Articles

LETTER OF AUTHORITY (LOA)

 

A LOA IS VALIDLY SERVED TO A PERSON WHO CUSTOMARILY RECEIVES CORRESPONDENCES FROM THE BIR. A LOA is intended to inform the taxpayers of the revenue officers (RO) who are duly authorized to conduct the examination and assessment. Where it was admitted that the person who received the LOA is an employee, and he received the First Request, showing that he customarily receives correspondences for the taxpayer, the person who received the LOA is an authorized person.  On the other hand, where the individual taxpayer was not present at the time of service of LOA and the examiner merely relied on the representation of the taxpayer’s supposed relative as to the authority to receive the LOA and the person who received the LOA is not an employee of the taxpayer, the LOA is void. With respect to the representative, principal must delegate the necessary authority. Agency is not presumed. Thus, where the BIR served the LOA to someone without verifying the position of the recipient, and it was found out that the one who receipt the LOA is a driver of the taxpayer, the LOA is improperly served. The act of receiving the LOA is no proof of authority. The act originating from the taxpayer must be shown.

A MEMORANDUM OF ASSIGNMENT (MOA) WITHOUT A LOA RENDERS THE ASSESSMENT VOID. An RO may recommend the assessment of any deficiency tax due. It is also clear, however, that such recommendation may only be done pursuant to a LOA. Where  an RO, who was not named in the LOA, was assigned through a mere MOA signed by the RDO, who is neither the Commissioner of Internal Revenue (CIR) nor a Regional Revenue Director, the issuance of a mere MOA insufficient to validly grant a RO with the authority to examine a taxpayer’s records. Thus, the RO who examined taxpayer’s records and recommended the deficiency assessment was not authorized to do so, rendering said assessment void. Moreover, even if a second LOA was issued on the examiner, the second LOA did not cure the defect, since the original investigation had already ceased as when the second LOA was issued, the FLD/FAN as well as the have already been issued.

 

A TAX VERIFICATION NOTICE (TVN) WITHOUT A LOA RENDERS THE ASSESSMENT VOID. Unless authorized by Commissioner himself or by his duly authorized representative, through a LOA, an examination of the taxpayer cannot ordinarily be undertaken. Here, there is no LOA to prove the authority of the revenue officer to conduct an audit of the petitioner and only TVN was issued against petitioner

 

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Li-Son Transport Service v. CIR, CTA Case No. 10631, July 26, 2024. Redentor Agpuldo Tagala, as the proprietor of 7^th Concept Trading/7C Construction v. CIR, CTA Case No. 10720, August 14, 2024. Strawberry Foods Corporation v. CIR, CTA Case No. 10282, July 12, 2024. Travel Warehouse, Inc. v. CIR, CTA Case No. 10098, July 12, 2024; CIR v. Ma. Erlina T. Ong, CTA EB No. 2785, CTA Case No. 10100, August 5, 2024; CIR v. Zilog Electronics Philippines Inc., CTA Eb No. 2762, CTA Case Nos. 9403 & 9492, June 18, 2024; CIR v. Basic Housing Solution, Inc., CTA EB No. 2723, CTA Case No. 9905, June 11, 2024 ; CIR v. Sellery Phils. Enterprises, Inc. CTA EB No. 2756, CTA Case No. 10047, August 5, 2024; Alphaland Southgate Tower Inc., v. CIR, CTA Case No. 10669, August 13, 2024; Prudentialife Plans, Inc. v. CIR, CTA Case No. 10339, August 24, 2024. R.A. Tagala & Co. Ventures, Inc. v. CIR, CTA Case No. 10217, July 19, 2024

for taxable year 2007. TVN is not equivalent to a LOA. A TVN which is nowhere mentioned in the 1997 NIRC, as amended, is not a LOA that vests an authority to revenue officer to conduct tax examination of a taxpayer . Thus, In the absence of a LOA, the assessment is void.

 

A LETTER NOTICE, WITHOUT A LOA, RENDERS THE ASSESSMENT VOID. The Supreme Court, in Medicard Case, G.R. No. 222743, April 5, 2017, ruled that an LN must first be converted into a LOA before the RO may examine and assess the taxpayer. An LN is not the same as LOA and the absence of a LOA is tantamount to violation of taxpayer’s due process.

