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Case Digest

This document contains a summary of 3 tax law cases: 1. Republic vs. Bishop Arigo - The Supreme Court ruled that the province of Palawan is not entitled to proceeds from an offshore natural gas project, as the project site is outside its territorial jurisdiction. 2. CIR vs. J.P. Morgan Chase Bank - The Supreme Court ruled that payments made by J.P. Morgan to a third party for facility rental were subject to tax, as the facilities provided were outside the third party's registered PEZA activities. 3. CIR vs. Jerry Ocier - The Supreme Court ruled that the transfer of shares, even under a stock loan agreement, constituted a "disposition" subject to

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444 views

Case Digest

This document contains a summary of 3 tax law cases: 1. Republic vs. Bishop Arigo - The Supreme Court ruled that the province of Palawan is not entitled to proceeds from an offshore natural gas project, as the project site is outside its territorial jurisdiction. 2. CIR vs. J.P. Morgan Chase Bank - The Supreme Court ruled that payments made by J.P. Morgan to a third party for facility rental were subject to tax, as the facilities provided were outside the third party's registered PEZA activities. 3. CIR vs. Jerry Ocier - The Supreme Court ruled that the transfer of shares, even under a stock loan agreement, constituted a "disposition" subject to

Uploaded by

Gabriel Jhick Saliwan
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© © All Rights Reserved
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TANSIONGCO, HANNAH THERESE S.

Taxation Law Review


Monday 5:30-8:30pm

Cases: 1. Republic vs. Bishop Arigo, et al


G.R. No. 170867 Dec. 4, 2018
2. CIR vs. J.P. Morgan Chase Bank
GR. No. 210528
3. CIR vs. Jerry Ocier
G.R. No. 192023

Case Digests:

1. REPUBLIC OF THE PHILIPPINES vs. BISHOP ARIGO et.al


G.R. No. 170867 Dec. 4, 2018

FACTS:

The government through the Department of Energy entered into a service


contract with Shell Philippines and Occidental Phils. Inc as exclusive contractors for the
production sharing of petroleum operations in the area of Camago-Malampaya located
in the Province of Palawan.
The exploration includes the drilling of the area’s natural gas reservoir about 80
kilometers from the main island of Palawan and another 30 kilometers from the
platform. The service contract provides that in the production sharing, 60% from the net
proceeds of the sale of the petroleum will go to the national government and the rest of
the remaining 40% of the net profits will go to both Shell Philippines and Occidental
Phils. Inc them being the service contractors.
The province of Palawan wanted to claim the 40% share of the national
government asserting that by virtue of Local Government Code Scc.290, the local
government unit of Palawan has the right over the claim since the reservoir is located
within the territorial jurisdiction of the province. On the other hand, the National
government disputed that since the gas fields where located 80kilometers from
Palawan’s coastline, they are already outside the territorial jurisdiction of the province
hence it is now within the territory of the Republic.
The RTC declared that the Province of Palawan is entitled to the 40%
government’s earning from the project however the petitioners seeks to nullify such
decision hereby directing the freezing of the 40% share pending the case resolution.

ISSUE:

Whether the Province of Palawan should have a share in the proceeds from the
Camago-Malampaya projects just because it is located within its territorial jurisdiction.
THE COURT’S RULING:

NO, the Court declares that under the existing laws, the Province of Palawan is
not entitled for the proceeds of Camago-Malampaya gas projects. Studies on territorial
jurisdiction where administered during the court’s process and it was found out that
there was no debate that the natural gas resources in the Camago-Malampaya
reservoir belongs to the State.
It can be gleaned from Palawan’s contentions that its claims where based on the
principle of Equity. The Court citing the case of Tupas vs. Court of Appeals, it ruled that
Equity is described as justice outside legality and that it cannot supplement the law. All
abstract arguments based on equity should yield to positive rules, which pre empts and
prevail over such persuasions
Here, there are applicable laws specifically the Article 10 of the 1987 Constitution
and Sections 289-290 of the Local Government Code. It is settled that equity cannot
supplant, over rule or transgress existing laws.
In limiting the LGU’s share to the utilization of the national wealth, it is still within
the mandate of the Congress to control the local government units. The power to create
still includes the power to destroy and the power to grant still includes the power to
withhold or recall.

2. CIR vs. J.P. Morgan Chase Bank


GR. No. 210528

FACTS:

J.P. Morgan–Philippines entered into Service Provider Agreement with


PeopleSupport (Philippines), Inc. a Philippine Economic Zone Authority (PEZA)-
registered Economic Zone IT (Export) Enterprise. Under their Agreement, respondent
contracted out to PeopleSupport the operations of maintaining and managing the
infrastructure and transmission of its facilities including its physical plant space located
at 6780 Ayala Avenue, Makati City which is exclusively used by the JPMC personnel to
perform certain services for the benefit of JPMC
On August 10, 2007, J.P. Morgan-Philippines filed its Monthly Remittance Return
of Creditable Income Taxes Withheld for July and paid P3,705,125.61, including the
P2,845,654.02 withheld tax from PeopleSupport. However, respondent reimbursed
People Support the amount of P2,845,654.02 after having realized that it had
erroneously withheld taxes on its payments. J.P. Morgan–Philippines filed an
application for refund of P2,845,654.02. Due to BIR’s inaction, respondent filed a
Petition for Review before the Court of Tax Appeals.
The CIR filed an Answer arguing that J.P. Morgan-Philippines failed to show that
the tax was erroneously or illegally collected. In its September 23, 2011 Decision, the
CTA denied J.P. Morgan-Philippines' claim for refund. It ruled that the income from the
lease was subject to the regular income tax, and thus, the tax was correctly withheld.
However on respondent’s Motion for Reconsideration, the Court of Tax Appeals
reversed its own decision stating that the scope of People Support's business process
outsourcing services under the Agreement was within its registered activities with
PEZA, hence, exempt from withholding tax.

