DAY 1 Pre-Week Flashcards
A law student approached you and asked your legal expertise in understanding this sentence: “The constitutional requirement on Filipino ownership should apply uniformly and across the board to all classes of shares, regardless of nomenclature and category, comprising the capital of a corporation.”
The foregoing should be remembered as a mere obiter dictum. What the Constitution requires is full and legal beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights must rest in the hands of Filipino nationals. For purposes of determining compliance with the constitutional or statutory ownership, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote.
If the Filipino has the voting power of the “specific stock”, i.e., he can vote the stock or direct another to vote for him, or the Filipino has the investment power over the “specific stock”, i.e., he can dispose of the stock or direct another to dispose of it for him, or both, i.e., he can vote and dispose of that “specific stock” or direct another to vote or dispose it for him, then such Filipino is the “beneficial owner” of that “specific stock.” Being considered Filipino, that “specific stock” is then to be counted as part of the 60% Filipino ownership requirement under the Constitution. The right to the dividends, jus fruendi - a right emanating from ownership of that “specific stock” necessarily accrues to its Filipino “beneficial owner.” Roy III vs. Herbosa, G.R. No. 207246, April 18, 2017
What are the elements in piercing the veil of corporate fiction?
The elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction follow:
“1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
- Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiff’s legal rights; and
- The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents “piercing the corporate veil.”
In applying the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.” Yamamoto vs. Nishino Leather Industries, Inc., 551 SCRA 447, G.R. No. 150283, April 16, 2008
May the corporate fiction of a corporation, which was not impleaded in a suit, be pierced?
No. The doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Before this doctrine can be even applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation. Thus, a corporation not impleaded in a suit cannot be subject to the court’s process of piercing the veil of its corporate fiction. Resultantly, any proceedings taken against the corporation and its properties would infringe on its right to due process. Mayor vs. Tiu, 810 SCRA 256, G.R. No. 203770, November 23, 2016; see also Pioneer Insurance Surety Corporation vs. Morning Star Travel Tours, Inc., 762 SCRA 283, G.R. No. 198436, July 8, 2015
Is the transferee of a corporation’s assets ipso facto liable for the transferor’s debts and liabilities? If no, what are the exceptions?
No. Where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. In other words, control or ownership of substantially all of a subsidiary’s assets is not by itself an indication of a holding company’s fraudulent intent to alienate these assets in evading labor-related claims or liabilities. Maricalum Mining Corporation vs. Florentino, 872 SCRA 572, G.R. No. 221813 July 23, 2018
The foregoing is also known as the Nell Doctrine: the general rule that the transfer of all the assets of a corporation to another shall not render the latter liable to the liabilities of the transferor. If any of the above cited exceptions are present, then the transferee corporation shall assume the liabilities of the transferor.
The first exception, where the transferee corporation expressly or impliedly agrees to assume the transferor’s debts, is provided under Article 2047 of the Civil Code. When a person binds himself solidarily with the principal debtor, then a contract of suretyship is produced.
Necessarily, the corporation which expressly or impliedly agrees to assume the transferor’s debts shall be liable to the same.
The second exception, as to the merger and consolidation of corporations, is well-established under Sections [75 to 79], Title [IX] of the [Revised] Corporation Code. If the transfer of assets of one corporation to another amounts to a merger or consolidation, then the transferee corporation must take over the liabilities of the transferor.
Another exception of the doctrine, where the sale of all corporate assets is entered into fraudulently to escape liability for transferor’s debts, can be found under Article 1388 of the Civil Code. It provides that whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered. Thus, if there is fraud in the transfer of all the assets of the transferor corporation, its creditors can hold the transferee liable.
The last exception contemplates the “business-enterprise transfer.” In such transfer, the transferee corporation’s interest goes beyond the assets of the transferor’s assets and its desires to acquire the latter’s business enterprise, including its goodwill. The transferee purchases not only the assets of the transferor, but also its business. As a result of the sale, the transferor is merely left with its juridical existence, devoid of its industry and earning capacity. Section [39 of the Revised Corporation Code] suitably reflects the business-enterprise transfer because the purchasing or transferee corporation necessarily continued the business of the selling or transferor corporation. Given that the transferee corporation acquired not only the assets but also the business of the transferor corporation, then the liabilities of the latter are inevitably assigned to the former. Y-I Leisure Philippines, Inc. vs. Yu, G.R. No. 207161, September 8, 2015
Does every transfer of the entire corporate assets qualify under Section 39 of the Revised Corporation Code of the Philippines?
No. It does not apply (1) if the sale of the entire property and assets is necessary in the usual and regular course of business of corporation, or (2) if the proceeds of the sale or other disposition of such property and assets will be appropriated for the conduct of its remaining business. Thus, the litmus test to determine the applicability of Section [39] would be the capacity of the corporation to continue its business after the sale of all or substantially all its assets. Y-I Leisure Philippines, Inc. vs. Yu, G.R. No. 207161, September 8, 2015
Discuss the “trust fund doctrine.”
It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to
realize assets for the payment of its debts.
All assets and property belonging to the corporation held in trust for the benefit of creditors that were distributed or in the possession of the stockholders, regardless of full payment of their subscriptions, may be reached by the creditor in satisfaction of its claim.
Also, a corporation has no legal capacity to release an original subscriber to its capital stock
from the obligation of paying for his shares, in whole or in part, without a valuable consideration, or fraudulently, to the prejudice of creditors. The creditor is allowed to
maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt. To make out a prima facie case in a suit against
stockholders of an insolvent corporation to compel them to contribute to the payment of its
debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that the stockholders have not in good faith paid the par value of the stocks of the
corporation. Enano-Bote vs. Alvarez, G.R. No. 223572, November 10, 2020
What are the two (2) instances when the creditor is allowed to maintain an action upon any unpaid subscriptions based on the trust fund doctrine?
(1) where the debtor corporation released the subscriber to its capital stock from the obligation of paying for their shares, in whole or in part, without a valuable consideration, or
fraudulently, to the prejudice of creditors; and
(2) where the debtor corporation is insolvent or has been dissolved without providing for the payment of its creditors. Enano-Bote vs.
Alvarez, G.R. No. 223572, November 10, 2020
Differentiate a “corporation by estoppel” and “de facto corporation.”
Corporation by estoppel is founded on principles of equity and is designed to prevent injustice
and unfairness. It applies when persons assume to form a corporation and exercise corporate
functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel. Lozano
vs. De los Santos, 274 SCRA 452, G.R. No. 125221, June 19, 1997
There are stringent requirements before one can qualify as a de facto corporation: (a) the existence of a valid law under which it may be incorporated; (b) an attempt in good faith to incorporate; and (c) assumption of corporate powers.
Thus, the filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation. Seventh Day Adventist Conference Church of Southern Philippines, Inc. vs. Northeastern Mindanao Mission of Seventh Day Adventist, Inc., 496
SCRA 215, G.R. No. 150416, July 21, 2006
Differentiate the bases of quorum for a stock and non-stock corporation.
