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Taxation LAW Cases: GIFT Tax
Taxation LAW Cases: GIFT Tax
act donors tax (c.1) In the case of cash sale, the selling price shall be the
liability since there was no donative intent and,ergo, no consideration per deed of sale.
THE PHILIPPINE AMERICAN LIFE AND GENERAL taxable donation, citing BIR Ruling [DA-(DT-065) 715-09]
5
INSURANCE COMPANY, Petitioner, vs. THE SECRETARY OF dated November 27, 2009; that the shares were sold at their xxxx
FINANCE and THE COMMISSIONER OF INTERNAL actual fair market value and at arms length; that as long as
REVENUE, Respondents. the transaction conducted is at arms lengthsuch that a
(c.1.4) In case the fair market value of the shares of stock
bona fide business arrangement of the dealings is done inthe
sold, bartered, or exchanged is greater than the amount of
ordinary course of businessa sale for less than an adequate
DECISION money and/or fair market value of the property received, the
consideration is not subject to donors tax; and that donors
excess of the fair market value of the shares of stock sold,
tax does not apply to saleof shares sold in an open bidding
VELASCO, JR., J.: bartered or exchanged overthe amount of money and the fair
process.
market value of the property, if any, received as consideration
shall be deemed a gift subject to the donorstax under Section
Nature of the Case On January 4, 2012, however, respondent Commissioner on 100 of the Tax Code, as amended.
Internal Revenue (Commissioner) denied Philamlifes request
Before the Court is a Petition for Review on Certiorari under through BIR Ruling No. 015-12. As determined by the
xxxx
Rule 45 of the Rules of Court assailing and seeking the Commissioner, the selling price of the shares thus sold was
reversal of the Resolutions of the Court of Appeals (CA) in CA- lower than their book value based on the financial statements
G.R. SP No. 127984, dated May 23, 20131 and January 21, of PhilamCare as of the end of 2008. 6 As such, the (c.2) Definition of fair market valueof Shares of Stock. For
2014, which dismissed outright the petitioner's appeal from Commisioner held, donors tax became imposable on the purposes of this Section, fair market value of the share of
the Secretary of Finance's review of BIR Ruling No. 015-12 2 for price difference pursuant to Sec. 100 of the National Internal stock sold shall be:
lack of jurisdiction. Revenue Code (NIRC), viz:
xxxx
The Facts SEC. 100. Transfer for Less Than Adequate and full
Consideration.- Where property, other than real property (c.2.2) In the case of shares of stock not listed and traded in
referred to in Section 24(D), is transferred for less than an the local stock exchanges, the book value of the shares of
Petitioner The Philippine American Life and General Insurance
adequate and full consideration in money or moneys worth, stock as shown in the financial statements duly certified by an
Company (Philamlife) used to own 498,590 Class A shares in
then the amount by which the fair market value of the independent certified public accountant nearest to the date of
Philam Care Health Systems, Inc. (PhilamCare), representing
property exceeded the value of the consideration shall, for the sale shall be the fair market value.
49.89% of the latter's outstanding capital stock. In 2009,
purpose of the tax imposed by this Chapter, be deemed a gift,
petitioner, in a bid to divest itself of its interests in the health
and shall be included in computing the amount of gifts made
maintenance organization industry, offered to sell its In view of the foregoing, the Commissioner ruled that the
during the calendar year.
shareholdings in PhilamCare through competitive bidding. difference between the book value and the selling price in the
Thus, on September 24, 2009, petitioner's Class A shares sales transaction is taxable donation subject to a 30% donors
were sold for USD 2,190,000, or PhP 104,259,330 based on The afore-quoted provision, the Commissioner added, is tax under Section 99(B) of the NIRC. 7Respondent
the prevailing exchange rate at the time of the sale, to STI implemented by Revenue Regulation 6-2008 (RR 6-2008), Commissioner likewise held that BIR Ruling [DA-(DT-065) 715-
Investments, Inc., who emerged as the highest bidder.3 which provides: 09], on which petitioner anchored its claim, has already been
revoked by Revenue Memorandum Circular (RMC) No. 25-
8
After the sale was completed and the necessary documentary SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK 2011.
