Month: February 2026

COURT OF TAX APPEALS DECISIONS

TRUST FUND CONTRIBUTIONS BY PRE-NEED COMPANY IS EXCLUDED FROM GROSS RECEIPT FOR VAT PURPOSES; 19.75% UNDER-DECLARATION OF SALE WARRANTS THE APPLICATION OF 3-YEAR PRESCRIPTIVE PERIOD. Under the law, contributions to the trust fund are not included in the gross receipts of a pre-need company. Accordingly, when the taxpayer, as a pre-need company, made both initial trust fund contributions and subsequent additional contributions as required by the SEC, both amounts should be excluded in determining VAT liability. The BIR cannot validly exclude the initial contributions while including the additional ones in its VAT assessment. As to prescription, the BIR generally has three (3) years within which to issue an assessment. The period extends to ten (10) years only in cases the return is intentionally false or fraudulent. A prima facie presumption of falsity or fraud arises when there is an under-declaration of taxable sales exceeding thirty percent (30%) of the amount declared in the return. However, this presumption may be rebutted by the taxpayer upon showing that the discrepancy was due to inadvertence or error. In this case, the taxpayer demonstrated that the alleged under-declaration resulted from the BIR’s failure to exclude the additional trust fund contributions. Since the under-declaration amounted to only 19.75%, which is below the 30% threshold, the presumption of falsity does not apply. Consequently, the ordinary three-year prescriptive period governs. (CIR v. Pet Plans, Inc., CTA EB No. 2857, CTA Case No. 10002, September 2, 2025)

AN ASSESSMENT IS VOID WHEN THE EXAMINERS’ AUTHORITY TO AUDIT IS BASED ON MEMORANDUM OF ASSIGNMENT; CHIEF IS NOT AUTHORIZED TO ISSUE LETTER OF AUTHORITY; COURT MAY RULE ON EXAMINER’S LACK OF AUTHORITY EVEN NOT RAISED AS AN ISSUE. The Commissioner of Internal Revenue (CIR) or his duly authorized representatives, such as Regional Directors and Deputy Commissioners, have the authority to examine a taxpayer’s books of accounts; however, any reassignment of the examination to different revenue officers requires the issuance of a new Letter of Authority (LOA). A reassignment effected only through a Memorandum of Assignment (MOA), referral memorandum, or similar internal document, without a corresponding new LOA, constitutes a usurpation of the CIR’s authority, as an MOA cannot supplant or substitute for an LOA. Furthermore, a taxpayer’s failure to question the lack of authority does not bar the court from considering the issue, since it affects the intrinsic validity of the assessment itself. Thus, where an LOA originally authorized Revenue Officers Fernandez, Dizon, and Costales to conduct the audit, but the case was later reassigned to Examiners Benedicto and Santos without the issuance of a new LOA, relying only on a MOA signed by the Chief of Regular LT Audit Division II, who is not authorized to issue an LOA, the reassigned examiners lack legal authority, rendering the resulting assessment void. (CIR v. Metro Rail Transit Corporation, CTA EB No. 2862, CTA Case No. 9651, September 2, 2025)

ASSESSMENT BASED ON TAX VERIFICATION NOTICE (TVN), WITHOUT LOA, IS VOID. Under the National Internal Revenue Code, only the Commissioner of Internal Revenue or his duly authorized representative, specifically the Revenue Regional Director, may authorize the examination of a taxpayer through the issuance of a LOA and such authority may be exercised only in the manner expressly provided by law; jurisprudence consistently holds that an LOA is the exclusive and indispensable authority for a revenue officer to validly examine a taxpayer, the absence of which renders the assessment void for violation of due process. Applying these principles, a TVN issued by a Revenue District Officer cannot substitute for an LOA, as the NIRC, being a special law prevailing over the general provisions on agency under the Civil Code, does not recognize any equivalent document nor empower the Revenue Regional Director to delegate the issuance of LOAs through a TVN; thus, without a valid LOA authorizing the revenue officer’s examination, the resulting deficiency assessment is null and void. (CIR v. St. Paul Hospital Cavite, Inc., CTA EB No 2880, CTA Case No. 10815, August 15, 2025)