For stock corporations, the quorum is based on the number of outstanding voting stocks.
The basis in determining the presence of quorum in nonstock corporations is the numerical equivalent of all members who
are entitled to vote, unless some other basis is provided by the By-Laws of the corporation.
The qualification “with voting rights” simply recognizes the power of a nonstock corporation to limit or deny the right to vote of any of its members. To include these members without voting rights in the total number of members for purposes of quorum would be superfluous for although they may attend a particular meeting, they cannot cast their vote on any matter discussed therein. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038, January 25, 2017
Does the issuance of shares of stock require the stockholders’ approval?
No. A stock corporation is expressly granted the power to issue or sell stocks. The power to issue shares of stock in a corporation is lodged in the board of directors and no stockholders’ meeting is required to consider it because additional issuances of shares of stock does not
need approval of the stockholders. What is only required is the board resolution approving the additional issuance of shares. The corporation shall also file the necessary application with the SEC to exempt these from the registration requirements under the Revised Securities Act (now the Securities Regulation Code). Majority Stockholders of Ruby Industrial
Corporation vs. Lim, 650 SCRA 461, G.R. No. 165887, June 6, 2011
Does a stockholder enjoy pre-emptive right to buy unissued shares/ additional issues of originally authorized capital stock?
No. The general rule is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have
taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders’ meeting is required to consider it because additional issuance of shares of stocks does not need approval of the stockholders. Dee vs. Securities and Exchange Commission, 199 SCRA 238, G.R. No. 60502, G.R. No. 63922, July 16, 1991
When may a director or officer be held criminally liable for the acts of a corporation?
There must be a showing that its officers, directors, and shareholders actively participated in or had the power to prevent the wrongful act. Securities and Exchange Commission vs. Price Richardson Corporation, 832 SCRA 560, G.R. No. 197032, July 26, 2017
The by-laws of Y Corporation provides, inter alia, that its President “shall have full power to create new offices and to appoint the officers thereto as he may deem proper and
necessary in the operations of the corporation.” Pursuant thereto, the President appointed X as the Vice President for Finance and Administration. Is X a corporate officer of Y Corporation?
No. Under Section 24 of the Revised Corporation Code of the Philippines, the corporate officers are: (a) a president, (b) a treasurer, (c) a secretary, (d) a compliance officer (for
corporations vested with public interest), and (e) such other officers as may be provided in the by-laws.
Thus, a position must be expressly mentioned in the by-laws in order to be considered as a corporate office. The creation of an office pursuant to or under a by-law enabling provision is not enough to make a position a corporate office. Matling Industrial
and Commercial Corporation, G.R. No. 157802, October 13, 2010; see also Wesleyan University-Philippines vs. Maglaya, Sr., 815 SCRA 171, G.R. No. 212774, January 23, 2017
It has been the practice of the members of the Board, and the corporate secretary, of X Corporation to sign the minutes of meeting. The new Chairman of the Board, however, stated, in the organizational meeting of X Corporation, that the directors are not duty-bound to sign the minutes. He only required the corporate secretary to affix his signature thereon. The minutes of meeting was submitted to the BSP as one of the requirements for the approval of the amendments to the Articles of Incorporation and By-Laws. The BSP officer rejected the minutes as it was only the corporate secretary who affixed his signature thereon. Is the BSP officer’s action legally tenable?
No. It is the signature of the corporate secretary, as the one who is tasked to prepare and record the minutes, that gives the minutes of the meeting probative value and credibility. The non-signing by the majority of the members of the Board of the said minutes does not necessarily mean that the supposed resolution was not approved by the board. The signing of the minutes by all the members of the Board is not required. There is no provision in the [Revised] Corporation Code of the Philippines that requires that the minutes of the meeting should be signed by all the members of the Board. The proper custodian of the books, minutes and official records of a corporation is usually the corporate secretary. Being the custodian of corporate records, the corporate secretary has the duty to record and prepare the minutes of the meeting. The signature of the corporate secretary gives the minutes of the meeting probative value and credibility. Lopez Realty, Inc. vs. Tanjangco, 739 SCRA 644, G.R.
No. 154291, November 12, 2014
Discuss the “doctrine of apparent authority” or “ostensible agency.”
The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it holds him out to the public as possessing the power to do those acts. The existence of apparent authority may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. Georg vs. Holy Trinity College, Inc., 797 SCRA 550, G.R. No. 190408, July 20, 2016
The Notice of Meeting for the stockholders’ meeting of A Corporation was timely sent to all stockholders on record. Gigi, a stockholder, later filed a case against A Corporation as she only received the notice two (2) months after the meeting. She insisted that actual receipt of the notice prior to the date of the meeting is mandatory. Is Gigi’s contention meritorious?
No. The provisions [of the Revised Corporation Code of the Philippines] only require the sending/mailing of the notice of a stockholders’ meeting to the stockholders of the corporation. Sending/mailing is different from filing or service under the Rules of Court. Had the lawmakers intended to include the stockholder’s receipt of the notice, they would have clearly reflected such requirement in the law. Absent that requirement, the word “send” should be understood in its plain meaning. Clearly, corporations are only mandated to notify its stockholders by depositing in the mail the notice of the stockholders’ meeting, with postage or cost of transmission provided and the name and address of the stockholder properly specified. Guy vs. Guy, G.R. No. 184068, April 19, 2016
What are the requisites for filing a derivative suit?
A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided, that: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, bylaws, laws or rules governing the corporation or partnership to obtain the relief he desires; (3) No appraisal rights are available for the act or acts complained of; and (4) The suit is not a nuisance or harassment suit. In case of nuisance or harassment suit, the court shall forthwith dismiss the case. The fifth requisite for filing derivative suits is the action brought by the stockholder or member must be in the name of the corporation or association. Villamor, Jr. vs. Umale, 736 SCRA 325, G.R. No. 172881, September 24, 2014
Should the corporation be impleaded as a party in a derivative suit?
Yes. It is a condition sine qua non that the corporation be impleaded as party in a derivative suit. Not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The reason given is that the judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is
being litigated and because judgment must be a res judicata against it. At the outset, the rule on derivative suits presupposes that the corporation is the injured party and the individual stockholder may file a derivative suit on behalf of the corporation to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold control of the corporation. Bangko Sentral ng Pilipinas vs. Campa, Jr., 787 SCRA
476, G.R. No. 185979, March 16, 2016
What tests must be hurdled before one may characterize a dispute as an intra-corporate controversy?
The courts apply two tests: the relationship test and the nature of the controversy test, which are characterized as follows:
Under the relationship test, there is an intra-corporate controversy when the conflict is (1) between the corporation, partnership, or association and the public; (2) between the corporation, partnership, or association and the State insofar as its franchise, permit, or license to operate is concerned; (3) between the corporation, partnership, or association and
its stockholders, partners, members, or officers; and (4) among the stockholders, partners, or associates themselves.
