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COURT OF TAX APPEALS DECISIONS

Receipt of Preliminary Assessment Notice (PAN) by a person who is not an employee renders the assessment void. According to Revenue Regulations No. 12-99, Section 3.1.6, as amended,, tax notices such as the PAN and Formal Letter of Demand (FLD) must be served personally. If personal service is not possible, substituted service is allowed under certain conditions—such as delivering the notice to a clerk, a person in charge at the business, or to a barangay official with witnesses if no one is present at the registered address. Here, the PAN was received by Richard Alarcon, an employee of Prime Pacific Grill. However, he was not employed by the taxpayer (James Fausto Cor.) Since he was neither a person in charge nor a qualified recipient under the rules, the service of the PAN was invalid, rendering the assessment void. (James Fausto Corp., v. CIR, CTA Case No. 10775, January 16, 2025)

The BIR must consider the taxpayer's explanations before issuing a Final Assessment Notice (FAN); if the basic tax amount remains unchanged and the BIR fails to justify rejecting the taxpayer’s response, the assessment is invalid. The BIR is required to rule on the PAN and must take into account the taxpayer’s explanations or arguments before issuing a FAN. Failure to do so renders the assessment invalid. If a comparison of the PAN and FAN shows that the basic tax amount remains the same, and the BIR merely reiterates the findings in the PAN without providing any justification for rejecting the taxpayer’s response, the assessment is considered void. (James Fausto Corp., v. CIR, CTA Case No. 10775, January 16, 2025)

Unverified third-party information (TPI) cannot form the basis of a tax assessment, and if the BIR fails to provide TPI sworn statement or requests, the assessment is void. Unverified TPI cannot constitute a valid factual basis for a tax assessment. If the assessment originates solely from the BIR’s data-matching with such third-party information—without any supporting sworn statement or verification from the source—and the BIR fails to formally offers in evidence the letter requests, the assessment is rendered void. (James Fausto Corp., v. CIR, CTA Case No. 10775, January 16, 2025)

A new Letter of Authority (LOA) is required when an examination is reassigned to a different revenue officer, and if an unauthorized officer conducts the examination, the assessment is void. A new LOA is required in cases where the examination is reassigned or transferred to a different revenue officer (RO). If the original LOA designates RO Cajuday and GS Pre, but the taxpayer’s logbook records show that RO Mandigma and GS Carim conducted the examination, with a visitor’s pass issued to Mandigma or Carim, and GS Carim received the submitted documents and was named in the PAN and FLD/FAN, despite not being authorized under the LOA, then the assessment is void. (Fabtech Kitchens Unlimited, Inc. v. CIR, CTA Case No. 10798, February 12, 2025)

A Memorandum of Assignment (MOA) cannot replace a LOA, and if unauthorized officers conduct the audit, the assessment is invalid. A MOA cannot replace a LOA as it does not grant the authority to conduct an examination or assessment. While the LOA authorized RO Bacorro and GS Arce to inspect the taxpayer’s books of accounts, RO Bacorro was transferred to a different district. Consequently, RO Sengco and GS Qunto carried out the audit, but since they were not named in the LOA—only in the MOA prepared by the Revenue District Officer—their authority is deemed invalid. (Delsan Transport Lines, Inc. v. CIR, CTA Case No. 10798, March 12, 2025)

If the BIR issues a FLD/FAN before the 15-day response period from the receipt of the PAN expires, the assessment is void. The taxpayer has 15 days from the receipt of the PAN to respond before the BIR can issue the FLD/FAN. Failure to observe this 15-day period renders the assessment void. In this case, assuming the PAN was received on December 19, 2016, the taxpayer had until January 3, 2017, to reply. However, since the BIR issued the FLD/FAN on December 29, 2016, before the 15-day period had expired, the FLD/FAN is considered void. (Delsan Transport Lines, Inc. v. CIR, CTA Case No. 10798, March 12, 2025)

