CONRADO TIU V CA

G.R. 127410 | January 20, 1999 | J. Panganiban

Doctrine:

The constitutional rights to equal protection of the law is not violated by an executive order, issued pursuant to law, granting tax and duty incentives only to the business and residents within the “secured area” of the Subic Special Economic Zone and denying them to those who live within the Zone but outside such “fenced-in” territory. The Constitution does not require absolute equality among residents. It is enough that all persons under like circumstances or conditions are given the same privileges and required to follow the same obligations. In short, a classification based on valid and reasonable standards does not violate the equal protection clause.

Facts:

Petitioners assail the CA decision and resolution that upheld the constitutionality and validity of EO 97-A, according to which the grant and enjoyment of the tax and duty incentives authorized under RA 7227 (“An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes”) were limited to the business enterprises and residents within the fenced-in area of the Subic Special Economic Zone (SSEZ).

Among others, Section 12 of RA 7227 provides that, “The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to the base areas xxx In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter;”

EO 97, which clarified the application of the incentives provided thus:

Sec. 1. On Import Taxes and Duties. — Tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for these items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant Philippine laws.

The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws.

Sec. 2. On All Other Taxes. — In lieu of all local and national taxes (except import taxes and duties), all business enterprises in the SSEZ shall be required to pay the tax specified in Section 12(c) of R.A. No. 7227.

Respondent Court held that “there is no substantial difference between the provisions of EO 97-A and Section 12 of RA 7227. In both, the ‘Secured Area’ is precise and well-defined as ‘. . . the lands occupied by the Subic Naval Base and its contiguous extensions as embraced, covered and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended . . .'” The appellate court concluded that such being the case, petitioners could not claim that EO 97-A is unconstitutional, while at the same time maintaining the validity of RA 7227.

The court a quo also explained that the intention of Congress was to confine the coverage of the SSEZ to the “secured area” and not to include the “entire Olongapo City and other areas mentioned in Section 12 of the law.”

The Court of Appeals further justified the limited application of the tax incentives as being within the prerogative of the legislature, pursuant to its “avowed purpose [of serving] some public benefit or interest.” It ruled that “EO 97-A merely implements the legislative purpose of [RA 7227].”

Disagreeing, petitioners now seek before us a review of the aforecited Court of Appeals Decision and Resolution.

Issue:

W/N EO 37-A is constitutional

Held:

YES. Said Order is not violative of the equal protection clause; neither is it discriminatory. There are real and substantive distinctions between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and reasonable classification.

Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class.

We believe it was reasonable for the President to have delimited the application of some incentives to the confines of the former Subic military base. It is this specific area which the government intends to transform and develop from its status quo ante as an abandoned naval facility into a self-sustaining industrial and commercial zone, particularly for big foreign and local investors to use as operational bases for their businesses and industries. The classification is, therefore, germane to the purposes of the law.

Certainly, there are substantial differences between the big investors who are being lured to establish and operate their industries in the so-called “secured area” and the present business operators outside the area. On the one hand, we are talking of billion-peso investments and thousands of new, jobs. On the other hand, definitely none of such magnitude. In the first, the economic impact will be national; in the second, only local.

It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws.As long as there are actual and material differences between territories, there is no violation of the constitutional clause. And of course, anyone, including the petitioners, possessing the requisite investment capital can always avail of the same benefits by channelling his or her resources or business operations into the fenced-off free port zone.

Lastly, the classification applies equally to all the resident individuals and businesses within the “secured area.” The residents, being in like circumstances or contributing directly to the achievement of the end purpose of the law, are not categorized further. Instead, they are all similarly treated, both in privileges granted and in obligations required. Petition DENIED.

BANK OF PHILIPPINE ISLANDS V TRINIDAD

L-22967 | February 27, 1925 | J. Johns

Facts:

Plaintiff alleges that the defendant Collector of Internal Revenue made a ruling which required that the plaintiff should place documentary stamps to the amount of 4 centavos for each P200 or fraction thereof on each check, draft or telegraphic order of money drawn by it upon each and all of its foreign correspondents. The plaintiff protested such ruling, and is now demanding refund amounting to P2,567.52, with interest from January 14, 1924, and costs.

