G.R. No. 186155 - Lapanday Foods Corp. vs. Commissioner of Internal Revenue

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G.R. No. 186155: Lapanday Foods Corp. vs. Commissioner of Internal Revenue

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Title Source: Supreme Court: Commissioner of Internal Revenue vs. Filinvest Development Corp.

Case: G.R. No. 163653

Decision Date: Jul 19, 2011

FDC and FAI contested BIR assessments on tax-free exchange, imputed interest on cash advances, and documentary stamp taxes. Courts ruled in favor, upholding tax-free exchange, rejecting imputed interest, and exempting informal documents from stamp taxes.

Case Digest (G.R. No. 186155)
Expanded Legal Reasoning Model

Facts:

Corporate Relationships and Ownership

Filinvest Development Corporation (FDC) is the holding company of Filinvest Alabang, Inc. (FAI) and holds 67.42% of Filinvest Land, Inc. (FLI).
FAI owns 80% of FDC’s outstanding shares.

Deed of Exchange (29 November 1996)

FDC and FAI transferred real property appraised at ₱4,306,777,000 to FLI in exchange for 463,094,301 newly issued FLI shares.
Post-exchange shareholdings of FLI (4,226,629,000 total shares): FDC 61.03%, FAI 9.96%, Others 29.01%.

BIR Rulings on Taxability

FLI requested and received BIR Ruling No. S-34-046-97 (3 Feb 1997) and clarification (10 Feb 1997) that the exchange is tax-free under old NIRC Sec. 34(c)(2).
FDC, FAI and FLI complied with all ruling requirements.

Intercompany Cash Advances (1996–1997)

FDC extended interest-free advances to FAI, FLI, Davao Sugar Central Corp. and Filinvest Capital, Inc., totaling ₱2.56B (1996) and ₱3.36B (1997).
Advances evidenced by instructional letters, cash and journal vouchers, repaid within one week to three months.

Shareholders’ Agreement for Joint Venture (15 Nov 1996)

FDC and Reco Herrera PTE Ltd. (RHPL) formed Singapore-based Filinvest Asia Corp. (FAC) to manage FDC’s 50% interest in PBCom Office Tower.
FDC subscribed ₱500.7M (60% equity) via a Deed of Assignment; FDC reported a ₱190.7M net loss in 1996.

BIR Deficiency Assessments (3 Jan 2000)

FDC received notices for: (a) ₱150.07M income tax (1996), (b) ₱10.43M documentary stamp tax (DST, 1996), (c) ₱5.72M income tax (1997), (d) ₱5.80M DST (1997).
FAI received ₱1.48B income tax assessment for 1997.

Protest and CTA Petition

FDC and FAI filed protests within 30 days; BIR did not resolve within 180 days.
On 17 October 2000 they filed separate petitions (CTA Case No. 6182) seeking cancellation of all assessments.

CTA Decision (10 September 2002)

Canceled all assessments except ₱5.69M deficiency income tax on imputed intercompany interest.
Held: exchange tax-free under Sec. 34(c)(2); no DST on vouchers; gain on FAC shares unrealized; CIR could impute interest under Sec. 43 NIRC.

Court of Appeals (CA) Proceedings

FDC’s petition (CA-G.R. SP No. 72992)

Argued CIR lacked power to impute interest and that vouchers were not loan agreements.
CA (5th Div.) reversed CTA: annulled interest assessment (16 Dec 2003).

CIR’s petition (CA-G.R. SP No. 74510)

Challenged CTA cancellations of exchange tax, DST on vouchers, and FAC dilution gain.
CA (14th Div.) affirmed CTA (26 Jan 2005): upheld tax-free exchange, no DST on vouchers, unrealized gain not taxable.

Issues:

In G.R. No. 163653, did the CA err in reversing the CTA’s imputation of intercompany interest on FDC’s cash advances?
In G.R. No. 167689:

Did the CA err in holding the FDC–FAI–FLI exchange tax-free under old NIRC Sec. 34(c)(2)?
Did the CA err in ruling that instructional letters and vouchers are not loan agreements subject to DST under Sec. 180 NIRC?
Did the CA err in holding that FDC’s gain from dilution of FAC shareholdings is not taxable?

Ruling:

(Subscriber-Only)

Ratio:

(Subscriber-Only)

Doctrine:

(Subscriber-Only)

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END