 

AN ASSESSMENT OUTSIDE THE COVERED PERIOD OF LOA IS VOID. An assessment must be conducted pursuant to a valid LOA. Where the LOA covers January 2020 to May 31, 2021, but the assessment relates to quarter ending June 30, 2021, the assessment has no legal effect. Moreover, a Letter issued by the BIR informing the taxpayer that it cannot utilize excess input VAT is in the nature of assessment notice requiring a valid LOA.

A LOA AT THE REINVESTIGATION STAGE IS NOT REQUIRED.  The Tax Code requires authority from the commissioner or authorized representative before an examination of a taxpayer in the form of LOA. While the law explicitly requires a LOA to be addressed to a revenue officer before an examination of a taxpayer and recommendation of an assessment may be had, the law does not specifically require the same for purposes of recommending a final decision on a disputed assessment. Moreover, even assuming that a LOA is required to conduct the reinvestigation, its absence would only invalidate the resulting decision, such as the FDDA, but not the assessment. A new LOA however is not needed because the audit investigation process was already done – in case of reinvestigation, issuance of an assessment (thru a FAN), the objective of a LOA becomes functus offtcio.

A LOA IS VALID EVEN THOUGH NOT REVALIDATED WHEN CONDUCT OF AUDIT EXTENDED BEYOND 120-DAY PERIOD. Beginning June 1, 2010, a LOA need not be revalidated if the examiner failed to complete the audit within 120-days from issuance of the LOA. Where, the covered LOA is 2014, the lack of revalidation will not invalidate the LOA.

 

LOA COVERING 2 YEARS FOR RETIRING BUSINESS IS VALID. The issuance of LOA covering 2 years (immediately preceding year and short period) is valid for retiring businesses. Thus, where the RO was assigned to audit taxable period for 2015 and 2016 for retiring business, the LOA remains valid.

 

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Dizon Country Fresh v. CIR, CTA Case No. 10643, June 7, 2024.

Republic of the Philippines v. Mr. Ranson Diodell N. Tenerife, CTA EB No. 2805, CTA OC No. 025, July 10, 2024,

PMFTC Inc. v. CIR, CTA Case No. 10714, June 19, 2024.

Fort Bonifacio Development Corporation v. CIR, CTA Case No. 10343, August 22, 2024.

Alberto Lim Tangso/A.L Electrical Shop and Parts Supply v. CIR, CTA Case No. 10367, June 18, 2024

Strawberry Foods Corporation v. CIR, CTA Case No. 10282, July 12, 2024.

Glend Agnes Llantada Serviplus Medical Equipment Services & Supply v. CIR, CTA Case No. 10468, July 26, 2024.

 

PRESCRIPTION

WILLFUL INTENT MUST BE ESTABLISHED FOR A 10-YEAR PRESCRIPTIVE PERIOD TO APPLY. When either the return is not filed at all or the taxpayer files a “false or fraudulent return with intent to evade taxes”, the BIR may assess the taxpayer within an extended period of 10-years from the discovery of the falsity, fraud, or omission. The 10-year period can be invoked only when willful intent is established. Where the BIR did not attempt to even allege such willful intent, the three-year period under Section 203 of the NIRC must be followed. Where the PAN, FLD/FAN and FDDA does not state the foregoing, 10-year prescriptive period will not apply. Imposition of 50% surcharge is not sufficient to apply the 10-year prescriptive period.

 

BIR’S RIGHT TO COLLECT AFTER 10 YEARS FROM ASSESSMENT PRESCRIBES. The BIR has five (5) years to enforce collection of deficiency taxes thru summary administrative remedies, such as the distraint and/or levy of taxpayer’s property and/or thru judicial remedies, such as the filing of a criminal or civil action against the erring taxpayer. Where the BIR assessment was received in 2010, but collection was initiated only in 2021 or more than 10 years from the issuance of the assessment, the collection effort has prescribed.