On the other hand, in accordance with the nature of controversy test, an intra-corporate controversy arises when the controversy is not only rooted in the existence of an intra-corporate relationship, but also in the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. Guerrero Estate Development Corporation vs. Leviste & Guerrero Realty Corporation, G.R. No. 253428, February 16, 2022
What are the requisites for a valid transfer of stocks?
The minimum requisites that must be complied with for there to be a valid transfer of stocks are to wit: (a) there must be delivery of the stock certificate; (b) the certificate must be
endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) to be valid against third parties, the transfer must be recorded in the books of the corporation. Anna Teng vs. SEC, G.R. No. 184332, February 17, 2016
Does the revocation of a corporation’s Certificate of Registration ipso facto extinguish the corporation itself, including its rights and liabilities?
No. The revocation of a corporation’s Certificate of Registration does not automatically warrant the extinction of the corporation itself such that its rights and liabilities are likewise
altogether extinguished. The termination of the life of a juridical entity does not, by itself, cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors. Roque vs. People, 826 SCRA 618, G.R. No. 211108, June 7, 2017
The corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets.
The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors. Chua vs. People, G.R. No. 216146, August 24, 2016
Carina, the single stockholder of X OPC, died. The day after her death, her sole child, Habby Gat, went to the office of OPC and asserted his right to take over the affairs of X OPC. Is Habby Gat correct?
No. The nominee (or the alternate nominee) shall, in the event of the single stockholder’s death or incapacity, take the place of the single stockholder as director and shall manage the corporation’s affairs.
In case of death or permanent incapacity of the single stockholder, the nominee shall sit as director and manage the affairs of the One Person Corporation until the legal heirs of the single stockholder have been lawfully determined, and the heirs have designated one of them or have agreed that the estate shall be the single stockholder of the One Person Corporation. Secs. 124 & 125, Revised Corporation Code of the Philippines
What is an investment contract?
For an investment contract to exist, the following elements, referred to as the Howey test must concur: (1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others. Securities and Exchange Commission vs. Prosperity.Com, Inc., 664 SCRA 28, G.R. No. 164197, January 25, 2012; see also Virata vs. Ng Wee, 830 SCRA 271, G.R. No. 220926, July 5, 2017
Does the assignee of partnership interest make him a partner of the firm, thereby entitling him to interfere in the management of the partnership business and to receive anything except the assignee’s profits?
No. Insofar as a partner’s conveyance of the entirety of his interest in the partnership is concerned, Article 1813 of the Civil Code is instructive. From the foregoing provision, it is
evident that the transfer by a partner of his partnership interest does not make the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive anything except the assignee’s profits. The
assignment does not purport to transfer an interest in the partnership, but only a future
contingent right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in the capital. Realubit vs. Jaso, 658 SCRA 146, G.R. No. 178782, September 21, 2011
Is a withdrawing partner still liable to a third party creditor of the old partnership? How about the new partnership which merely continued the operations of the old partnership, without winding up the business of the old partnership, paying off its debts, liquidating,
and distributing its net assets?
Yes. Not only the retiring partners but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. A
withdrawing partner remains liable to a third party creditor of the old partnership. The liability of the new partnership is established in Article 1840 of the Civil Code. Thus, creditors
of the old partnership are also creditors of the new partnership which continued the business
of the old one without liquidation of the partnership affairs. Yu vs. National Labor Relations
Commission, 224 SCRA 75, G.R. No. 97212, June 30, 1993
What is a contract of insurance?
A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Sec. 2 (a), Insurance Code
Are HMOs engaged in insurance business?
No. An HMO engaged in preventive, diagnostic and curative medical services is not engaged in the business of an insurance.
The main difference between an HMO and an insurance company is that HMOs undertake to provide or arrange for the provision of medical services through participating physicians while insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit. Medicard Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 222743, April 5, 2017
Discuss insurable interest in life and property.
Every person has an insurable interest in the life and health:
a) Of himself, of his spouse and of his children;
b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and
d) Of any person upon whose life any estate or interest vested in him depends.
An insurable interest in property may consist in:
a) An existing interest;
b) An inchoate interest founded on an existing interest; or
c) An expectancy, coupled with an existing interest in that out of which the expectancy arises. Secs. 10 & 14, Insurance Code
May a common carrier stipulate in the contract of carriage a provision requiring the filing of a formal claim within a specified period?
Yes. A provision in a contract of carriage requiring the filing of a formal claim within a specified period is a valid stipulation. Compliance with this provision is a legitimate condition precedent to an action for damages arising from loss of the shipment.
The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefor, and to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims. Federal Express Corporation vs. Antonino, 868 SCRA 450, G.R. No. 199455, June 27, 2018
Is the driver of a common carrier liable under the contract of carriage to the injured passenger?
No. Since the cause of action is based on a breach of a contract of carriage, the liability of operator and/or owner of a common carrier is direct as the contract is between him and the passenger. The driver of the common carrier, being merely the driver thereof, cannot be made liable as he is not a party to the contract of carriage. A complaint for breach of a
contract of carriage is dismissible as against the employee who was driving the common carrier because the parties to the contract of carriage are only the passenger, the common
carrier owner, and the common carrier operator. Sanico vs. Colipano, 841 SCRA 141, G.R. No. 209969, September 27, 2017
When may records of deposits be disclosed?
RA 1405 provides for exceptions when records of deposits may be disclosed. These are under any of the following instances:
(a) upon written permission of the depositor,
(b) in cases of impeachment,
(c) upon order of a competent court in the case of bribery or dereliction of duty of public officials, or
(d) when the money deposited or invested is the subject matter of the litigation,
(e) in cases of violation of the Anti-Money Laundering Act, the Anti-Money Laundering Council may inquire into a bank account upon order of any competent court, and
(f) Section 8 of Anti-Graft and Corrupt Practices Act.
Doña Adela Export International, Inc. vs. Trade and Investment Development Corporation (TIDCORP), 750 SCRA 429, G.R. No. 201931, February 11, 2015; Subido Pagente Certeza Mendoza and Binay Law Offices vs. Court of Appeals, 813 SCRA 1, G.R. No. 216914, December 6, 2016
What is a “suspicious transaction?”
A “suspicious transaction” is a transaction with covered persons, regardless of the amounts involved, where any of the following circumstances exist:
1) There is no underlying legal or trade obligation, purpose or economic justification;
2) The client is not properly identified;
3) The amount involved is not commensurate with the business or financial capacity of the client;
4) Taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the Act
5) Any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered person;
6) The transaction is in any way related to an unlawful activity or offense under this Act that is about to be, is being or has been committed; or
7) Any transaction that is similar or analogous to any of the foregoing. Sec. 3, RA 9160, as amended by RA 11521
Expound on the “freeze order” under the AMLA, as amended by RA 11521.
Upon a verified ex parte petition by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Section 3(i) hereof, the Court of Appeals may issue a freeze order which shall be effective immediately, for a period of twenty (20) days. Within the twenty (20) day period, the Court of Appeals shall conduct a summary hearing, with notice to the parties, to determine whether or not to modify or lift the freeze order, or extend its effectivity. The total period of the freeze order issued by the Court of Appeals under this provision shall not exceed six (6) months.
