“We find no cogent reasons to disturb the findings and conclusions reached by the court in division in the assailed decision as well as in the assailed resolution. Accordingly, the petition for review filed with the Court en banc is denied for lack of merit and the decision dated March 7, 2019 and the resolution dated August 13, 2019, are hereby affirmed,” wrote Associate Justice Catherin T. Manahan in the September 2, 2020 ruling of the CTA En Banc.
The decision was concurred by Presiding Justice Roman Del Rosario and Associate Justices Juanito Castaneda Jr., Erlinda Uy, Belen Ringpis Liban, Jean Marie Bacorro-Villena, and Ma. Rowena Modesto-San Pedro.
This is the fifth time in three years that Makati City has lost its case against Mermac.
The case involved Makati City’s move to collect P3.72 million from Mermac due to non-payment of local buisess tax on its dividend income of P1.231 billion in 2013.
Mermac – which stands for Mercedes MacMicking, the aunt of Jaime Augusto and Fernando Zobel. – paid the tax deficiency in 2014 but under protest.bIt filed a case in the same year with the Regional Trial Court Branch 147 contesting the assessment made by the Makati treasurer. It argued that since the dividends are passive income, the same cannot be subject to local business tax under the Local Government Code (LGC).
In 2017, RTC-Branch 147 cancelled the tax deficicency assessment and ordered Makati to grant P3.72 million tax credit to Mermac.
Makati filed a motion for reconsideration but the RTC denied its petition.
In 2019, Makati elevated the case to the CTA Special First Division which affirmed the RTC ruling and rejected Makati’s appeal for reconsideration.
Unfazed, Makati filed a petition for review wit the CTA En Banc. But the end result remained the same.
The CTA En Banc ruled that the First Division “corretcly pointed out” that Mermac could not be classified under the term “banks and other financial institutions” to justify its payment of local bausiness tax on its dividend income.
“It may be recalled that the Court, in the Michigan Holdings case ruled that a holding company is not among the entities enumerated as “banks and other financial institutions” as defined in Section 133 (c) of the LGC of 1991,” the CTA En Banc said.
“Contrary to the position of (Makati), it is essential to determine whether an entity is performing functions or activities that may be classified as a ‘bank’ or ‘other financial institution’, as defined, in order to justify the imposition of (local business tax) on its dividend income. In the instant case, (Mermac) was conclusively found not to be performing activities akin to a ‘bank’ or other ‘financial institution’,” the CTA said
The CTA also upheld its First Divsion’s ruling that Makati showed no proof that its city treasurer Jesusa Cuneta was authorized to file the city’s petition for review on behalf of Makati as required under the certifiation against non-forum shopping.
The CTA ruled that Mermac has the option to demand that the refund be made in cash rather than as tax credit.
“It also behooves us to mention the reality that recovery of erroneously paid taxes by way of a cash refund may be quite difficult as the funds may not be readily available due to administrative and budgetary constraints which is why the alternative of a tax credit seems to be the more practical and expedient choice,” the CTA said.
“But this reality notwithstanding, recovery by way of cash refund remains an option to taxpayers as clearly seen from the afore-quoted Section 196 of the LGC of 1991. It is well to remind the taxpayers that he who holds the purse strings may also control when the funds are to be released. The question is -is the taxpayer willing to wait?” the CTA said.