180-DAY PERIOD BASED ON INACTION IS COUNTED FROM THE FILING OF THE PROTEST AND NOT FROM APPEAL TO THE CIR. There is only one 180-day period reckoned from the filing of the protest or the submission of complete supporting documents. Thus, if the CIR’s duly authorized representative denies the protest within that 180-day period and the taxpayer elevates the matter to the CIR, the CIR is left with the balance of the same 180-day period to resolve the case. Should no action be taken within the remaining period, the taxpayer may appeal to the CTA within 30 days from the lapse thereof. Conversely, if the taxpayer opts to await the decision of the CIR’s representative and such decision is issued beyond the 180-day period, the taxpayer may still appeal the same to the CTA; in this situation, the 180-day period is no longer relevant, and the taxpayer’s recourse is to await the CIR’s final decision before seeking relief from the CTA if the ruling is adverse. (Benguet Electric Cooperative, Inc. (BENECO) vs. The Commissioner on Internal Revenue, CTA EB No. 2882, CTA Case No. 9667, September 2, 2025)

ASSESSMENT IS VOID IF THE BIR FAILED TO ADDRESS TAXPAYER’S ARGUMETNS IN THE PAN; VOID IF EXAMINER’S AUTHORITY IS MEMORANDUM OF ASSIGNMENT. Tax assessments must state in writing the factual and legal bases therefor and must be issued by revenue officers duly authorized through a valid LOA; otherwise, the assessments are void for violation of administrative due process and lack of authority, as consistently held in jurisprudence such as Avon Case. In this case, the BIR failed to address and consider the taxpayer’s refutations to the PAN, as the FLD merely reproduced the earlier findings without explaining the rejection of the defenses, thereby denying the taxpayer a meaningful opportunity to be heard; moreover, the deficiency assessments were recommended by a revenue officer who lacked a valid LOA at the time of the audit, her authority resting only on a Memorandum of Assignment issued by one not authorized to issue an LOA, rendering the examination and resulting assessments a nullity. Accordingly, the assessments were correctly declared void in  (CIR v. Will Team PH, Inc., CTA EB No. 2884, CTA Case No. 10154)

ASSESSMENT IS VOID IF NOT ALL EXAMINERS ARE NAMED IN THE LOA. Only the CIR or his duly authorized representatives—such as Revenue Regional Directors, Deputy Commissioners, Assistant Commissioners, and Head Revenue Executive Assistants—may issue a valid Letter of Authority (LOA) empowering revenue officers (ROs) to examine and audit a taxpayer’s books, and the LOA must specifically name the ROs performing the audit to satisfy due process; in this case, while the LOA for TY 2014 named ROs Pelayo, Guimbao, and GS Aviles, additional ROs Sison, Gomez, and Manuel participated in the examination without being named, tainting the audit with illegality and violating the taxpayer’s right to due process, and as a result, the Court of Tax Appeals in Division correctly nullified the 2014 deficiency tax assessments and enjoined the BIR from collecting them, (CIR V. Concepcion Industries, Inc., CTA EB No. 2920, CTA Case No. 10584 October 20, 2025)

30-DAY PERIOD TO FILE PETITION FOR REVIEW WITH THE CTA DIVISION IS NON-EXTENDIBLE. Under the National Internal Revenue Code of 1997, the 30-day period to appeal the Commissioner’s denial of a protest on a disputed assessment to the Court of Tax Appeals is mandatory and jurisdictional; failure to comply renders the assessment final, executory, and demandable, and such period cannot be extended by invoking Section 11 of Republic Act No. 1125 or Rule 42 of the Rules of Court, as the latter applies generally and yields to the specific substantive provision of Section 228. Here, the petitioner received the Final Decision on Disputed Assessment (FDDA) on July 15, 2024 and, instead of filing a Petition for Review within the 30-day period or until August 14, 2024, filed a Motion for Extension on August 13, 2024 seeking an additional 15 days; however, the Court En Banc held that it could not grant the extension because the appeal period under Section 228 is non-extendible, and procedural rules cannot override this statutory mandate. (Yokohama Tire Sales Philippines, Inc. v. CIR, CTA EB No. 3078, CTA Case No. 11590, October 24, 2025)