The freeze order or asset preservation order issued under this Act shall be limited only to the amount of cash or monetary instrument or value of property that court finds there is probable cause to be considered as proceeds of a predicate offense, and the freeze order or asset preservation order shall not apply to amounts in the same account in excess of the amount or value of the proceeds of the predicate offense.
The person whose property or funds have been frozen may withdraw such sums as the AMLC determines to be reasonably needed for monthly family needs and sustenance including the services of counsel and the family medical needs of such person.
What is “money laundering?”
Money laundering is committed by any person who, knowing that any monetary instrument or property represents, involves, or relates to the proceeds of any unlawful activity:
a) transacts said monetary instrument or property;
b) converts, transfers, disposes of, moves, acquires, possesses or uses said monetary instrument or property;
c) conceals or disguises the true nature, source, location, disposition, movement or ownership of or rights with respect to said monetary instrument or property;
d) attempts or conspires to commit money laundering offenses referred to in paragraphs (a), (b) or (c);
e) aids, abets, assists in or counsels the commission of the money laundering offenses referred to in paragraphs (a), (b) or (c) above; and
f) performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in paragraphs (a), (b) or (c) above.
Money laundering is also committed by any covered person who, knowing that a covered or suspicious transaction is required under this Act to be reported to the Anti-Money Laundering Council (AMLC), fails to do so. Sec. 4, RA 9160, as amended by RA 10365
What are the types of confusion in trademark infringement?
The first is “confusion of goods” when an otherwise prudent purchaser is induced to purchase one product in the belief that he is purchasing another, in which case defendant’s goods are then bought as the plaintiff’s and its poor quality reflects badly on the plaintiff’s reputation.
The other is “confusion of business” wherein the goods of the parties are different but the defendant’s product can reasonably (though mistakenly) be assumed to originate from the
plaintiff, thus deceiving the public into believing that there is some connection between the plaintiff and defendant which, in fact, does not exist. Mighty Corporation vs. E. & J. Gallo Winery, 434 SCRA 473, G.R. No. 154342, July 14, 2004.
Is the Totality or Holistic Test still a good law?
No. Considering the adoption of the Dominancy Test in Section 155.1 of the Intellectual Property Code and the abandonment of the Holistic Test, as confirmed by the provisions of the IP Code and the legislative deliberations, the Court en banc in Kolin Electronics Co., Inc. vs. Kolin Philippines International, Inc. (972 SCRA 397, G.R. No. 228165, February 9, 2021) explicitly abandoned the use of the Holistic Test in determining the resemblance of marks.
Does trademark protection include the “products and market areas that are the normal potential expansion of the business?”
Yes. The scope of protection extends to protection from infringers with related goods, and to market areas that are the normal expansion of business of the registered trademark owners. In the case of Dermaline, Inc. vs. Myra Pharmaceuticals, Inc., the Court already acknowledged “that the registered trademark owner enjoys protection in product and market areas that are the normal potential expansion of his business.”
What are the five (5) categories of marks?
Marks, which can be divided into five categories, are enumerated in decreasing order of strength below:
1) Coined or fanciful marks - invented words or signs that have no real meaning (e.g., Google, Kodak). These marks are the strongest and have the greatest chance of being registered.
2) Arbitrary marks - words that have a meaning but have no logical relation to a product (e.g., SUNNY as a mark covering mobile phones, APPLE in relation to computers/phones).
3) Suggestive marks - marks that hint at the nature, quality or attributes of the product, without describing these attributes (e.g., SUNNY for lamps, which would hint that the product will bring light to homes). If not considered as bordering on descriptive, this may be allowed.
4) Descriptive marks - describe the feature of the product such as quality, type, efficacy, use, shape, etc. The registration of descriptive marks is generally not allowed under the IP Code.
5) Generic marks - words or signs that name the species or object to which they apply (e.g., CHAIR in relation to chairs). They are not eligible for protection as marks under
the IP Code. Kolin Electronics Co., Inc. vs. Kolin Philippines International, Inc., 972 SCRA 397, G.R. No. 228165, February 9, 2021
Differentiate unfair competition and trademark infringement.
The Court distinguishes trademark infringement from unfair competition in this wise:
1) Infringement of trademark is the unauthorized use of a trademark, whereas unfair competition is the passing off of one’s goods as those of another.
2) In infringement of trademark fraudulent intent is unnecessary, whereas in unfair competition fraudulent intent is essential.
3) In infringement of trademark the prior registration of the trademark is a prerequisite to the action, whereas in unfair competition registration is not necessary.
Mighty Corporation vs. E. & J. Gallo Winery, 434 SCRA 473, G.R. No. 154342, July 14, 2004
Which must prevail between actual use of a mark without registration, and registration of the mark without actual thereof?
The former. The prior and continuous use of a mark may even overcome the presumptive ownership of the registrant and be held as the owner of the mark. Registration, without more, does not confer upon the registrant an absolute right to the registered mark. The certificate
of registration is merely a prima facie proof that the registrant is the owner of the registered mark or trade name. Evidence of prior and continuous use of the mark or trade name by another can overcome the presumptive ownership of the registrant and may very well entitle the former to be declared owner in an appropriate case.
By itself, registration is not a mode of acquiring ownership. When the applicant is not the owner of the trademark being applied for, he has no right to apply for registration of the same. Registration merely creates a prima facie presumption of the validity of the registration, of the registrant’s ownership of the trademark and of the exclusive right to the use thereof. Such presumption, just like the presumptive regularity in the performance of official functions, is rebuttable and must give way to evidence to the contrary. Zuneca
Pharmaceutical vs. Natrapharm, Inc., 950 SCRA 356, G.R. No. 211850, September 8, 2020
Does prior use determine trademark acquisition under the present law?
No. Under the IP Code, the ownership of a trademark is acquired by its registration. Prior use no longer determines the acquisition of ownership of a mark in light of the adoption of the rule that ownership of a mark is acquired through registration made validly in accordance with the provisions of the IP Code. Accordingly, the trademark provisions of the IP Code use
the term “owner” in relation to registrations.
Thus, even if the mark was previously used and not abandoned by another person, a good faith applicant may still register the same and thus become the owner thereof, and the prior user cannot ask for the cancellation of the latter’s registration.
Further, while subsequent use of the mark and proof thereof are required to prevent the removal or cancellation of a registered mark or the refusal of a pending application under the IP Code, this should not be taken to mean that actual use and proof thereof are necessary before one can own the mark or exercise the rights of a trademark owner. Zuneca
Pharmaceutical vs. Natrapharm, Inc., 950 SCRA 356, G.R. No. 211850, September 8, 2020
If actual use is no longer a recognized mode of acquisition of ownership under the IP Code,
are the provisions of IP Code (Sections 124.2, 145, and 138) on Declaration of Actual Use and Certificate of Registration of a Mark of no value?