Assessment notices can be personally served or mailed, but if delivery is disputed, the BIR must prove receipt; failure to do so, along with returned mail, violates the taxpayer's right to due process. Assessment notices may be served personally to the party. If personal service is not feasible, the assessment notices can be delivered by mail. In cases where the taxpayer denies receiving the assessment, the BIR bears the burden of proving that the notice was actually received. In this instance, the BIR failed to explain the taxpayer's claim of not receiving the PAN and the FLD/FAN, which were sent via registered mail. Furthermore, the FAN/FLD was marked "Return to Sender," and the examiner testified that the PAN was returned because the taxpayer could not be located at the registered address. As a result, the taxpayer's right to due process was violated. (Delsan Transport Lines, Inc. v. CIR, CTA Case No. 10798, March 12, 2025)

REVENUE REGULATIONS

Revenue Regulations No. 004-2025 increases the tax-exempt limits for clothing allowance to ₱7,000 and achievement awards to ₱10,000 under the “De Minimis” benefits, exempting them from income and fringe benefit taxes.

1. Clothing Allowance Increase: The tax-exempt limit for uniform and clothing allowance is raised from a lower amount to ₱7,000 per annum.
2. Achievement Awards: Tax-exempt employee achievement awards (e.g., for length of service or safety) are allowed up to ₱10,000 per year, whether given in cash, gift certificates, or tangible property, provided under a nondiscriminatory written plan.
3. Tax Exemption: These benefits are exempt from both income tax on compensation and fringe benefit tax.

Revenue Regulations No. 005-2025 imposes a 0.5% withholding tax on payments by credit card companies and digital platforms to merchants, amending RR No. 2-98 in accordance with RA No. 12066.

1. Credit Card Transactions: A 1/2% withholding tax is imposed on gross payments made by credit card companies to businesses for goods/services sold to cardholders.
2. Digital Platforms: A 1/2% withholding tax is also applied to gross remittances by electronic marketplace operators and digital financial services providers to merchants.

Revenue Regulations No. 006-2025 implements Sections 135 and 135-A of the Tax Code, as amended by Republic Act No. 12066, focusing on excise tax exemptions and refunds for petroleum products.

1. Excise Tax Exemption: Petroleum products sold to:
   • International carriers (Philippine or foreign) for consumption outside the Philippines.
   • Exempt entities/agencies under international agreements, provided reciprocity exists.
   • Entities legally exempt from direct and indirect taxes.
2. Refund of Excise Tax:
   • Suppliers must file a written refund claim within 2 years of payment.
   • BIR must act on complete claims within 90 days.
   • Denials can be reconsidered within 15 days (limited to legal issues).
   • Taxpayers can appeal to the Court of Tax Appeals within 30 days of denial or inaction.

Revenue Regulations No. 007-2025 reduces corporate income tax to 20% for qualified small corporations and RBEs under EDR, allows VAT input deductibility, and permits carryforward of excess tax payments.

1. Reduced Corporate Income Tax Rates:
   • 20% for domestic corporations with net taxable income not exceeding ₱5M and total assets not exceeding ₱100M (excluding land).
   • 20% for Registered Business Enterprises (RBEs) under the Enhanced Deductions Regime (EDR), effective November 28, 2024.
   • 25% for all other domestic and resident foreign corporations (effective July 1, 2020).
2. Scope of Reduced Rates: The 20% rate for RBEs only applies to income from registered projects; non-registered income is taxed at standard rates.
3. Deductibility of Input VAT: Input VAT on local purchases related to VAT-exempt sales is deductible from gross income under Section 34(C)(8).
4. Transitory Provision: RBEs that overpaid tax prior to these regulations may carry forward excess payments to the next period.

Revenue Regulations No. 008-2025 implements Sections 112(C) and 135-A of the Tax Code (as amended by R.A. No. 12066), specifically addressing procedures for requests for reconsideration on denied VAT and excise tax refund claims.

1. Scope: Covers reconsideration of denied refund claims for:
   • Creditable input VAT (Sections 112 A & B)
   • Excise tax on petroleum products (Section 135-A)
   • Applies to claims filed from April 1, 2025 onward.
2. Reconsideration Limits:
   • Only questions of law may be raised—not factual issues.
   • No new evidence allowed; only previously submitted documents are accepted.
   • Filing must occur within 15 days of receipt of the denial.
3. Procedural Rules:
   • Filed with appropriate BIR offices depending on the signatory of the denial.
   • Strict formatting and documentation requirements must be met.
   • Decision must be issued within 15 days from receipt of request.
   • If granted, refund must be processed within 20 days.
4. Appeals:
   • If denied or not acted upon within the prescribed period, taxpayers may appeal to the Court of Tax Appeals (CTA) within 30 days.