ISSUE:

Whether J.P. Morgan–Philippines' lease of physical plant space, infrastructure,


and other transmission facilities is related to the PEZA–registered activities of People
Support, and is thus, exempt from withholding taxes.

THE COURT’S RULING:

NO. The Agreement between respondent and PeopleSupport pertains to


the provision of physical plant space and all workstation infrastructure. The Court
observed that respondent is not actually outsourcing its customer care functions or
business processes to PeopleSupport because its own personnel actually perform the
services using PeopleSupport's physical plant space, infrastructure and other
transmission facilities. Thus, the Agreement is essentially a lease of facilities outside the
latter's registered activities, and thus, is not exempt from tax.
PeopleSupport is registered with PEZA as an Economic Zone Information
Technology (Export) Enterprise, not an Information Technology Facilities
Provider/Enterprise. Providing information technology-enabled services is different from
providing information technology facilities, infrastructure, or equipment.
Respondent has the burden of proving by preponderant evidence that
PeopleSupport is registered with PEZA as a facility-provider and that its income from
the lease of its infrastructures and other transmission facilities to respondent is entitled
to the tax incentives.
PeopleSupport's leasing services to respondent are within the scope of the
activity of a facilities provider/enterprise. Tax incentives that may be granted to an
information technology service enterprise are different from tax incentives granted to an
information technology facilities provider/enterprise.
Tax refunds must be granted only by a clear and unequivocal provision of law.
Tax incentives partake of the nature of tax exemptions. They are a privilege to which the
rule that tax exemptions must be strictly construed against the taxpayer apply. One who
seeks an exemption must justify it by words "too plain to be mistaken and too
categorical to be misinterpreted."
3. CIR vs. JERRY OCIER
G.R. No. 192023

FACTS:

The BIR sent Assessement Notice to the respondent Jerry Ocier regarding his
tax defeciencies from the gains that he had realized from the sale of shares of stock of
Best World Resources Corporation (BW Resources).
It appears that based on the BIR's investigation the sale/exchange of shares was
related to the stock manipulation and insider trading scandal orchestrated by Dante Tan
and his associates involving BW Resources shares that affected the Philippine Stock
Exchange in 1999
Jerry Ocier claimed that BIR had erroneously considered as a sale the transfer of
a total of 4.9 million shares because it was actually a loan. He protested the
assessments but the BIR denied his protest. He again filed a petition for review in the
CTA to seek the cancellation of the deficiency assessments. The CTA granted the
petition hereby cancelling the Final Assessment Notice assessing petitioner for
deficiency capital gains taxes (CGT) and documentary stamp taxes (DST), inclusive of
interest, surcharge and penalty.
The CIR moved for reconsideration but was denied by both the CTA. The
petitioner elevated the adverse decision to the CTA En Banc by petition for review. On
February 2, 2010, the CTA En Banc rendered the assailed decision DISMISSED for
lack of merit

ISSUE:

Whether the cancellation by the CTA en banc of the Final Assessment Notice
assessing the respondent for deficiency capital gains taxes (CGT) and documentary
stamp taxes (DST) is proper.

THE COURT’S RULING:

NO. Jerry Ocier’s denial of liability solely rested on the fact that the transfer
of his shares had been a stock loan, not a sale. Still, the transfer even in that manner
came within the concept and context of a disposition sufficient for the CGT liability to
attach pursuant to Section 24(C) of the National Internal Revenue Code (NIRC), which
provides:
(C) Capital Gains from Sale of Shares of Stock not Traded in the Stock
Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at the rates
prescribed below is hereby imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange or other disposition of shares of stock in a
domestic corporation, except shares sold, or disposed of through the stock exchange.
The term disposition, being neither defined nor qualified in Section 24(C), is
accorded its ordinary meaning, that is, any act of disposing, transferring to the care or
possession of another, or the parting with, alienation of, or giving up of property.
With the respondent himself not disputing (but actually admitting) the transfer of
the 4.9 million shares of BW Resources to Tan, such manner of disposition of the
shares was definitely within the contemplation of Section 24(C) of the NIRC.
Respondent is also liable for Documentary Stamp Tax. The DST is a tax on
documents, instruments, loan agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation.
The DST is an excise tax on the exercise of a right or privilege to transfer
obligations, rights or properties incident thereto. The transfer of the shares of stocks is
an exercise of the privilege to transfer a right and properties incident thereto that is
embodied in the stock loan agreement/trust declaration. Hence the transaction entered
by the respondent is properly subjected to the DST.

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