No. While the IP Code and the Rules of the IPO mandate that the applicant/registrant must prove continued actual use of the mark, this does not imply that actual use is still a recognized mode of acquisition of ownership under the IP Code. Rather, these require actual use of the mark in order for the registered owner of a mark to maintain his ownership.
The prima facie nature of the certificate of registration is not indicative of the fact that prior use is still a recognized mode of acquiring ownership under the IP Code. Rather, it is meant to recognize the instances when the certificate of registration is not reflective of ownership of the holder thereof, such as when:
1) the first registrant has acquired ownership of the mark through registration but subsequently lost the same due to non-use or abandonment (e.g., failure to file the
Declaration of Actual Use);
2) the registration was done in bad faith;
3) the mark itself becomes generic;
4) the mark was registered contrary to the IP Code (e.g., when a generic mark was successfully registered for some reason); or
5) the registered mark is being used by, or with the permission of, the registrant so as to misrepresent the source of the goods or services on or in connection with which the mark is used. Zuneca Pharmaceutical vs. Natrapharm, Inc., 950 SCRA 356, G.R. No. 211850, September 8, 2020
What are copyright or economic rights?
Subject to the provisions of Chapter VIII of the IP Code, copyright or economic rights shall consist of the exclusive right to carry out, authorize or prevent the following acts:
1) Reproduction of the work or substantial portion of the work;
2) Dramatization, translation, adaptation, abridgment, arrangement or other transformation of the work;
3) The first public distribution of the original and each copy of the work by sale or other forms of transfer of ownership;
4) Rental of the original or a copy of an audiovisual or cinematographic work, a work embodied in a sound recording, a computer program, a compilation of data and other materials or a musical work in graphic form, irrespective of the ownership of the original or the copy which is the subject of the rental;
5) Public display of the original or a copy of the work;
6) Public performance of the work; and
7) Other communication to the public of the work. Sec. 177, IP Code
What are moral rights?
The author of a work shall, independently of the economic rights in Section 177 or the grant of an assignment or license with respect to such right, have the right:
1) To require that the authorship of the works be attributed to him, in particular, the right that his name, as far as practicable, be indicated in a prominent way on the copies, and in connection with the public use of his work;
2) To make any alterations of his work prior to, or to withhold it from publication;
3) To object to any distortion, mutilation or other modification of, or other derogatory action in relation to, his work which would be prejudicial to his honor or reputation;
and
4) To restrain the use of his name with respect to any work not of his own creation or in a distorted version of his work. Sec. 193, IP Code
Independently of a performer’s economic rights, the performer, shall, as regards his live aural performances or performances fixed in sound recordings, have the right to claim to be identified as the performer of his performances, except where the omission is dictated by the manner of the use of the performance, and to object to any distortion, mutilation or other modification of his performances that would be prejudicial to his reputation. The rights granted to a performer in accordance with Subsection 203.1 shall be maintained and exercised fifty (50) years after his death, by his heirs, and in default of heirs, the government, where protection is claimed. Sec. 204, IP Code
Discuss the fair use doctrine of a copyrighted work.
The fair use of a copyrighted work for criticism, comment, news reporting, teaching including multiple copies for classroom use, scholarship, research, and similar purposes is not an infringement of copyright.
In determining whether the use made of a work in any particular case is fair use, the factors to be considered shall include:
1) The purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes;
2) The nature of the copyrighted work;
3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
4) The effect of the use upon the potential market for or value of the copyrighted work.
The fact that a work is unpublished shall not by itself bar a finding of fair use if such finding is made upon consideration of all the above factors. Sec. 185, IP Code
What are the tests in determining whether the processing is based on legitimate interest?
Processing based on legitimate interest requires the fulfillment of the following conditions:
(1) the legitimate interest is established [Purpose Test];
(2) the means to fulfill the legitimate
interest is both necessary and lawful [Necessity Test]; and
(3) the interest is legitimate and lawful and it does not override fundamental rights and freedoms of data subjects [Balancing Test]. MCD vs. Victorias Milling Company, NPC 19-758, June 30, 2023
What are the rights of a data subject under the Data Privacy Act of 2012?
The data subject is entitled to:
1) Right to be informed;
2) Right to object;
3) Right to access;
4) Right to rectification;
5) Right to erasure or blocking;
6) Right to damages; and
7) Right to data portability.
Sec. 16, Data Privacy Act of 2012; NPC Advisory No. 2021-01
Are telexes, faxes, and facsimile transmissions within the ambit of “electronic data message” under the E-Commerce Act?
No. When the Congress formulated the term “electronic data message,” it intended the same meaning as the term “electronic record” in the Canada law, which construction of the term “electronic data message,” excludes telexes or faxes, except computer generated faxes, in harmony with the Electronic Commerce Law’s focus on “paperless” communications and the “functional equivalent approach” that is espouses. Thus, facsimile transmissions are not “paperless” but verily are paper-based. MCC Industrial Sales Corporation vs. Ssangyong Corporation, 536 SCRA 408, G.R. No. 170633, October 17, 2007
Does the posting of newly enacted laws in the internet comply with the publication requirement under the law?
No. The invocation by the respondents of the provisions of R.A. No. 8792, otherwise known as the Electronic Commerce Act of 2000, to support their claim of valid publication through the internet is all the more incorrect. R.A. 8792 considers an electronic data message or an electronic document as the functional equivalent of a written document only for evidentiary purposes. In other words, the law merely recognizes the admissibility in evidence (for their being the original) of electronic data messages and/or electronic documents. It does not
make the internet a medium for publishing laws, rules and regulations. Garcillano vs. House
of Representatives Committees on Public Information, Public Order and Safety, National Defense and Security, Information and Communications Technology, and Suffrage and Electoral Reforms, 575 SCRA 170, G.R. No. 170338, December 23, 2008
Is a credit card an access device?
Yes. Republic Act No. 8484, otherwise known as the Access Devices Regulation Act of 1998, defines an access device as: any card, plate, code, account number, electronic serial number, personal identification number, or other telecommunications service, equipment, or instrumental identifier, or other means of account access that can be used to obtain money,
good, services, or any other thing of value or to initiate a transfer of funds (other than a transfer originated solely by paper instrument). Since a credit card is “any card, plate, coupon
book, or other credit device existing for the purpose of obtaining money, goods, property, labor or services or anything of value on credit,” it is considered an access device. Cruz vs.
People, 826 SCRA 561, G.R. No. 210266, June 7, 2017
Define “critical infrastructure.”
Critical Infrastructure refers to any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the Republic of the Philippines that the incapacity or destruction of such systems or assets would have a detrimental impact on national security, including telecommunications and other such vital services as may be declared by the President of the Philippines. Sec. 2(e), CA 146, as amended by RA 11659
Discuss the “reciprocity” principle under RA 11659.
Foreign nationals shall not be allowed to own more than fifty percent (50%) of the capital of entities engaged in the operation and management of critical infrastructure unless the
country of such foreign national accords reciprocity to Philippine Nationals as may be provided by foreign law, treaty or international agreement. Reciprocity may be satisfied by according rights of similar value in other economic sectors. The NEDA shall promulgate rules and regulations for this purpose.