INTERCOMPANY LOAN IS NOT SUBJECT TO DST IF THE LOANED AMOUNT IS UTILIZED OUTSIDE  OF THE PHILIPPINES. Under Philippine law, documentary stamp tax (DST) is an excise tax imposed on transactions represented by documents, not on the documents themselves, and must be interpreted strictly against the government and liberally in favor of the taxpayer. DST on debt instruments applies only when the obligation or right arises from Philippine sources or when the object of the contract is located or used in the Philippines, reflecting the principle that a state’s taxing power is limited to subjects within its territorial jurisdiction. In the present case, Bloomberry’s loan agreements with its non-resident foreign affiliates were perfected outside the Philippines, as the loans were real contracts that required delivery of the proceeds, which were used in the Republic of Korea. Because the necessary jurisdictional connection, or situs, for DST is absent, the transactions cannot be taxed. Furthermore, the proviso in Section 173, which allows shifting of DST liability when one party is exempt, presupposes that the transaction is already taxable and does not create liability where none exists. Therefore, consistent with the legislative intent and the strict construction principle, Bloomberry’s loan transactions are not subject to DST. (CIR v. Bloomberry Resorts Corporation, CTA EB No. 2933, CTA Case No. 10193; Bloomberry Resorts Corporation v. CIR, CTA EB No. 2935, CTA Case No. 10193, August 6, 2025)

REVENUE ISSUANCES

BIR DEADLINES FROM FEBRUARY 23, 2026 TO FEBRUARY 28, 2026. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS DECISIONS

ASSESSMENT IS VOID IF THE BIR ISSUES FLD/FAN 3 WORKING DAYS AFTER TAXPAYER FILED ITS REPLY TO THE PAN, EVEN IF FLD/FAN IS ISSUED AFTER THE 15-DAY PERIOD REQUIREMENT. A taxpayer has 15 days from receipt of the PAN within which to submit a written response. Moreover, as part of due process, the BIR must address the taxpayer’s defenses, otherwise the assessment is void. Thus, where the taxpayer received the PAN on February 26, 2018 and filed a reply on March 9, 2018 (on the 11^th day), but the BIR issued the FAN on March 14, 2018 (even on the 16^th day from issuance of PAN but only after 5 calendar days or 3 working days from filing of reply), without indication that the reply was considered; where the FAN’s findings are mere verbatim of the findings in the PAN, save for interest, without acknowledging discussing or evaluating the defenses in the reply; where BIR changed the prescriptive period in the FAN from 3 years to 10 years without specifying the basis of the invocation. the assessment is void. (Folares Pharmaceuticals Inc. v. CIR, CTA Case No. 10331, October 27, 2025)

LOA REMAINS VALID AS LONG ONE EXAMINER HAS AUTHORITY EVEN THOUGH OTHER EXAMINERS DO NOT HAVE VALID AUTHORITY. Based on McDonald’s case, only the RO authorized in the LOA may conduct the audit. There is nothing in the McDonald’s case that states that the valid authority of the examiner is nullified or affected by the lack of authority of other revenue officers. Thus, where RO Sudano, Anaban and Monforte who prepared and signed the audit reports and memorandum were not authorized under the LOA, but RO Mendoza was authorized under the LOA to examine the books, the LOA remains valid despite other examiners lack authority (Grand Union Supermarket, Inc. v CIR,  CTA Case No. 10390, October 22, 2025)

A MEMORANDUM OF ASSIGNMENT SIGNED BY THE RDO IS NOT A LOA; RDO IS NOT AUTHORIZED TO ISSUE A LOA; A LOA BELATEDLY ISSUED AT THE REINVESTIGATION STAGE RENDERS THE ASSESSMENT VOID.  Under the Tax Code, a revenue officer must possess proper authorization to conduct an audit through a Letter of Authority (LOA), and jurisprudence holds that any reassignment of the examining officer necessitates the issuance of a new LOA. Only the Commissioner, Deputy Commissioner, Regional Directors, or officials duly authorized by the Commissioner may issue an LOA, meaning a Revenue District Officer (RDO) lacks such authority. In this case, since RO Dela Cruz and GS Lapuz, originally named in the LOA, were transferred or reassigned, and the audit was continued by RO Muti and GS Carim under a Memorandum of Assignment signed by the RDO, with a new LOA for GS Muti issued only after the taxpayer filed a Request for Re-Investigation following the PAN and FAN, the resulting assessment is rendered void. (Ebar Abstracting Company, Inc. v. CIR, CTA Case No. 10685, October 16, 2025)