CRIMINAL CASE PRESCRIBES WHEN INFORMATION IS FILED AFTER 5 YEARS FROM FILING OF CASE WITH THE PROSECUTOR’S OFFICE. All violation of Tax Code prescribes in 5 years. If the day of commission of the offense is unknown, 5-year period shall run from the discovery and filing of case in the prosecutor’s office for preliminary investigation and it will be interrupted by filing of information with the CTA. Where the CIR referred the case to the DOJ on July 5, 2012, the information should be filed until July 5, 2017 to the CTA. But since the information was filed on October 26, 2022 or more than 5 years, the offense has prescribed.

 

PROTEST

PROTEST MUST STATE THE RELEVANT DATES, AND FACTUAL AND LEGAL BASES. To validly protest against a FLD/FAN, the following must be stated in the protest: (i) the nature of the protest whether reconsideration or reinvestigation, specifying newly discovered or additional evidence he intends to present if it is a request for reinvestigation, (ii) date of the assessment notice, and, (iii) the applicable law, rules and regulations, or jurisprudence on which his protest is based. Failure to comply with these mandatory prerequisites renders the protest void and devoid of legal force and effect. Where protest lacks reference to the date of receipt, itemized statement of findings,

 

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Travel Warehouse, Inc. v. CIR, CTA Case No. 10098, July 12, 2024.

Fort Bonifacio Development Corporation v. CIR, CTA Case No. 10343, August 22, 2024.

Dizon Country Fresh v. CIR, CTA Case No. 10643, June 7, 2024.

People of the Philippines v. Ziegfried Loo Tian, CTA CEB Crim No. 117, CTA Crim Case No. O-945, July 31, 2024.

 

schedule of adjustments, no factual narratives supported by laws, regulations and jurisprudence, the protest is invalid and no disputed assessment to speak of.

 

REFUSAL TO RECEIVE PRELIMINARY ASSESSMENT NOTICE (PAN) REQUIRES THE BIR TO BRING BARANGAY OFFICIAL AND TWO DISINTERESTED WITNESSES TO PERSONALLY OBSERVE THE SERVICE OF THE NOTICE AND TO ATTEST TO THE REFUSAL.

 

Mode of Service of PAN/FLD/FAN/FDDA
Personal	Delivery to the party at his registered or known address or wherever he may be found
Substituted	· Not present –  notice be left at the party’s registered or known address, with the clerk or with the person in charge of the office · No person is found – BIR to bring barangay official and 2 disinterested witnesses; notice to be given to the barangay official · Refused – BIR to bring barangay official and 2 disinterested witnesses; notice to be given to the barangay official
Mail	By sending the notice with instruction to the postmaster to return the mail to the sender after 10 days, if undelivered; registry receipt issued by the post office containing sufficiently identifiable details of the transactions shall constitute proof of mailing and be attached to the docket

 

Corporations are always present and found at its address. Corporations act thru their directors or another person (officers, committees, or agents). Thus, PAN binds the corporation when it is received by the board of directors or officers pursuant to law or corporate by-laws. Thus, when an employee refused to receive the notice, but it did not bring a barangay official and 2 disinterested witnesses, the service of PAN violates the taxpayer’s due process and renders the assessment void.

ASSESSMENT IS VOID IF NOTICE IS RECEIVED BY THE SECURITY GUARD. The assessment may be served by reputable courier service under the regulations. While the regulation removes the requirement to indicate the designation and authority to act for and in behalf of the taxpayer if the assessment notice is received by a person other than the taxpayer, the Supreme Court still upholds it in Mannasoft case. Thus, where the assessment notice was sent via LBC and it was received by the security guard of the company, who is not an authorized representative, the assessment is void. Failure of the taxpayer to notify the BIR of the transfer will not cure the defect.

 

ASSESSMENT IS VOID IF NO NOTICE OF INFORMAL CONFERENCE (NOW NOTICE OF DISCREPANCY OR NOD) AND PAN WAS SERVED. In the Pilipinas Shell

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Li-Son Transport Service v. CIR, CTA Case No. 10631, July 26, 2024; Pentagon Gas Corporation v. CIR, CTA Case No. 10868, July 19, 2024; Up North Holdings, Inc. v. CIR, CTA Case No. 10208, June 25, 2024.

Xytrix Systems Corporation v. CIR, CTA Case No. 10629, August 6, 2024.

Ship to Shore Medical Assist, Inc. v. CIR, CTA Case No. 10550, June 6, 2024.

