1. Philippine American Life and General Insurance vs.

Secretary of Finance

Philam Life sold its shares in Philam Care Health Systems to STI Investments Inc., the highest bidder.
After the sale was completed, Philam life applied for a tax clearance and was informed by BIR that there
is a need to secure a BIR Ruling due to a potential donor’s tax liability on the sold shares.

ISSUE on DONOR’S TAX:

W/N the sales of shares sold for less than an adequate consideration be subject to donor’s tax?

PETITIONER’S CONTENTION:
The transaction cannot attract donor’s tax liability since there was no donative intent and, ergo, no
taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009; that the shares
were sold at their actual fair market value and at arm’s length; that as long as the transaction conducted
is at arm’s length––such that a bonafide business arrangement of the dealings is done in the ordinary
course of business––a sale for less than an adequate consideration is not subject to donor’s tax; and that
donor’s tax does not apply to sale of shares sold in an open bidding process.

CIR DENYING THE REQUEST:

Through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of the shares
thus sold was lower than their book value based on the financial statements of Philam Care as of the end
of 2008. The Commissioner held donor’s tax became imposable on the price difference pursuant to Sec.
100 of the National Internal Revenue Code (NIRC):

SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where property, other than real
property referred to in Section 24(D), is transferred for less than an adequate and full consideration in
money or money’s worth, then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift,
and shall be included in computing the amount of gifts made during the calendar year.

RULING:
The price difference is subject to donor’s tax.

Petitioner’s substantive arguments are unavailing. The absence of donative intent, if that be the case,
does not exempt the sales of stock transaction from donor’s tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.

Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters
for determining the “fair market value” of a sale of stocks. Such issuance was made pursuant to the
Commissioner’s power to interpret tax laws and to promulgate rules and regulations for their
implementation.

Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was being
applied retroactively in contravention to Sec. 246 of the NIRC.26 Instead, it merely called for the strict
application of Sec. 100, which was already in force the moment the NIRC was enacted.

ISSUE on TAX REMEDIES:

The issue that now arises is this––where does one seek immediate recourse from the adverse ruling of
the Secretary of Finance in its exercise of its power of review under Sec. 4?
Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a taxable donation
under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is
merely questioned incidentally since it was used by the CIR as bases for its unfavourable opinion.
Clearly, the Petition involves an issue on the taxability of the transaction rather than a direct attack on
the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition
properly pertains to the CTA under Sec. 7 of RA 9282.

As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now at a
quandary on what mode of appeal should be taken, to which court or agency it should be filed, and
which case law should be followed.

Petitioner’s above submission is specious (erroneous).

CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or
regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the
propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the
revenue regulation or revenue memorandum circular on which the said assessment is based.

Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only
contested the applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the
validity of Sec. 7(c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the
controversy, contrary to petitioner’s arguments.
2. Commissioner of Internal Revenue vs. Court of Tax Appeals and Petron Corporation
(2015)

On June 29, 2012, petitioner Commissioner of Internal Revenue (CIR) issued a Letter interpreting
Section 148(e) of the National Internal Revenue Code (NIRC) and thereby, opining that "alkylate, which
is a product of distillation similar to naphtha, is subject to tax." In implementation thereof, the
Commissioner of Customs (COC) issued Customs Memorandum Circular (CMC) No. 164-2012. Not
long after, and in compliance with CMC No. 164-2012, the Collector of Customs assessed excise tax on
Petron's importation of alkylate.

Petron filed a petition for review before the CTA, contesting the allegedly erroneous classification of
alkylate and the resultant imposition of excise tax arising from the CIR's interpretation of Section 148(e)
of the NIRC.

On February 13, 2013, the CTA issued the first assailed Resolution, reversing its initial dismissal of
Petron's petition for review and giving due course thereto. It explained that the controversy was not
essentially about the constitutionality or legality of CMC No. 164-2012 but a question on the propriety
of the interpretation of Section 148(e) of the NIRC in reference to the tax treatment of Petron's alkylate
importation, which is within the CTA's jurisdiction to review. The CTA also held that the substantial
and grave damage and injury that would be suffered from the threatened collection of excise tax
warranted the non-exhaustion of administrative remedies and justified Petron's immediate resort to
judicial action.

The CIR filed a motion for reconsideration, which the CTA denied in the second assailed Resolution
dated May 8, 2013. Subsequently, the CIR elevated the matter to the Court through a petition for
certiorari, alleging that the CTA had no jurisdiction to take cognizance of a case involving the CIR's
exercise of interpretative or
quasi-legislative functions and that there was yet no final decision by the COC that was properly
appealable to the CTA.