stamp and capital gains taxes were paid, Philamlife filed an NOT TRADED THROUGH A LOCAL STOCK EXCHANGE
application for a certificate authorizing registration/tax PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7) Aggrieved, petitioner requested respondent Secretary of
clearance with the Bureau of Internal Revenue (BIR) Large (c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED. Finance (Secretary) to review BIR Ruling No. 015-12, but to no
Taxpayers Service Division to facilitate the transfer of the avail. For on November 26, 2012, respondent Secretary
shares. Months later, petitioner was informed that it needed x x x x affirmed the Commissioners assailed ruling in its entirety.9
to secure a BIR ruling in connection with its application due to
potential donors tax liability. In compliance, petitioner, on Ruling of the Court of Appeals
(c) Determination of Amount and Recognition of Gain or Loss
January 4, 2012, requested a ruling4 to confirm that the sale
was not subject to donors tax, pointing out, in its request, the
To recapitulate, three different, if not conflicting, positions as a. Exclusive appellate jurisdiction to review by appeal, as
b. Respondents contentions indicated below have been advanced by the parties and by herein provided:
the CA as the proper remedy open for assailing respondents
Before the CA, respondents countered petitioners procedural rulings: 1. Decisions of the Commissioner of Internal Revenue in cases
arguments by claiming that even assuming arguendo that the involving disputed assessments, refunds of internal revenue
CTA does not have jurisdiction over the case, Philamlife, 1. Petitioners: The ruling of the Commissioner is taxes, fees or other charges, penalties in relation thereto, or
nevertheless,committed a fatal error when it failed to appeal subject to review by the Secretary under Sec. 4 of other matters arising under the National Internal Revenue or
the Secretary of Finances ruling to the Office of the President the NIRC, and that of the Secretary to the CA via Rule other laws administered by the Bureau of Internal Revenue.
(OP). As made apparent by the rules, the Department of 43; (emphasis supplied)
Finance is not among the agencies and quasi-judicial bodies
enumerated under Sec. 1, Rule 43 of the Rules of Court whose
2. Respondents: The ruling of the Commissioner is Even though the provision suggests that it only covers rulings
decisions and rulings are appealable through a petition for
15 subject to review by the Secretary under Sec. 4 of of the Commissioner, We hold that it is, nonetheless, sufficient
review. This is in stark contrast to the OPs specific mention
the NIRC, and that of the Secretary to the Office of enough to include appeals from the Secretarys review under
under the same provision, so respondents pointed out.
the President before appealing to the CA via a Rule Sec. 4 of the NIRC.
43 petition; and
To further reinforce their argument, respondents cite the
It is axiomatic that laws should be given a reasonable
Presidents power of review emanating from his power of
3. CA: The ruling of the Commissioner is subject to interpretation which does not defeat the very purpose for
control as enshrined under Sec. 17 of Article VII of the
review by the CTA. which they were passed.17 Courts should not follow the letter
Constitution, which reads:
of a statute when to do so would depart from the true intent
We now resolve. of the legislature or would otherwise yield conclusions
Section 17.The President shall have control of all the inconsistent with the purpose of the act. 18 This Court has, in
executive departments, bureaus, and offices. He shall ensure many cases involving the construction of statutes, cautioned
that the laws be faithfully executed. Preliminarily, it bears stressing that there is no dispute that
against narrowly interpreting a statute as to defeat the
what is involved herein is the respondent Commissioners
purpose of the legislator, and rejected the literal
exercise of power under the first paragraph of Sec. 4 of the
The nature and extent of the Presidents constitutionally interpretation of statutes if todo so would lead to unjust or
NIRCthe power to interpret tax laws. This, in fact, was
granted power of control have beendefined in a plethora of absurd results.19
16 recognized by the appellate court itself, but erroneously held
cases, most recently in Elma v. Jacobi, wherein it was held
that her action in the exercise of such power is appealable
that:
directly to the CTA. As correctly pointed out by petitioner, Sec. Indeed, to leave undetermined the mode of appeal from the
4 of the NIRC readily provides that the Commissioners power Secretary of Finance would be an injustice to taxpayers
x x x This power of control, which even Congress cannot limit, to interpret the provisions of this Code and other tax laws is prejudiced by his adverse rulings. To remedy this situation,
let alone withdraw, means the power of the Chief Executive to subject to review by the Secretary of Finance. The issue that Weimply from the purpose of RA 1125 and its amendatory
review, alter, modify, nullify, or set aside what a subordinate, now arises is thiswhere does one seek immediate recourse laws that the CTA is the proper forum with which to institute
e.g., members of the Cabinet and heads of line agencies, had from the adverse ruling of the Secretary of Finance in its the appeal. This is not, and should not, in any way, be taken
done in the performance of their duties and to substitute the exercise of its power of review under Sec. 4? as a derogation of the power of the Office of President but
judgment of the former for that of the latter. merely as recognition that matters calling for technical
knowledge should be handled by the agency or quasi-judicial
Admittedly, there is no provision in law that expressly
In their Comment on the instant petition, however, provides where exactly the ruling of the Secretary of Finance body with specialization over the controversy. As the
respondents asseverate that the CA did not err in its holding under the adverted NIRC provision is appealable to. However, specialized quasi-judicial agency mandated to adjudicate tax,
respecting the CTAs jurisdiction over the controversy. customs, and assessment cases, there can be no other court
We find that Sec. 7(a)(1) of RA 1125, as amended, addresses
of appellate jurisdiction that can decide the issues raised
the seeming gap in the law asit vests the CTA, albeit
inthe CA petition, which involves the tax treatment of the
The Courts Ruling impliedly, with jurisdiction over the CA petition as "other