 

case, G.R. No. 172598, December 21, 2007, the Supreme Court emphasized the importance of following the procedures prescribed under RR No. 12-99, as amended, which includes the issuance of notice of informal conference (now NOD) and PAN. Here, no NOD or PAN was served by the BIR prior to the assessment. Thus, the assessment is void.

 

FLD/FAN WITH DUE DATE, STATEMENT “REQUESTED TO PAY”; GAP IN THE INTEREST COMPUTATION, IS VALID. The Supreme Court, in the case of Fitness By Design, G,R, No. 215957, November 9, 2016, invalidated the assessment as the FAN remained indefinite for being subject to modification and the FAN did not contain due dates. The vital element is the definiteness of the amount and the deadline for the payment. Where the assessment indicates the due date of assessment, the assessment is valid. Moreover, the phrase “you are requested to pay” cannot invalidate the FLD/FAN. It is used in the pro-forma FLD in RR 12-99, as amended by RR 18-2013.  The FLD/FAN was valid. Moreover, what is prohibited is the indefinite amount of total tax due and not the interest. Thus, gap of 2 months between due date of FLD/FAN and computation of interest will not make the amount indefinite; the use of the phrases “requested to pay,” “requested that you settle,” or “requested that you pay” does not negate the unequivocal demand for payment of deficiency tax.

 

THERE IS VALID DEMAND TO PAY A DEFINITE LIABILITY DESPITE THE STATEMENT “INTEREST WILL HAVE TO BE ADJUSTED” OR “IT IS REQUESTED” THAT THE LIABILITY BE PAID. For a tax assessment to be valid, it must not only contain a computation of tax liabilities but must also include a demand upon the taxpayer for the settlement of a tax liability that is definitely set and fixed. “A demand, within the meaning of the requirement of a demand for the payment of taxes, means any intimation to the taxpayer that payment is desired. There is a valid demand to pay a definite liability despite the statement “interest will have to be adjusted if paid beyond the date specified therein” and “it is requested” that liability be immediately paid, as it is sufficient that the tax due and interest are definite and fixed. Although the language of the FLD and FDDA may have been respectful, this did not change their tenor establishing that petitioner had an obligation to pay and, thus, it was being required to satisfy the same.

WHERE NO PAN WAS ISSUED TO THE TAXPAYER, THE FLD IMMEDIATELY ISSUED IS VOID. Taxpayer shall be issued with a PAN upon determination of deficiency taxes. Thereafter, it has 15 days from the receipt of the PAN within which to submit its response. Only after receiving the taxpayer’s reply or the lapse of the 15-day period to file the same shall the BIR issue a final assessment (i.e., FLD/Final Assessment Notice (“FAN”)). Here, the BIR’s non-issuance of the PAN prior to the issuance of the subject

 

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PMFTC Inc. v. CIR, CTA Case No. 10714, June 19, 2024;  CIR v. Grand Geo Spheres Construction Corp., CTA EB No. 2778, CTA Case No. 10207, June 12, 2024.  Li-Son Transport Service v. CIR, CTA Case No. 10631, July 26, 2024; (Fort Bonifacio Development Corporation v. CIR, CTA Case No. 10343, August 22, 2024  Altimax Broadcasting Co., Inc., v. CIR, CTA Case No. 10687, August 21, 2024  Ford Group Philippines, Inc. v. CIR, CTA Case No. 10316, July 15, 2024; Bio-Resource Power Generation Corporation v. CIR, CTA Case No. 10372, July 30, 2024; Xytrix Systems Corporation v. CIR, CTA Case No. 10629, August 6, 2024)

FLD constitutes a violation of petitioner’s right to due process, thus, invalidating the assessment against the petitioner.

 

IDENTICAL SIDE-BY-SIDE COMPARISON OF FIGURES BETWEEN PAN AND FLD/FAN WITHOUT INDICATION THAT THE BIR CONSIDERED ARGUMENTS IN THE PAN RENDERS THE ASSESSMENT VOID. The BIR must consider the matters raised by the taxpayer. It cannot simply reproduce the PAN’s contents in the subsequent FLD/FAN without mentioning of the taxpayer’s arguments or any discussion on the merits (Avon Case). Where the FLD/FAN made no reference to the taxpayers reply to the PAN and the CIR did not mention any of the taxpayer’s arguments, much less give an intelligent discourse in resolving each matter raised, the assessment is void. 