In the July 15, 2015 Decision, the Court upheld the CIR's position that the CTA could not take
cognizance of the case because the latter's jurisdiction to resolve tax disputes excluded the power to rule
on the constitutionality or validity of a law, rule or regulation and that, in any case, it was premature to
elevate a customs collector's assessment without a prior protest and an appeal to the COC. Accordingly,
the Court ordered the dismissal of Petron's petition for review filed before the CTA.

Dissatisfied, Petron filed a motion for reconsideration dated October 5, 2015.

3. Commissioner of Internal Revenue vs. Court of Tax Appeals and Petron Corporation
(2018)

Issue: Whether or not the Court's July 15, 2015 Decision, which ordered the dismissal of Petron's
petition for review before the CTA on the grounds of lack of jurisdiction and prematurity, should be
reconsidered.

Ruling: In conjunction with the Banco De Oro ruling that the CTA has jurisdiction to resolve all tax
matters (which includes the validity of the CIR's interpretation and consequent imposition of excise tax
on alkylate), the Court finds it proper to reconsider its decision:

Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local
taxes, appeals from the decisions of quasi-judicial agencies (Commissioner of
Internal Revenue, Commissioner of Customs, Secretary of Finance, Central Board
of Assessment Appeals, Secretary of Trade and Industry) on tax-related problems
must be brought exclusively to the Court of Tax Appeals.

In other words, within the judicial system, the law intends the Court of Tax
Appeals to have exclusive jurisdiction to resolve all tax problems. Petitions for
writs of certiorari against the acts and omissions of the said quasi-judicial
agencies should thus be filed before the Court of Tax Appeals.

Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 129
provides an exception to the original jurisdiction of the Regional Trial Courts over
actions questioning the constitutionality or validity of tax laws or regulations.
Except for local tax cases, actions directly challenging the constitutionality or
validity of a tax law or regulation or administrative issuance may be filed directly
before the Court of Tax Appeals.

Furthermore, with respect to administrative issuances (revenue orders, revenue

memorandum circulars, or rulings), these are issued by the Commissioner under
its power to make rulings or opinions in connection with the implementation of
the provisions of internal revenue laws. Tax rulings, on the other hand, are official
positions of the Bureau on inquiries of taxpayers who request clarification on
certain provisions of the National Internal Revenue Code, other tax laws, or their
implementing regulations. Hence, the determination of the validity of these
issuances clearly falls within the exclusive appellate jurisdiction of the Court of
Tax Appeals under Section 7(l) of Republic Act No. 1125, as amended, subject to
prior review by the Secretary of Finance, as required under Republic Act No.
8424.
4. Banco de Oro, et al. vs. Republic of the Philippines

FACTS
The Bureau of Treasury (BTr) in a notice announced the auction of 10-year Zero-Coupon
Bonds denominated as the Poverty Eradication and Alleviation Certificates or the PEACe
Bonds on October 16, 2001, which the BTr states shall not be subject to 20% final
withholding tax since the issue is limited to 19 buyers/lenders.

At the auction, Rizal Commercial Banking Corporation (RCBC) participated on behalf of

Caucus of Development NGO Networks (CODE-NGO) and won the bid.

Thus, bonds were issued to RCBC, who, as appointed issue manager and lead underwriter
of CODE-NGO, then sold and distributed said government bonds to petitioner-banks.

On October 7, 2011, barely 11 days before maturity of the PEACe Bonds, the BIR issued
the following:

BIR Ruling No. 370-201119 declaring that the PEACe Bonds, being deposit substitutes,
were subject to 20% final withholding tax. Under this, DOF directed BTr to withhold
20% final tax from the face value of the PEACe Bonds. BIR Ruling No. DA 378-201157
clarified that the final withholding tax should be imposed and withheld not only on
RCBC/CODE-NGO but also on all subsequent holders of the Bonds.

Banco de Oro, et al. thus filed a petition for Certiorari, Prohibition and Mandamus under
Rule 65 to the Supreme Court contending the assailed 2011 BIR Ruling, with urgent
application of TRO and/or writ of Preliminary Injunction.