BIR RULINGS

Retirement pay is subject to tax if company has retirement plan registered with the BIR but employee completed only 6 years of service. Under the Tax Code, a retirement benefit plan that is duly registered with the BIR and classified as a reasonable private benefit plan is exempt from withholding tax, provided the employee has rendered at least 10 years of service with the same private employer and is at least 50 years old at the time of retirement. In the absence of a registered retirement plan, collective bargaining agreement, or any applicable employment contract, the Labor Code allows retirement benefits to be exempt from income tax if the employee has served for at least 5 years and is between 60 and 65 years old at retirement. However, if a taxpayer has a BIR-registered retirement plan but the employee has completed only 6 years of service, the retirement benefit will be subject to withholding tax. In such cases, the Tax Code takes precedence, even though the Labor Code allows tax exemption after 5 years of service (BIR Ruling No. OT-001-2024, January 9, 2024).

The transfer of property to a condominium corporation without consideration for the common benefit of unit owners is not subject to income tax, capital gains tax, VAT, or DST—except for DST on the notarial acknowledgment. The transfer of property to a condominium corporation without consideration, and solely for the purpose of project management for the common benefit of unit owners, does not result in taxable income and is not subject to capital gains tax. Additionally, documentary stamp tax (DST) is not applicable to conveyances of real property without consideration and not made in connection with a sale. VAT is also not imposed on property transfers where no payment is made and the beneficial ownership remains with the original party. In the case of Manila Jockey Club Inc., the landowner, and Alveo Land, the developer of Celadon Park Manila under a Joint Development Agreement, a condominium corporation (Celadon Park Manila Condominium Corporation) was established to hold title to the land and common areas of the project. The transfer of the land, facilities, utilities, and common areas to the Condominium Corporation without consideration is not subject to income tax, creditable withholding tax, VAT, or DST—except for the DST due on the notarial acknowledgment of the conveyance (BIR Ruling No. OT-002-2024, January 18, 2024).

Earnings of an employee trust fund are exempt from income and withholding tax if contributions are made for the exclusive benefit of employees and used solely for distributing earnings and principal. Earnings of employee trust fund are exempt from withholding tax if the following conditions are met: (1) Contributions to the trust are made by the employer, the employee, or both; (2) the contributions are intended for the distribution of both earnings and principal to employees; and (3) No part of the fund’s principal or income is used for purposes other than the exclusive benefit of the employees. Accordingly, when the University of the Philippines established a non-profit corporation to serve as a retirement fund for the benefit of its employees—intended to support retirement, resignation, or separation from employment—and where employees contribute to the fund for the purpose of receiving distributions, the earnings from bank deposits, interest, or other income derived from deposit substitutes, trust funds, and similar arrangements are exempt from income tax and withholding tax (BIR Ruling No. OT-003-2024, January 18, 2024).

A transfer of non-traded shares for a consideration, between spouses by an agreement in annulment proceedings, is treated as a sale and is subject to both capital gains tax and DST. A 15% capital gains tax is imposed on the transfer of shares of stock not traded on the stock exchange, whether through sale, barter, exchange, or other forms of disposition involving domestic shares. Accordingly, in a case involving annulment proceedings, where the spouses voluntarily executed a Memorandum of Agreement in which the husband agreed to transfer his shares in the Manila Polo Club to the wife for a consideration, the transaction is treated as a sale. As such, it is subject to both capital gains tax and DST (BIR Ruling No. OT-004-2024, January 18, 2024).

Transfers of real property as disturbance compensation are exempt from CGT and DST only if proven to result from the termination of tenancy due to land reclassification or conversion. Transfers of real property made as disturbance compensation are exempt from capital gains tax (CGT) and documentary stamp tax (DST). Disturbance compensation refers to payments made due to the termination of a tenancy relationship resulting from the reclassification or conversion of agricultural land into non-agricultural uses, such as residential, commercial, industrial, or other urban purposes. However, if land is transferred to assignees purportedly as disturbance compensation but there is no proof that the compensation arose from the extinguishment of a tenancy relationship due to land reclassification or conversion, the transaction will be subject to both CGT and DST (BIR Ruling No. OT-005-2024, January 18, 2024).