Unless otherwise provided by law, or by any international agreement, a public service shall employ a foreign national only after the determination of non-availability of a Philippine National who is competent, able and willing to perform the services for which the foreign national is desired.
Any foreign national seeking admission to the Philippines for employment purposes and any public service which desires to engage a foreign national for employment in the Philippines must obtain an employment permit pursuant to Presidential Decree No. 442, otherwise known as the “Labor Code of the Philippines”, as amended.
Public services employing foreign nationals issued employment permits in industries to be determined by the Department of Labor and Employment (DOLE) shall implement an understudy/skills development program to ensure the transfer of technology/skills to Filipinos, whether next-in-rank or otherwise, with the potential of succeeding the foreign
national in the same establishment or its subsidiary, within a specific period as may be determined by the DOLE, upon consultation with relevant government agencies and industry experts. Sec. 25, RA 11659
Can an injunction be issued to restrain the collection of taxes of any national internal revenue tax, fee or charge?
The general rule is that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code. Sec. 218, NIRC, as amended
The exception is when, in the opinion of the CTA, that the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. Sec. 9, RA 9282, amended Sec. 11 of RA1125
Can the Congress validly grant a discount to senior citizens from certain establishments, and only allow such establishments to claim discounts granted as tax deduction and not as a tax credit?
Yes. The grant of 20% Senior Citizen’s discount is a valid exercise of the State’s police power and not an exercise of power of eminent domain. Private establishments are not paid the just compensation in the form of tax deductions from gross income and that tax deduction does
not offer full reimbursement to private establishment of the senior citizen discount. The 20% discount as well as the tax deduction scheme is rather treated as a valid exercise of the police power of the State. Manila Memorial Park, Inc. vs. Secretary of the Department of Social Welfare and Development, G.R. No. 175356 December 3, 2013
Are the satellite airtime fee payments to Aces Bermuda in consideration for services rendered using the Aces System, income from sources within the Philippines?
Yes. The satellite airtime fees accrue only when the satellite airtime is delivered to Aces Philippines (i.e., upon the gateway’s receipt of the routed call) and is utilized by the Philippine subscriber for a voice or data call. The accrual of fees payable to Aces Bermuda signifies the
inflow of economic benefits.
It is settled that where the inflow of wealth and/or economic benefits proceeds from, and occurs within Philippine territory, it enjoys protection of the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government, and thus, is subject to tax. The following establishes the Philippine situs of Aces Bermuda’s income from satellite airtime fee payments: (1) the income-generating
activity is directly associated with the gateways located within the Philippine territory; and (2) engaging in the business of providing satellite communication services in the Philippines is a government-regulated industry.
At this point, it is clear that: (a) Aces Bermuda’s income attaches to property operated and maintained in the Philippines, and (b) making Aces Services available to Philippine
subscribers, albeit through its local service provider, is an endeavor that requires the intervention of the Philippine government. In the Court’s view, it is only fair that this income be subjected to Philippine taxation; to hold Aces Bermuda accountable for its share in compensating the government for the protection it accords to Aces Bermuda’s arrangements, operations, and related transactions in the Philippines. Aces Philippines Cellular Satellite Corp. v. Commissioner of Internal Revenue, G.R. No. 226680, August 30, 2022
What is the determining factor in distinguishing tax and regulation as a form of police power?
If the purpose is primarily to raise revenue, then it will be deemed a tax even though the measure results in some form of regulation. On the other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police power of the state, even
though incidentally, revenue is generated. Angeles University Foundation vs. City of Angeles,
G.R. No. 189999, June 27, 2012
Is PAGCOR liable for Corporate Income Tax only on its income derived from other related services?
Yes, PAGCOR is liable for corporate income tax only on its income derived from other related services. Income from gaming operations is subject only to 5% franchise tax under PD No. 1869, as amended; while its income from other related services is subject to corporate income tax pursuant to PD No. 1869, as amended, in relation to RA No. 9337. The Court En Banc clarified that RA No. 9337 did not repeal the tax privilege granted to PAGCOR under PD No. 1869, with respect to its income from gaming operations.
What RA No. 9337 withdrew was PAGCOR’s exemption from corporate income tax on its income derived from other related services, previously granted under Section 27 (C) of RA No. 8424. PAGCOR vs. CIR, G.R. No. 210689-90, 210704 & 210725, November 22, 2017
What is the “Tax Benefit Rule”?
The taxpayer is obliged to declare as taxable income the subsequent recovery of bad debts in the year they were collected to the extent of the tax benefit enjoyed by the taxpayer when the bad debts were written-off and claimed as deduction from gross income. Section 23 (C) (1) & 34 (E) (1) of the NIRC, as amended
Explain the 8% Income Tax rate under the TRAIN Law.
An individual taxpayer (except a nonresident alien not engaged in trade or business) earning income purely from self-employment and/or practice of profession and whose gross sales/receipts and other non-operating income does not exceed P3,000,000.00 shall have the
option to be taxed as follows:
a) The Graduated rates under Sec. 24(A)(2)(a) of the Tax Code, as amended; or
b) An Eight percent (8%) tax on gross sales or receipts (net of returns and cash discounts) and other non- operating income in excess of two hundred fifty thousand pesos
(P250,000.00) in lieu of the graduated income tax rates under Sec. 24(A); and
c) Percentage tax under Section 116 all under the Tax Code, as amended.
An individual taxpayer (except a nonresident alien not engaged in trade or business) earning income both from compensation and from self-employment (business or practice of profession) shall be taxed as follows:
a) Compensation Income – graduated rates; and,
b) Income from business or practice of profession - gross sales/receipts and other non-operating income does not exceed P3,000,000.00 shall have the option to be taxed either at the graduated rates or the 8% tax. Q&A No. 27, RMC No. 50-2018
Who are not qualified to avail of the 8% Income Tax rate under the TRAIN Law?
a) Purely Compensation income earners;
b) VAT registered taxpayers;
c) Non-VAT taxpayers whose gross receipts/sales exceed P3,000,000.00;
d) Taxpayers subject to other Percentage taxes except Sec. 116;
e) Partners of General Professional Partnerships; and,
f) Individuals enjoying income tax exemption such as those registered with Barangay Micro Business Enterprise since taxpayers are not allowed to avail of double or
multiple tax exemptions under different tax laws unless specifically provided by law. Q&A No. 16, RMC No. 50-2018
Note: The taxpayer must signify his intention to avail of the 8% income tax rate in the 1st Quarter ITR / Percentage Tax Return, or on the initial quarter return of the taxable year after the commencement of a new business/practice of profession. Otherwise, the taxpayer is considered to have availed of the graduated rates. Such election shall be irrevocable, and no amendment of option shall be made for the said taxable year. RMC No. 50-2018 Partners of a General Professional Partnership (“GPP”) by virtue of their distributive share from GPP which is already net of cost and expenses cannot avail of the 8% income tax rate option. RMC No. 50-2018
Is the P250,000.00 exemption for those subject to the 8% tax is applicable to mixed income earners?