AVON CASE WILL NOT APPLY IF THE REPLY TO THE PAN IS NOT SUPPORTED WITH DOCUMENTARY EVIDENCE. Due process requires that the assessment must state the fact and on which the assessment is based. In Avon Case, the Supreme Court ruled that the BIR is mandated not only to fully inform the taxpayer of the fact and law, but to comment or address the defenses and documents submitted by the taxpayer. Here, where the taxpayer’s protest to the PAN was not at all supported by any documentary evidence, despite the fact that it raised several factual issues that can be resolved by supporting documents. Thus, the BIR cannot be faulted if it merely reiterated the same findings, without giving any reason for rejecting the unsubstantiated refutations. Thus, Avon case does not apply. (TSPI Mutual Benefit Association, Inc. v. CIR, CTA Case No. 10691, October 14, 2025)

A COOPERATIVE IS EXEMPT FROM PERCENTAGE TAX ON LIFE INSURANCE PREMIUMS; REQUISITES. A cooperative association is exempt from paying taxes on life insurance premiums if it meets the following conditions: (1) it is managed by its members; (2) it operates using funds collected from its members; and (3) it is licensed for the mutual protection of its members rather than for profit. In this case, the taxpayer satisfies these requirements: the articles of incorporation grant each member one vote, all officers are members as confirmed by the General Information Sheet and minutes of meetings, the Mutual Benefit Association’s License classifies it as a nonstock, non-profit association providing death, medical, and similar benefits to members and their families, its revenue comes from member contributions and premiums, and the Insurance Commission’s license authorizes it to operate as a mutual benefit association. (TSPI Mutual Benefit Association, Inc. v. CIR, CTA Case No. 10691, October 14, 2025)

SUBSEQUENT BUYER OF THE PROPERTY SUBJECT TO NOTICE OF LIEN AND LEVY (NOTL) IS A REAL PARTY IN INTEREST; THE RUNNING OF THE PRESCRIPTIVE PERIOD FOR TAX COLLECTION IS SUSPENDED UPON THE VALID SERVICE OF A WARRANT OF DISTRAINT AND/OR LEVY (WDL), AND THE LAW DOES NOT PROVIDE FOR ANY AUTOMATIC RESUMPTION OF THE PERIOD ONCE SUSPENDED.  Where the BIR annotated Notices of Tax Lien and Levy (NOTL) on the taxpayer’s tax declarations covering certain real properties, and the taxpayer subsequently sold those properties to a buyer two years later, the buyer—although not the original taxpayer—qualifies as the real party-in-interest in challenging the validity of the NOTL. By acquiring the properties, the buyer likewise assumed the liabilities attached thereto. Being directly affected and potentially obliged to satisfy such liabilities, the buyer has a legal interest in seeking the lifting of the NOTL and stands to benefit from its cancellation.  Moreover, the Supreme Court in Republic v. Hizon, does not support the theory that prescription resumes after service of a WDL, but instead recognizes that summary collection proceedings may continue beyond the statutory period once seasonably initiated. Applying this, the CTA En Banc held that the BIR’s timely service of the WDL in 2011 validly suspended the prescriptive period; moreover, the advertisement and sale of the levied properties were not required to effect suspension. Consequently, the BIR’s right to collect the 2007 deficiency taxes did not prescribe, and there was no basis to lift the NOTL. (CIR v. Boast, Inc., CTA EB No. 2812, CTA Case No. 10484, September 16, 2025)

3-YEAR PRESCRIPTIVE PERIOD TO COLLECT APPLIES IF BIR FAILED TO PROVE BASIS FOR INVOKING THE 5-YEAR PRESCRIPTIVE PERIOD. Under Section 203 of the NIRC, internal revenue taxes shall be assessed within three years from the last day of filing the return, and once assessed, the BIR has another three years to collect; extraordinary periods under Section 222, allowing up to five years for collection, apply only in cases of fraud, false returns, or failure to file, which the BIR failed to prove. In this case, petitioner received the FAN on January 4, 2017, which became final and executory on February 3, 2017, and no evidence shows any protest, waiver, or exception to extend the period. Consequently, the regular three-year period to collect expired on February 3, 2020, and the issuance of the WDL on September 28, 2021, occurred well beyond this prescriptive period, rendering the BIR’s collection effort already prescribed. (Teknologix, Inc. v. CIR, CTA Case No. 10803, October 27, 2025)