 

FLD/FAN ISSUED ON THE 15^TH DAY TO FILE PROTEST TO THE PAN IS VOID; RECEIPT DATE AND NOT DATE OF MAILING IS THE RECKONING POINT OF THE 15-DAY PERIOD. A taxpayer that disagrees with a PAN issued against it may protest the same within 15 days from receipt of said notice. The FAN can only be issued either (a) within 15 days from the filing of the protest; or (b) after the expiration of the 15-day period for filing a protest if none is filed.  The 15-day period to reply to the PAN is counted from receipt of the PAN and not of the mailing. October 9, 2018 as the start of the 15-day period, taxpayer had until October 24,2018 within which to protest the PAN. BIR, however, issued the Formal Letter of Demand with the assailed FAN on that date (October 24), without waiting for the expiration of the 15-day period. This premature issuance was, again, a violation of petitioner’s right to due process and yet another reason to declare the assailed assessment void.

 

FLD WITHOUT DEFINITE FINAL DATE OF PAYMENT IS VOID. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. Here, the FLD did not provide for a definite final date for payment of the taxes assessed therein. More importantly, the said FLD did not have assessment notices attached thereto which could have likewise indicated a definite due date. Since the FLD failed to indicate the due date for payment, the assessment is void.

 

ELECTRIC COOPERATIVES ARE EXEMPT FROM INCOME TAX DESPITE NON-REGISTRATION WITH COOPERATIVE DEVELOPMENT AUTHORITY (CDA) Under Section 39 of P.D. No. 269, cooperatives registered with the National Electrification Administration (“NEA”) are permanently exempted from paying income taxes. In the

 

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Arnel Cortez Manaloto v. CIR, CTA Case No. 10551, June 25, 2024.

Wipro Philippines, Inc. v. CIR, CTA Case No. 10814, June 24, 2024; Berong Nickel Corporation v. CIR, CTA Case No. 10319, June 11, 2024; Serbiz Multi-Purpose Cooperative v. CIR, CTA Case No. 10369, July 15, 2024; Bio-Resource Power Generation Corporation v. CIR, CTA Case No. 10372, July 30, 2024; Glend Agnes Llantada Serviplus Medical Equipment Services & Supply v. CIR, CTA Case No. 10468, July 26, 2024; CIR v. The Residences at Greenbelt Condominium Corporation, CTA EB No. 2910, CTA Case No. 9942, August 5, 2024; Altimax Broadcasting Co., Inc., v. CIR, CTA Case No. 10687, August 21, 2024; Motalban Methane Power Corporation v. CIR, CTA Case No. 10334, August 13, 2024.

Travel Warehouse, Inc. v. CIR, CTA Case No. 10098, July 12, 2024.

Arnel Cortez Manaloto v. CIR, CTA Case No. 10551, June 25, 2024.

 

case of Samar-1 Electric Cooperative, inc. v CIR (CTA EB No. 460 and 462, March 11, 2020), the CTA ruled that electric cooperative exempt from Minimum Corporate Income Tax under P.D. No. 269, even in the face of E.O. No. 93 and FIRB Resolution No. 24-87 and despite said cooperative not being registered with the CDA under the Cooperative Code. The ruling was reached via two conclusions: (1) registration with the CDA was optional for cooperatives already registered with the NEA; and (2) E O No. 93 is inconsistent with the Cooperative Code, which thus repealed the former. Thus, where the taxpayer is registered with NEA, it is exempt from income tax even if it is not registered with CDA.

SUBSEQUENT SALE OF VEHICLES BY THE CUSTOMERS OF BUYER-ENTITY REGISTERED IN SUBIC SPECIAL ECONOMIC ZONE WILL NOT AFFECT THE ZERO-RATED VAT TRANSACTION. Sales of goods by a V A T-registered taxpayer, such as petitioner, to entities located in the Subic Special Economic Zone, which by legal fiction is regarded as foreign territory, are considered “export sales” subject to VAT zero-rating, The subsequent resale by the buyer-entity of these vehicles and spare parts to its customers who may or may not bring them outside the SFZ is beyond taxpayer’s control and should not affect the tax treatment of its sale of vehicles and spare parts.