No. Since it is already incorporated in the first tier of the graduated income tax rates applicable to compensation income. Under the said graduated rates’ the excess of the P250,000.00 over the actual taxable compensation income is not deductible/creditable
against the taxable income from business/practice of profession under the 8% income tax rate option. Q&A No. 23, RMC No. 50-2018
Is the irrevocability rule limited only to the option of carry-over?
Yes. The Tax Code does not prevent a taxpayer who originally opted for a refund or tax credit certificate from shifting to the carry-over of the excess creditable taxes to the taxable
quarters of the succeeding taxable years. However, in case the taxpayer decides to shift its option to carry-over, it may no longer revert to its original choice due to the irrevocability rule.
As Section 76 unequivocally provides, once the option to carry-over has been made, it shall be irrevocable. Furthermore, the provision seems to suggest that there are no qualifications or conditions attached to the rule on irrevocability. Law and jurisprudence unequivocally support the view that only the option of carry-over is irrevocable. University Physicians Service, Inc. vs. CIR, G.R. No. 205955, March 7, 2018
What are the requisites in order for the foreign-sourced dividends under Section 27(D)(4) of the Tax Code, as amended by CREATE Act, be exempt from income tax?
a) The funds from such dividends actually received or remitted into the Philippines are reinvested in the business operations of the domestic corporation in the Philippines within the next taxable year from the time the foreign-sourced dividends were
received;
b) Limited to funding the working capital requirements, capital expenditures, dividend payments, investment in domestic subsidiaries, and infrastructure project:
c) The domestic corporation holds directly at least twenty percent (20%) of the outstanding shares of the foreign corporation and has held the shareholdings for a minimum of two (2) years at the time of the dividend’s distribution.
What is the concept of tax-free exchanges under Section 40(C)(2) of the Tax Code, as amended by CREATE Act?
Tax-free exchanges refer to those instances (i.e. reorganization) enumerated in Sec. 40 (C) (2) of the NIRC that are not subject to Income Tax, CGT, DST and/or VAT, as the case may be.
No gain or loss shall also be recognized if property is transferred to a corporation by a person, alone or together with others, not exceeding four (4) persons, in exchange for stock or unit of participation in such a corporation of which as a result of such exchange the transferor or transferors, collectively, gains or maintains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for proper.
Note: In all of the foregoing instances of exchange of property, prior Bureau of Internal Revenue confirmation or tax ruling shall not be required for purposes of availing the tax exemption.
Is PAGCOR is exempt from payment of VAT?
Yes. PAGCOR v. BIR affirmed PAGCOR’s position that the tax exemption granted under its Charter includes the payment of indirect taxes, such as VAT. Under Section 13 (2) (b) of P.D. 1869, the term “Corporation” or operator refers to PAGCOR. Although the law does not specifically mention PAGCOR’s exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. PAGCOR vs. CIR, G.R. No. 210689-90, 210704 & 210725, November 22, 2017
Differentiate Impact of taxation vis-à-vis incidence of taxation in relation to VAT.
The impact of taxation is the point where the tax is originally imposed or the one on whom the tax is formally assesses (i.e. the seller) (Source: Ingles, Tax Made Less Taxing, 2018); while the incidence of taxation refers to the person or entity to whom the burden of the indirect tax is shifted, the one who ultimately bears the burden of tax (e.g. buyer, transferee or lessee) Domondon, Taxation, 2018
What are the supporting documents to claim a refund of unutilized or excess input VAT for the purchase of goods and/or services?
Revenue Memorandum Circular No. 42-03 expressly provides that an “invoice is the supporting document for the claim of input tax on purchase of goods whereas official receipt
is the supporting document for the claim of input tax on purchase of services.” It further states that a taxpayer’s failure to comply with the invoicing requirements will result to the disallowance of the claim for input tax.
Strict compliance with substantiation and invoicing requirements is necessary considering VAT’s nature and VAT system’s tax credit method, where tax payments are based on output and input taxes and where the seller’s output tax becomes the buyer’s input tax that is available as tax credit or refund in the same transaction. Team Energy Corporation vs. Commissioner of Internal Revenue, G.R. No. 197663 & G.R. No. 197770, March 14, 2018
Is the taxpayer’s failure to print the word “zero-rated” in the invoices/receipts is fatal to a claim for credit/refund of input VAT on zero-rated sales?
Yes. The appearance of the word zero-rated on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect. Further, the printing of the word zero-rated on the invoice helps segregate sales that are subject to 12% VAT from those sales that are zerorated. J.R.A. Philippines, Inc. vs. CIR, G.R. No. 177127; October 11, 2010
Can a taxpayer claim the unutilized input VAT credits as an expense for income tax purposes?
No. The unutilized creditable input tax related to zero-rated sales can only be recovered through the application for refund or tax credit. Nowhere in the NIRC can we find a specific provision expressly providing for another mode for recovering unapplied input taxes, particularly that unapplied input taxes may be treated outright as deductible expense for income tax purposes. Revenue Memorandum Circular No. 57-2013; August 23, 2013
Explain the concept of “Transfer for Insufficient Consideration” for Donor’s tax purposes.
General Rule: If a person sells property below its fair market value, except for real property subject to the 6% capital gains tax, the difference between the fair market value and the selling price is considered a donation subject to donor’s tax. The sale is considered a transfer for less than an adequate and full consideration in money or money’s worth.
Exception: However, even if the sale is made below its fair market value, the transfer will be considered as made for an Adequate and Full consideration in money or money’s worth if the sale is:
a) Bona fide;
b) at Arm’s length; and
c) Free from any donative intent.
Thus, the transaction will not be subject to donor’s tax. Sec. 100 of the NIRC, as amended by the TRAIN Law
What are the rules on political contributions?
Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes, provided the same is duly reported to the COMELEC, is exempt from Donor’s tax. Sec. 99(C) of the NIRC in relation to Sec. 13 of RA No. 7166
Unutilized/excess campaign funds, that is, campaign contributions net of the candidate’s campaign expenditures, shall be considered as subject to income tax. Corollary thereto, failure to submit statement of expenditures to the COMELEC subjects the entire contributions
to income tax. Since, the candidate will be precluded from claiming expenditures as “deductions” from his campaign contributions. Revenue Regulations No. 7-2011; February
16, 2011
Political contributions which are not utilized during the campaign period is subject to Donor’s tax. Also, political contributions made by a foreign corporation is subject to Donor’s tax
Revenue Memorandum Circular No. 30-2016; March 14, 2016
What are the rules on Renunciation of the Conjugal/Community Share and Share in the Inheritance?
Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donor’s tax.
General renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject to donor’s tax, unless specifically and
categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. Revenue Regulations No. 12-2018, January 25, 2018
COMELEC entered a contract with Smartmatic Sahi Technology, Inc. (Smartmatic) and Avante International Technology, Inc. (Avante) for the lease, with option to purchase, electronic voting machines relative to the conduct of the August 2008 Autonomous Region for Muslim Mindanao Regional Election. The COMELEC did not impose or withhold EWT on payments to Smartmatic and Avante on the belief that the procurement of election
materials and equipment are “free from taxes and import duties” under Section 12 of Republic Act (RA) No. 8436, as amended by RA No. 9369. The COMELEC received a Letter of Authority from the Bureau of Internal Revenue (BIR) to examine its books of accounts and accounting records for all withholding taxes for 2008. Is COMELEC is liable for the deficiency basic EWT and its increments on the income payments made to Smartmatic and Avante for the lease contracts?
Yes. The COMELEC is not exempt from the obligation to withhold EWT. In Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue, this court ruled that “the liability of the withholding agent is independent from that of the taxpayer.” Further: The [withholding agent] cannot be made liable for the tax due because it is the [taxpayer] who earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government. The liability for the tax, however, remains with the taxpayer because the gain was realized and received by him. The cause of action for failure to withhold taxes is different from the cause of action arising from non-payment of income taxes.
There is no doubt that the withholding tax is not an internal revenue or local tax, but a mode of collecting income tax in advance. Simply put, withholding tax is intended to facilitate the collection of income tax. Therefore, unless the income recipient is exempt from income tax, the payor is generally required to deduct and withhold EWT on income payments made. Here, the lease contract payments to Smartmatic and Avante are not exempt from the requirement of withholding under Section 2.57.5 of Revenue Regulations (RR) No. 2-98. COMELEC vs. BIR, G.R. No. 244155, May 11, 2021
Are assessments issued by the BIR after the expiration after the 3-year period are valid and effective?
No. CIR’s period to assess and collect internal revenue taxes to three (3) years counted from the last day prescribed by law for the filing of the return or from the day the return was filed, whichever comes later. Thus, assessments issued after the expiration of such period are no
longer valid and effective. The government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time. CIR vs. Systems Technology Institute, Inc., G.R. No. 220835, July 26, 2017
What is a Letter of Authority?
A Letter of Authority (“LOA”) is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to
examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. The statutory basis for the requirement of a Letter of Authority is Sec. 6(A) of the NIRC. xxx If the BIR issues assessments for the years 2001, 2002 and 2003 pursuant to an LOA whose covered period provides: “Fiscal Year Ending 2003 and Unverified Prior Years”, the assessment for year 2003 is valid because this taxable period was
specified in the LOA. The taxpayer was fully apprised that it was being audited for taxable year 2003. On the other hand, the assessments for taxable years 2001 and 2002 are void for having been unspecified on separate LOAs as required under RMO No. 43-90. CIR vs. De La Salle University, G.R. No. 196596; November 9, 2016
Is an assessment based on a mere Letter Notice or computerized matching of the taxpayers’ records without an LOA null and void?
Yes. An LOA cannot be dispensed with just because none of the financial books or records being physically kept by the taxpayer was examined. Sec. 6(A) of the NIRC requires an authority from the CIR or from his duly authorized representatives before an examination “of a taxpayer” may be made. The requirement of authorization is therefore not dependent on whether the taxpayer may be required to physically open his books and financial records but
only on whether a taxpayer is being subject to examination. MEDICARD Phils., Inc. vs. CIR, G.R. No. 222743; April 5, 2017
Is there an assessment if the receipt thereof cannot be proven?
No. While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Failure to prove the receipt of the assessment by the taxpayer would necessarily lead to the conclusion that no assessment
was issued. CIR vs. BPI, G.R. No. 224327; June 11, 2018
Is a Final Assessment Notice (FAN) which states that the amount of deficiency tax is adjustable depending on when the taxpayer pays a valid assessment?
No. Although the assessment provides for the computations of the taxpayer’s tax liability, the amount remains indefinite. It only provides that the tax due is still subject to modification, depending on the date of payment. Similarly, A FAN which does not contain a due date for payment is also not valid. If there are no due dates on the FAN, this negates the BIR’s demand for payment. CIR vs. Fitness By Design, G.R. No. 215957; November 9, 2016
Distinguish a request for reconsideration or request for reinvestigation in a Protest to FAN/FLD.
A request for reconsideration refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. On the other hand, a request for reinvestigation refers to a plea for re- evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It must be emphasized that the act of filing a request for reinvestigation alone does not suspend the prescriptive period. Such request must be granted. A request for reconsideration even if granted, does not suspend the prescriptive period. BPI vs. CIR, GR No. 139736; October 17, 2005
What are the instances that a Preliminary Assessment Notice (PAN) is not required?
1) When the finding for any deficiency tax is the result of Mathematical error in the computation of the tax as appearing on the face of the return; or
2) When a discrepancy has been determined between the tax Withheld and the amount actually remitted by the withholding agent; or
3) When a taxpayer who opted to claim a Refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
4) When the excise tax due on Excisable articles has not been paid; or
5) When an article locally purchased or imported by an Exempt person, such as, not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. Sec. 228, NIRC, as amended
Should the receipt of FAN/FLD by the taxpayer need be within the prescriptive period?
No. The prescriptive period for issuance of FAN is 3 years from due date if return is filed on or before due date and if filed beyond due date, 3 years from date of actual filing. When an assessment is made within the prescriptive period, receipt by the taxpayer may or may not be within said period. CIR vs GJM Philippines Manufacturing Inc. G.R 202695; February 29, 2016
What are the Periods to Assess Internal Revenue Taxes?
General Rule: The BIR has three (3) years counted from:
a) Actual date of filing of the return; or
b) Deadline for filing of the return, whichever comes later, to make a deficiency tax assessment. Sec. 203 of the NIRC, as amended
Exception: The prescriptive period to assess is extended to ten (10) years if there is Failure to file a return, there is filing of a False return or a Fraudulent return with intent to evade taxes.
The 10-year period starts to run from the discovery of the omission, falsity or fraud. Sec. 222(a) of the NIRC, as amended
What are the Periods to Collect Internal Revenue Taxes?
General Rule: The BIR has five (5) years from the date of receipt or sending of the FAN to collect a deficiency tax liability. Sec. 222 (c) of the NIRC, as amended
Exception: The BIR may judicially collect a deficiency tax liability without an assessment within ten (10) years if there is an omission to file a return, there is filing of a false return or a fraudulent return with intent to evade taxes. The 10-year period starts to run from the discovery of the omission, falsity or fraud. Sec. 222 (a) of the NIRC, as amended
If the BIR alleges that the taxpayer filed a fraudulent return with intent to evade tax in order to avail of the 10-year prescriptive period to assess, it is indispensable for the CIR to include the basis for its allegations of fraud in the assessment notice. CIR vs. Fitness By Design, G.R No. 215957; November 9, 2016
What are the instances warranting the suspension of running of statute of limitations?
The prescriptive period to assess and/or collect is suspended under Sec. 223 of the NIRC:
a) For the period during which the Commissioner is Prohibited from making an assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter;
b) When the taxpayer requests for a Reinvestigation which is granted by the Commissioner;
c) When the taxpayer Cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended;
d) When the Warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and
e) When the taxpayer is Out of the Philippines
