GENERAL DESCRIPTION AND RATIONALE OF OBJECTIVES
6. RESULTS
6.3. Timing of antibiotic administration and outcomes of hospitalized patients with community-acquired and healthcare-associated pneumonia
Held:
In order to determine whether profits are accumulated for the reasonable needs of the business to avoid the surtax upon the shareholders, it must be shown that the controlling intention of the taxpayer is manifested at the time of the accumulation, not intentions subsequently, which are mere afterthoughts. The accumulated profits must be used within reasonable time after the close of the taxable year. In the instant case, petitioner did not establish by clear and convincing evidence that such accumulated was for the immediate needs of the business.
To determine the reasonable needs of the business, the United States Courts have invented the
―Immediacy Test‖ which construed the words ―reasonable needs of the business‖ to mean the immediate needs of the business, and it is held that if the corporation did not prove an immediate need for the accumulation of earnings and profits such was not for reasonable needs of the business and the penalty tax would apply. (Law of Federal Income Taxation Vol 7) The working capital needs of a business depend on the nature of the business, its credit policies, the amount of inventories, the rate of turnover, the amount of accounts receivable, the collection rate, the availability of credit and other similar factors. The Tax Court opted to determine the working capital sufficiency by using the ration between the current assets to current liabilities. Unless, rebutted, the presumption is that the assessment is correct. With the petitioner‘s failure to prove the CIR incorrect, clearly and conclusively, the Tax Court‘s ruling is upheld.
22. CIR VS. ANTONIO TUASON INC.- Surtax
Category: Income Taxation
The importance of liability is the purpose behind the accumulation of the income and not the consequences of the accumulation. Thus, if the failure to pay dividends were for the purpose of using the undistributed earnings & profits for the reasonable needs of the business, that purpose would not fall to overcome the presumption and correctness of CIR.
FACTS:
• CTA set aside petitioner‘s revenue commissioner‘s assessment of 1.1 M as the 25% surtax on private respondent‘s unreasonable accumulation of surplus for the year 1975-1978.
• Private respondent protested the assessment on the ground that the accumulation of surplus profits during the years in question was solely for the purpose of expanding its business operations as a real estate broker.
• Private res. Filed a petition that pending determination of the case, an order be issued
restraining the commissioner and/or his reps from enforcing the warrants of distraint and levy.
Writ of injunction was issued by tax court.
• Due to the reversal of CTA of the commissioner‘s decision, CIR appeals to the SC.
ISSUES:
1. Whether or not private respondent is a holding company and/or investment company?
2. Whether or not Antonio accumulated surplus for years 75-78
3. Whether or not Tuason Inc. is liable for the 25% surtax on undue accumulation of surplus for 75-78
HELD: Yes to all. Antionio is liable for the 25% surtax assessed.
Sec. 25. Additional tax on corporation improperly accumulating profits or surplus.—
(a) Imposition of tax. — If any corporation, except banks, insurance companies, or personal holding companies, whether domestic or foreign, is formed or availed of for the purpose of preventing the imposition of the tax upon its shareholders or members or the shareholders or members of another corporation, through the medium of permitting its gains and profits to accumulate instead of being divided or distributed, there is levied and assessed against such corporation, for each taxable year, a tax equal to twenty-five per centum of the undistributed portion of its accumulated profits or surplus which shall be in addition to the tax imposed by
section twentyfour, and shall be computed, collected and paid in the same manner and subject to the same provisions of law, including penalties, as that tax.
(b) Prima facie evidence. — The fact that any corporation is a mere holding company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members. Similar presumption will lie in the case of an investment company where at any time during the taxable year more than fifty per centum in value of its outstanding stock is owned, directly or indirectly, by one person.
• In this case, Tuason Inc, a mere holding company for the corporation did not involve itself in the development of subdivisions but merely subdivided its own lots and sold them for bigger profits. It derived its income mostly from interest, dividends, and rentals realized from the sale of realty.
• Tuason Inc is also owned by Antonio himself. While these profits were actually made, the commissioner points out that the corp. did not use up its surplus profits. Antonio claims that he spent the money to build an apartment in urdaneta but there‘s a large discrepancy bet. The market value and the alleged investment cost.
• The importance of liability is the purpose behind the accumulation of the income and not the consequences of the accumulation. Thus, if the failure to pay dividends were for the purpose of using the undistributed earnings & profits for the reasonable needs of the business, that purpose would not fall to overcome the presumption and correctness of CIR.
23. MANILA BANKING CORP VS. CIR- Minimum Corporate Income Tax (MCIT)
Category: Income Taxation
The intent of Congress relative to the minimum corporate income tax(MCIT) is to grant a 4-year suspension of tax payment to newly formed corporations. Corporations still starting their
business operations have to stabilize their venture in order to obtain a stronghold in the industry.
Facts:
• 1961- Manila Banking Corp was incorporated. It engaged in the banking industry til 1987.
• May 1987- Monetary Board of Bangko Sentral ng Pilipinas (BSP) issued Resolution # 505 {pursuant to the Central Bank Act (RA 265)} prohibiting Manila Bank from engaging in
business by reason of insolvency. So, Manila Bank ceased operations and its assets and liabilities were placed under charge of a gov.- appointed receiver.
• 1998- Comprehensive Tax Reform Act (RA8424) imposed a minimum corporate income tax on domestic and resident foreign corporations.
o Implementing law: Revenue Regulation # 9-98 stating that the law allows a 4year period from the time the corporations were registered with the BIR during which the minimum corporate income tax should not be imposed.
• June 23, 1999- BSP authorized Manila Bank to operate as a thrift bank.
o NOTE: June 15, 1999 Revenue Regulation #4-95 (pursuant to Thrift Bank Act of 1995) provides that the date of commencement of operations shall be understood to mean the date when the thrift bank was registered with SEC or when Certificate of Authority to Operate was issued by the Monetary Board, whichever comes LATER.
• Dec 1999- Manila Bank wrote to BIR requesting a ruling on whether it is entitled to the 4 year grace period under RR 9-98.
• April 2000- Manila bank filed with BIR annual income tax return for taxable year 1999 and paid 33M.
• Feb 2001- BIR issued BIR Ruling 7-2001 stating that Manila Bank is entitled to the 4year grace period. Since it reopened in 1999, the min. corporate income tax may be imposed not earlier than 2002. It stressed that although it had been registered with the BIR before 1994, but it ceased operations 1987-1999 due to involuntary closure.
o Manila Bank, then, filed with BIR for the refund. • Due to the inaction of BIR on the claim, it filed with CTA for a petition for review, which was denied and found that Manila Bank‘s payment of 33M is correct, since its operations were merely interrupted during 1987-1999. CA affirmed CTA.