Yen to the Philippines through the Overseas Economic Cooperation Fund. This was for the implementation of the Calaca II Coal-fired thermal power plant project. Under the agreement between Japan and the PH, it was stated that the PH government would assume all taxes imposed by the Philippines on Japanese contractors engaged in the project.

 

In 1991, the National Power Corporation entered into a contract with Mitsubishi for engineering, supply, construction, installation, and testing in relation to the

Project. The NPC undertook to shoulder all forms of taxes which are directly imposable under the contract. In 1998, Mitsubishi filed its Income Tax Return, including the income tax from the CALACA II Project and withhold the related Branch Profit Tax Remittance.

 

In 2000, Mitsubishi claims that the tax paid in relation to CALACA project was erroneously paid, and thereby claiming for refund, banking on the argument that it was tax exempt in relation to the Japan-Philippine Agreement.

 

Issue: Whether or not the petitioner is entitled to the refund.

 

Ruling: YES. The Supreme Court ruled that Mitsubishi is indeed entitled to a refund.

 

On the issue of the lack of concurrence by the senate as required by the constitution, the Supreme Court pointed out that the exchange of notes between the Philippine Government and Japan was an executive agreement which is binding on the state even without the concurrence of the senate. Furthermore, what is provided for in the exchange of notes is a tax assumption and not a tax exemption.

 

The Court ruled that the petitioner is indeed entitled to a refund of the taxes paid due to the fact that it was explicitly worded in the agreement between Japan and the Philippines that all fiscal levies or taxes imposed in the Philippines on Japanese firms and nationals operating as suppliers, contractors, or consultants and/or in connection with any income that may accrue from the supply of products of Japan and services of Japanese National to be provided under the OECF loan.

 

The taxes paid by the petitioner clearly fall within the ambit of the tax assumption provision under the Exchange of Notes as well as the Contract between the petitioner and the NPC. Hence, the Philippine Government through the NPC should shoulder the payment of the same.

 

It is the CIR who has to refund the taxes however, they can properly collect the subject taxes from the NPC since the NPC properly assumed the tax liability of Mitsubishi.

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PHILIPPINE HEART CENTER vs. LGU OF QUEZON CITY, G.R. No. 225409, March 11, 2020

 

PHILIPPINE HEART CENTER vs. LGU OF QUEZON CITY

G.R. No. 225409, March 11, 2020

 

Subject: Taxation Law

Principle: Real properties owned by the Republic, whether titled in the name of the Republic itself or in the name of agencies or instrumentalities of the national government, are exempt from real property tax

 

Facts: In 1975, the PHC established under PD 173 as a specialty hospital mandated to provide exert comprehensive cardiovascular care to the general public, especially the poor and less fortunate in life.

 

Respondent Quezon City Government issued 3 final Notices of Delinquency for unpaid real property taxes pertaining to the 11 properties of the PHC. The Quezon City Treasurer issued a Warrant of Levy for the PHC's failure to pay real property taxes despite due notice. On July 7, 2011, after due publication, all the properties were sold to the Quezon City Government, the lone bidder during the public auction.

 

PHC asserted that it was exempt from taxes, fees and charges imposed by a local government unit.

 

 

Issue: WON the PHC exempt from paying real property taxes on its eleven (11) properties in Quezon City.

 

Ruling: Yes. 11 properties were not anymore exempt since its beneficial use were transfer to private taxable persons. The beneficial owner is the person liable to pay the RPT to the LGU of Quezon, not the PHC since it is government instrumentality.

 

SC ruled that PHC is exempted from the real property taxes of the Quezon City Government and the public auction was considered void. The PHC is a government instrumentality with corporate powers exempt from local taxes. An agency will be classified as a government instrumentality vested with corporate powers when the following elements concur: a) it performs governmental functions, and b) it enjoys operational autonomy which PHC passes these twin criteria. The high court said the properties of the PHC are considered public dominion devoted to public use and welfare, thus exempt from real property taxes and levies.

 

The properties of the PHC are properties of public dominion devoted to public use and welfare provided in Article 420 of the Civil Code and, therefore, exempt from real property taxes and levy, without prejudice to the liability of taxable persons to whom the beneficial use of any of these properties has been granted.

 

 However, Supreme Court agreed with the position of the Quezon City government that the 11 properties of the PHC in the city are subject to real property tax since the PHC granted the beneficial use of these properties to commercial establishments such as Globe Telecom Inc., Jollibee Corporation and several others. PHC's properties which are leased to private individuals are no longer covered by the tax exemption, the private individuals are liable to pay the RPT tax.

 

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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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