BIR CANNOT ASSESS TAXPAYER BASED ON REVOKED RULING ON WHICH THE TAXPAYER RELIED ON ABSENT BAD FAITH. While the CIR has the authority to issue, modify, or revoke BIR rulings, any revocation cannot be given retroactive effect if it would prejudice a taxpayer who relied in good faith on a prior ruling, except in cases of misstatement of facts, materially different facts, or bad faith; moreover, applying the rule of expressio unius est exclusio alterius, only those rulings expressly revoked are deemed affected. Applying these principles, the CTA En Banc held that RMC No. 55-2010 expressly revoked only specific rulings issued to another taxpayer and did not include or expressly revoke Ruling No. 178-08 issued to the instant taxpayer, which was a specific interpretative ruling based on its distinct factual circumstances; absent proof of misrepresentation or bad faith, the taxpayer was entitled to rely on Ruling No. 178-08 in good faith, and the subsequent assessment for TY 2012, anchored on an implied revocation, would unjustly prejudice it. Accordingly, the deficiency assessment, FAN, and FDDA were properly cancelled. (CIR v. JTKC Land, Inc., CTA EB No. 2800, CTA Case No. 10059; JTKC Land, Inc. v. CIR, CTA EB No. 2808, CTA Case No. 10059, August 4, 2025)CTA MAY ORDER REFUND OF GARNISHED AMOUNT IN A DISPUTED ASSESSMENT CASE. The CTA may take cognizance of a petition for refund of taxes without requiring the prior filing of an administrative claim, particularly where such a requirement would be futile or result in unnecessary delay, as in cases involving disputed assessments or amounts paid under protest. Applying this to the present case, petitioner is entitled to the refund of the garnished amount of which was released by the bank to the BIR, because the deficiency assessments were null and requiring a prior administrative claim would have been a useless formality; accordingly, the Court properly entertained the Supplemental Petition for Review and found that the refund is in order. (The Philippine Stock Exchange, Inc. v. CIR, CTA Case No. 10781, July 4, 2025)

REVENUE ISSUANCES

Revenue Regulations No. 028-2025

Pursuant to Sections 244 and 245 of the National Internal Revenue Code, these regulations mandate the use of the Enhanced eDST System for specific industries for the affixation of documentary stamps.

Revenue Memorandum Circular No. 010-2026

Under the National Internal Revenue Code of 1997, cash donations must be filed through electronic platforms and supported by documentation, such as a notarized deed and proof of transfer, submitted to the BIR within thirty days. Notably, an Electronic Certificate Authorizing Registration (eCAR) is no longer required for these transactions because cash is not considered a registrable property requiring a formal transfer of title.

BIR DEADLINES FROM FEBRUARY 16, 2026 TO FEBRUARY 22, 2026. A gentle reminder on the following deadlines, as may be applicable:

We would like to share a VAT planning opportunity that may be particularly relevant to businesses with 70% export-related sales of goods and services.

Under the CREATE MORE Act (Republic Act No. 12066), VAT-registered exporters that meet the 70% export sales threshold for the preceding taxable year may apply for VAT zero-rating on local purchases through the Export Management Bureau (EMB) of the Department of Trade and Industry (DTI). Once approved, your local suppliers will no longer pass on VAT to you on qualified purchases.

This presents several practical advantages:

• No input VAT accumulation, as VAT is no longer passed on by suppliers
• No need to file VAT refund claims with the BIR or pursue costly and time-consuming cases before the CTA
• Improved cash flow, since VAT is no longer embedded in your purchase costs and tied up pending refund

Recent guidelines from the BIR highlights the importance of timely compliance. Under Revenue Memorandum Circular (RMC) No. 037-2025, for VAT refund claims covering periods beginning April 1, 2025, exporters who meet the 70% export threshold but fail to secure the required EMB VAT zero-rating certification will no longer be allowed to claim VAT refunds for VAT passed on by local suppliers. Instead, any unutilized input VAT may only be carried forward to future period despite the fact that export sales are VAT zero-rated. In short, without EMB certification, VAT may effectively become a stranded cost.

If this is something you would like to explore, we would be glad to walk you through the requirements, qualifying purchases, and implementation process to help you maximize the benefits under CREATE MORE.

Please let us know if you would like to schedule a discussion.