The Supreme Court ruled that Swedish Match Philippines, Inc. was entitled to a refund of business taxes paid under Section 21 of the Manila Revenue Code. The Court found that the imposition of tax under Section 21 constituted double taxation because the company had already paid taxes under Section 14 of the same code. Additionally, the Court addressed procedural issues, holding that the initial lack of a board resolution authorizing the signatory to file the refund claim was cured by subsequent ratification, emphasizing a practical approach to procedural rules.

Unraveling Manila’s Tax Code: Can a City Tax Businesses Twice?

This case revolves around Swedish Match Philippines, Inc.’s claim for a refund of business taxes paid to the City of Manila. The core issue is whether the city’s tax ordinance, specifically Section 21 of the Manila Revenue Code, imposed double taxation on the company. Swedish Match argued that it was already paying taxes under Section 14 of the same code, which covers manufacturers. The City of Manila, on the other hand, contended that Sections 14 and 21 applied to different objects of taxation, and therefore, there was no double taxation. This disagreement led to a legal battle that ultimately reached the Supreme Court, requiring a careful examination of local tax laws and the principles of double taxation.

The legal journey began when Swedish Match filed a Petition for Refund of Taxes with the Regional Trial Court (RTC) of Manila. The RTC dismissed the petition, citing the company’s failure to properly establish the authority of its representative to sue on its behalf. On appeal, the Court of Tax Appeals (CTA) affirmed the RTC’s decision. The CTA En Banc also denied the petition, emphasizing the lack of a board resolution or secretary’s certificate proving the representative’s authority to act for the corporation when the initial pleading was filed. This procedural hurdle became a significant point of contention, requiring the Supreme Court to clarify the requirements for corporate representation in legal proceedings.

Before diving into the substantive issue of double taxation, the Supreme Court first addressed the procedural question of whether Ms. Beleno was authorized to file the Petition for Refund of Taxes with the RTC. The Court acknowledged the general rule that a corporation’s power to sue is vested in its board of directors. This principle implies that an individual corporate officer cannot independently exercise corporate powers without the board’s authorization. However, the Court also recognized exceptions to this rule, particularly when there has been substantial compliance with the requirements. In this case, the Court emphasized that the belated submission of the Secretary’s Certificate, which ratified Ms. Beleno’s actions, constituted substantial compliance.

The Court referenced previous rulings to support its position, citing cases like Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue, where it had recognized the authority of certain corporate officers to sign the verification and certification against forum shopping without a board resolution.

In sum, we have held that the following officials or employees of the company can sign the verification and certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case.

The rationale behind these exceptions is to acknowledge the authority of corporate officers who are “in a position to verify the truthfulness and correctness of the allegations in the petition.” Building on this principle, the Court found that Ms. Beleno, as the Finance Director of Swedish Match, was indeed in such a position. Her role involved the overall management of the financial operations of the company, making her well-versed in the taxes assessed and paid by the corporation. The Court held that the belated submission of the Secretary’s Certificate confirmed her authority and validated her actions, solidifying the Court’s reason to uphold her authority to represent the corporation in this case.

Turning to the substantive issue of double taxation, the Supreme Court reiterated the principle that double taxation occurs when the same property is taxed twice for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period, and the taxes are of the same kind or character. The Court found that the imposition of taxes under both Sections 14 and 21 of the Manila Revenue Code constituted double taxation.

there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority – petitioner City of Manila; (4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business.

This conclusion aligned with the Court’s previous ruling in The City of Manila v. Coca-Cola Bottlers Philippines, Inc., which addressed a similar issue. The Court further emphasized that Ordinance Nos. 7988 and 8011, which were used as the basis for collecting business taxes, had been declared null and void for failure to comply with the publication requirements mandated by law. Since Swedish Match had already paid business taxes under Section 14, it was exempt from the same payments under Section 21. As a result, the Court ruled that the payments made under Section 21 must be refunded to the company. This decision underscores the importance of adhering to proper legal procedures when enacting tax ordinances and the need to avoid imposing double taxation on businesses.

In summary, the Court harmonized procedural and substantive considerations, reaffirming the significance of corporate authorization in legal proceedings while also preventing the imposition of unlawful double taxation. This approach ensures that businesses are not subjected to unfair tax burdens and that local governments follow the correct legal procedures when enacting tax laws.

FAQs

What was the key issue in this case?	The key issue was whether the City of Manila’s imposition of taxes under both Sections 14 and 21 of its Revenue Code constituted double taxation on Swedish Match Philippines, Inc.
Why did the lower courts initially dismiss the case?	The lower courts initially dismissed the case because Swedish Match failed to adequately prove that its representative, Ms. Beleno, had the authority to file the Petition for Refund of Taxes on behalf of the corporation.
How did the Supreme Court address the issue of Ms. Beleno’s authority?	The Supreme Court ruled that the subsequent ratification by the corporation’s board of directors validated Ms. Beleno’s authority, constituting substantial compliance with procedural rules. The Court also noted her position as Finance Director made her capable of verifying the petition’s accuracy.
What is double taxation, and why is it problematic?	Double taxation is when the same property or income is taxed twice by the same authority for the same purpose. It is considered problematic because it can unfairly burden taxpayers and hinder economic activity.
What was the Supreme Court’s ruling on the double taxation issue?	The Supreme Court agreed that imposing taxes under both Sections 14 and 21 of the Manila Revenue Code constituted double taxation, as they were being levied on the same activity for the same purpose.
What was the significance of the Coca-Cola Bottlers case in this decision?	The Coca-Cola Bottlers case established that local business taxes could not be imposed under Section 21 of the Manila Revenue Code if the business was already taxed under Section 14, which is what the Supreme Court referenced in its ruling. The Court also cited this case to invalidate Ordinance Nos. 7988 and 8011
What was the impact of the nullification of Ordinance Nos. 7988 and 8011?	The nullification of Ordinance Nos. 7988 and 8011 meant that the tax assessments based on these ordinances were invalid, further supporting the company’s claim for a refund.
What was the final outcome of the case?	The Supreme Court granted Swedish Match Philippines, Inc.’s petition and ordered the City of Manila to refund the business taxes that the company had paid under Section 21 of the Manila Revenue Code.

In conclusion, the Supreme Court’s decision in this case clarifies the application of local tax laws and reinforces the importance of adhering to procedural requirements and avoiding double taxation. This ruling provides valuable guidance for businesses operating in the Philippines and underscores the need for local governments to enact tax ordinances in compliance with legal standards.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Swedish Match Philippines, Inc. vs. The Treasurer of the City of Manila, G.R. No. 181277, July 03, 2013