SC then issued a TRO enjoining the implementation of the BIR ruling, subject to the
condition that 20% FWT be delivered to the banks to be placed in escrow. SC Decision
promulgated January 13, 2015, SC granted petition and ruled that the number of
lenders/investors at every transaction determines whether a debt instrument is a deposit
substitute subject to 20% FWT. When at any transaction, funds are simultaneously
obtained from 20 or more lenders/investors, there is deemed to be public borrowing and
bonds are deemed deposit substitutes. Hence, seller is required to withhold 20% FWT on
the imputed interest income from the bonds.

The two BIR Rulings are void for disregarding the 20-lender rule provided in Section 22
(Y) of the Tax Code. BTr reprimanded for its continued retention of the amount
corresponding to 20% FWT. Separate Motions for Reconsideration and clarification were
filed both by BDO, et al and the Republic, et al.

ISSUES

1. Does CTA have jurisdiction to determine the constitutionality or validity of tax laws,
rules and regulations, and other administrative issuances of CIR?

2. May the 20-lender rule apply to PEACe Bonds?

3. Assuming the PEACe Bonds are considered “deposit substitutes,” whether

government or the Bureau of Internal Revenue is estopped from imposing and/or
collecting the 20% final withholding tax from the face value of these Bonds?
4. Whether BTr is liable to pay 6% legal interest rate?

RULING

#1
YES. CTA has jurisdiction and may take cognizance of cases directly challenging
constitutionality or validity of a tax law, regulation or administrative issuance such as
revenue order, revenue memorandum circular, and ruling.

RA 9282: appeals from the decisions of quasi-judicial agencies on tax-related problems

must be brought exclusively to the CTA

#2
YES. The 20-lender rule may apply to PEACe Bonds, depending on the number of
lenders “at any one time”

The definition of deposit substitutes in Section 22(Y) specifically defined “public” to

mean “twenty (20) or more individual or corporate lenders at any one time.” Hence, if
there are 20 or more lenders, the debt instrument is considered a deposit substitute which
is subject to the 20% FWT.

“The reckoning of the phrase “20 or more lenders” should be at the time when the
petitioner-intervenor RCBC Capital sold the PEACe bonds to investors. Should the
number of investor to whom petitioner-intervenor RCBC Capital distributes the PEACe
bonds, therefore, be found to be 20 or more, the PEACe Bonds are considered deposit
substitutes subject to 20% final withholding tax. Petitioner-intervenors RCBC/CODE-
NGO and RCBC Capital, as well as the final bondholders who have recourse to
government upon maturity are liable to pay the 20% final withholding tax.”

#3
YES. The Bureau of Internal Revenue is estopped from imposing and/or collecting the
20% final withholding tax from the face value of these Bonds

The Supreme Court interpretation in its January 2015 decision of the phrase “at any one
time” to determine the phrase “20 or more lenders” to include both the primary and
secondary market cannot be applied to the PEACe Bonds and should be applied
prospectively.

RCBC and the rest of the investors relied in good faith on the BIR Rulings which provide
that PEACe Bonds are not treated as deposit substitutes and are subject to the 20% final
withholding tax.

#4
YES. BTr may be held liable.

The BTr made no effort to release the amount corresponding to the 20% FWT which is
an utter disregard and defiance of the order of the Court

BTr is ordered to immediately release and pay the bondholders the amount of
P4,966,207,796.41, representing the 20% final withholding tax on the PEACe Bonds,
with legal interest of 6% per annum from October 19, 2011 until full payment.
5. Clark Investors and Locators Association vs. Secretary of Finance

Facts:

Clark Investors and Locators Association (petitioners) assail the validity of RR 2-

2012 via petition for certiorari (Rule 65) promulgated by the Secretary of Finance
upon the recommendation of the CIR. RR 2-2012 imposes VAT, and excise tax on
the importation of petroleum and petroleum products from abroad into the Freeport or
Economic Zones (former Clark and Subic Military Conservations). By virtue of RA
7227, the said military conservations were converted into Freeport or Economic
zones. RA 7227 provided that the zone shall be operated and managed as a separate
customs territory, therefore exempt from VAT, and in lieu of national and local taxes,
all businesses and enterprises operating within the Subic Special Economic Zone
shall pay a preferential gross income tax rate of 5%. The said provisions were
extended to the Clark Economic Zone. It is also exempt from the payment of all taxes
and duties on the importation of raw materials, capital and equipment.

Thus, the petitioners assailed the validity of RR 2-2012. It argues that by imposing
the VAT and excise tax on the importation of petroleum and petroleum products from
abroad and into the Freeport or Economic Zones, RR 2-2012 unilaterally revoked the
tax exemption granted by RA No. 7227 and RA No. 9400 to the businesses and
enterprises operating within the Subic Special Economic Zone and Clark Freeport
Zone.