The lower court ruled in favor of the plaintiff, and later on overruled the motion for new trial by the defendant. CIR appealed, contending that the court erred in holding that “the negotiable instrument in question is not subject to the tax imposed in subsection (i) of section 1449 of Act No. 2711, but to subsection (f) of the same section.”

Issue:

W/N plaintiff is entitled to refund

Held:

No. Judgment reversed.

The judgment is based on the proper construction placed upon subsections (f) and (i) of section 1449 of the Administrative Code, which read as follows:

(f) On each bank check, draft, or certificate of deposit, not drawing interest, or order for the payment of any sum of money drawn upon or issued by any bank, trust company, or any person or persons, companies, or corporations, at sight or on demand, two centavos.

(i) On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippine Islands, in a set of three or more according to the custom of merchants and bankers, on each two hundred pesos, or fractional part thereof, of the face value of any such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign currency, four centavos.

The checks in question which plaintiff drew on its foreign correspondents were orders for the payment of money and clearly come within the definitions of bills of exchange and checks.

While these checks were admittedly drawn in duplicate only, it will be noted that the word “foreign” is used in subsection (i), and that it is not used in subsection (f). The purpose and intent of the law is apparent. Subsection (f) applies only to interisland bank checks, drafts or certificate of deposits as therein defined, and subsection (i) applies to “foreign bills of exchange and letters of credit drawn in but payable out of the Philippine Islands.” Subsection (f) applies to domestic transactions and subsection (i) applies to foreign transactions.

Plaintiff’s contention would nullify the legal force and effect of subsection (i). Under its construction a bank which drew an order for the payment of money on a foreign correspondents in a set of three or more would have to pay 4 centavos on each P200 or a fraction, and a bank which drew its orders in duplicate only would be exempt from payment. That was never the purpose and intent of the legislature.

It may be true that subsection (i) is awkwardly worded, but the purpose and intent of the law is apparent to the effect that the Government should have a revenue of 4 centavos for every P200 or fraction on each foreign bill of exchange and letter of credit, regardless if they were drawn “in a set of three or more.”

CIR V AMERICAN EXPRESS INTERNATIONAL, INC. (Phil. Branch)

GR 152609 | June 29, 2005 | J. Panganiban

Facts:

Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with servicing a unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK receivables from card members situated in the Philippines and payment to service establishments in the Philippines.

It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis Section 110B of the 1997 Tax Code, which held that “xxx Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.”

In addition, respondent relied on VAT Ruling No. 080-89, which read, “In Reply, please be informed that, as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted inwardly to the Philippine and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, your service income is automatically zero rated xxx”

Petitioner claimed, among others, that the claim for refund should be construed strictly against the claimant as they partake of the nature of tax exemption.

CTA rendered a decision in favor of respondent, holding that its services are subject to zero-rate. CA affirmed this decision and further held that respondent’s services were “services other than the processing, manufacturing or repackaging of goods for persons doing business outside the Philippines” and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP.

Issue:

W/N AMEX Phils is entitled to refund

Held:

Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or lease of properties. Section 102B particularly provides for the services or transactions subject to 0% rate:

(1)    Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP;

(2)    Services other than those mentioned in the preceding subparagraph, e.g. those rendered by hotels and other service establishments, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP

Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repackaging of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the R&R of BSP, are zero-rated. Respondent renders service falling under the category of zero rating.

As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed.

In the present case, the facilitation of the collection of receivables is different from the utilization of consumption of the outcome of such service. While the facilitation is done in the Philippines, the consumption is not. The services rendered by respondent are performed upon its sending to its foreign client the drafts and bulls it has gathered from service establishments here, and are therefore, services also consumed in the Philippines. Under the destination principle, such service is subject to 10% VAT.

However, the law clearly provides for an exception to the destination principle; that is 0% VAT rate for services that are performed in the Philippines, “paid for in acceptable foreign currency and accounted for in accordance with the R&R of BSP.” The respondent meets the following requirements for exemption, and thus should be zero-rated:

(1)    Service be performed in the Philippines

(2)    The service fall under any of the categories in Section 102B of the Tax Code

(3)    It be paid in acceptable foreign currency accounted for in accordance with BSP R&R.