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PHILIPPINE AMERICAN LIFE v. SECRETARY OF FINANCE

FACTS:

The Philippine American Life and General Insurance Company (Philamlife) sold its Class A shares in Philam Care Health Systems, Inc. (PhilamCare) to STI Investments, Inc. for USD 2,190,000. Philamlife applied for a certificate authorizing registration/tax clearance, but was told to secure a BIR ruling regarding potential donor's tax liability. Philamlife requested a ruling confirming that the sale was not subject to donor's tax, but the Commissioner on Internal Revenue denied the request. The Secretary of Finance affirmed the Commissioner's ruling. Philamlife appealed to the Court of Appeals, arguing that the specific provision of the revenue regulation was void and that donor's tax did not apply to the sale of shares.

The case involves the interpretation of the President's power of control as stated in the Constitution. The President has control over all executive departments, bureaus, and offices and is responsible for ensuring the faithful execution of laws. The power of control allows the President to review, alter, modify, nullify, or set aside the actions of subordinates and replace their judgment with his own. The respondents argue that the Court of Appeals did not make any errors in its ruling concerning the jurisdiction of the Court of Tax Appeals over the dispute.

ISSUES:

  1. Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction.

  2. Whether or not the price difference in petitioner's adverted sale of shares in PhilamCare attracts donor's tax.

RULING:

  1. The CA did not err in its holding respecting the CTA's jurisdiction over the controversy. Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to the CTA.

  2. The price difference is subject to donor's tax. The absence of donative intent does not exempt the transaction from donor's tax as Sec. 100 of the NIRC deems the amount by which the fair market value of the property exceeded the value of the consideration to be a gift by fiction of law.

PRINCIPLES:

  • Jurisdiction of CTA: Appeals questioning the decisions of the Secretary of Finance in the exercise of its power of review under Sec. 4 of the NIRC are within the CTA’s jurisdiction.

  • Interpretation of Tax Laws: The Commissioner’s power to interpret tax laws and promulgate rules under Sec. 4 of the NIRC is reviewable by the Secretary of Finance, and subsequent review is under the CTA's jurisdiction.

  • Donor's Tax: Under Sec. 100 of the NIRC, if the fair market value of the property exceeds the value of the consideration, the difference is deemed a gift and subject to donor’s tax.

  • Retroactive Application: Revenue Memorandum Circulars (RMC) that call for the strict application of already existing laws do not contravene Sec. 246 of the NIRC concerning retroactive application.