The Respondents however attacked the remedy resorted to by the petitioners.

According to respondents, Certiorari (via Rule 65) was not the proper remedy
because: (a) RR 2-2012 was issued by the respondents in the exercise of quasi-
legislative powers, not quasi- judicial powers; (b) violated the doctrine of hierarchy of
courts. On the merits, it argued that it did not unilaterally revoke the law because Sec.
3 of the RR provides for tax refund, upon sufficient proof that the imported petroleum
were used within the zones.

Issues:

1. Whether a Special Civil Action via Certiorari under Rule 65 was the proper
remedy.
2. Whether or not RR 2-2012 is valid.

Ruling:

The petition for Certiorari under Rule 65 was NOT the proper remedy.

Firstly, respondents did not act in any judicial or quasi-judicial capacity. A petition
for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as amended, is a
special civil action that may be invoked only against a tribunal, board, or officer
exercising judicial or quasi-judicial functions. For a special civil action for certiorari
to prosper, the following requisites must concur: (1) it must be directed against a
tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) the
tribunal, board, or officer must have acted without or in excess of jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is
no appeal or any plain, speedy, and adequate remedy in the ordinary course of law.
A respondent is said to be exercising judicial function where he has the power to
determine what the law is and what the legal rights of the parties are, and then
undertakes to determine these questions and adjudicate upon the rights of the
parties.2Quasi-judicial function, on the other hand, is "a term which applies to the
action, discretion, etc., of public administrative officers or bodies x x x required to
investigate facts, or ascertain the existence of facts, hold hearings, and draw
conclusions from them, as a basis for their official action and to exercise discretion of
a judicial nature."

RR 2-2012 was issued in the exercise of Quasi- Legislative or Rule- Making Powers

Respondents do not fall within the ambit of a tribunal, board, or officer exercising
judicial or quasi-judicial functions. They issued RR 2-2012 in the exercise of their
quasi-legislative or rule-making powers, and not judicial or quasi-judicial functions.
Verily, respondents did not adjudicate or determine the rights of the parties. In order
to determine whether a Revenue Regulation is quasi-legislative in nature, we must
examine the legal basis of the Secretary of Finance in the issuance thereof. In BPI
Leasing Corporation v. Court of Appeals,5 we ruled that Revenue Regulation 19-86
was quasi-legislative in nature because it was issued by the Secretary of Finance in
the exercise of his rule-making powers under Section 244 of the National Internal
Revenue Code (NIRC). Similarly, in the case at bar, RR 2-2012 was also issued by
the Secretary of Finance based on Section 244 of the NIRC.
The proper remedy is a Petition for Declaratory Relief

While this case is styled as a petition for certiorari, there is, however, no denying the
fact that, in essence, it seeks the declaration by this Court of the unconstitutionality
and illegality of the questioned rule, thus partaking the nature, in reality, of one for
declaratory relief over which this Court has only appellate, not original jurisdiction.

Accordingly, this petition must fail because this Court does not have original
jurisdiction over a petition for declaratory relief even if only questions of law are
involved.8 The special civil action of declaratory relief falls under the exclusive
jurisdiction of the Regional Trial Courts.9 The Rules of Court is explicit that such
action shall be brought before the appropriate Regional Trial Court.

The petition violated the Doctrine of Hierarchy of Courts

This Court's original jurisdiction to issue writs of certiorari is not exclusive. It is

shared by this Court with Regional Trial Courts and with the Court of Appeals. This
concurrence of jurisdiction is not, however, to be taken as according to parties
seeking any of the writs an absolute, unrestrained freedom of choice of the court to
which application therefor will be directed. There is after all a hierarchy of courts.
That hierarchy is determinative of the venue of appeals, and also serves as a general
determinant of the appropriate forum for petitions for the extraordinary writs. A
becoming regard for that judicial hierarchy most certainly indicates that petitions for
the issuance of extraordinary writs against first level ("inferior") courts should be
filed with the Regional Trial Court, and those against the latter, with the Court of
Appeals.

A direct invocation of the Supreme Court's original jurisdiction to issue these writs
should be allowed only when there are special and important reasons therefor, clearly
and specifically set out in the petition. This is [an] established policy. It is a policy
necessary to prevent inordinate demands upon the Court's time and attention which
are better devoted to those matters within its exclusive jurisdiction, and to prevent
further over-crowding of the Court's docket.