 

DEDUCTION OF EXCESS INPUT TAX CARRIED FORWARD TO SUCCEEDING QUARTER DEDUCTED FROM INPUT TAX CREDITS WITHOUT EXPLANATION IS A VIOLATION OF DUE PROCESS. Taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Where the BIR deducted amount of excess input tax carried forward to succeeding quarter from the available input tax credits of petitioner which effectively disallows the same, and BIR did not provide for any legal and/or factual basis for disallowing the said amount, as such, the same must be cancelled.

 

A PRIOR TAX CLEARANCE IN FAVOR OF AN ABSORBED CORPORATION IS UNNECESSARY FOR THE SURVIVING CORPORATION TO ABSORB THE FORMER’S UNUTILIZED INPUT VAT  A merger shall be effective at the time the certificate approving the articles and plan of merger is issued, and this results in the transfer of all rights, privileges, immunities, franchises, and other assets of the absorbed corporation without need of any act or deed. Thus, the pending tax investigation of the absorbed corporation does not bar the transfer of its unutilized input VAT to the surviving corporation.

FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) SIGNED BY THE CIR HIMSELF IS APPEALABLE TO THE CTA. Pursuant to the PAGCOR Case, G.R. No. 208731, January 27, 2016, a whole or partial denial by the CIR is appealable to the CTA. Thus, where the taxpayer received the FDDA, signed by the Commissioner himself, denying the protest and declaring the assessment final and demandable, the taxpayer’s remedy is to file an appeal to the CTA, not a letter-reply to the FDDA addressed to the

 

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Misamis Oriental Rural Electric Service Cooperative, I, Inc. v. CIR, CTA Case No. 10206, July 16, 2024.

Ford Group Philippines, Inc. v. CIR, CTA Case No. 10316, July 15, 2024.

Ford Group Philippines, Inc. v. CIR, CTA Case No. 10316, July 15, 2024.

PMFTC Inc. v. CIR, CTA Case No. 10714, June 19, 2024.

Commissioner. The letter-reply is an MR to the CIR that does not toll the running of the 30-day period to appeal to the CTA.

 

REQUEST FOR REINVESTIGATION TO THE COMMISSIONER ON THE FDDA ISSUED BY THE REGIONAL OFFICE IS NOT ALLOWED. Under RR No. 12-99, as amended by RR No. 18-2013, if the protest is denied by the CIR’s duly authorized representative, the elevation to the CIR through a request for reinvestigation shall not be allowed. Instead, only a request for reconsideration shall be permitted. Taxpayer’s request for reinvestigation is not sanctioned by the regulations.

THE ISSUANCE OF WDL OR ANY FORM OF DEMAND TO COLLECT ASSESSMENT WITHOUT THE ISSUANCE OF FDDA IS TANTAMOUNT TO DENIAL OF PROTEST. Thus, WDL is not premature after the taxpayer’s grant of request for reinvestigation.  

 

AN ASSESSMENT ITEM INCLUDED IN THE FDDA AND NOT FOUND IN THE FLD/FAN, IS NOT VALID. To allow respondent to incorporate new assessments in the FDDA would deprive the taxpayer of its right to due process and would put the latter at the mercy of the former. Hence, the particular assessment should be cancelled for being issued contrary to the guidelines of RR No. 12-99, as amended by RR No. 18-2013.

 

JURISDICTION

 

WARRANT OF GARNISHMENT (WG) IS APPEALABLE TO THE CTA WITHIN 30 DAYS FROM ITS RECEIPT. In the Supreme Court case of CIR v. Algue, Inc., G.R. No. 225809, March 17, 2021, the warrant of distraint and/or levy is the CIR’s final decision. With the issuance of WG, the protest is considered denied. The taxpayer has 30 days from receipt of WG to file the petition with the CTA. Thus, where the WG was received in 2021, but instead of the taxpayer wrote a letter to the BIR, and appealed the letter received in 2022, the CTA has no jurisdiction over the case.

ENVIRONMENTAL FEE IS NOT A TAX AND NOT WITHIN THE JURISDICTION OF THE CTA. The CTA’s appellate jurisdiction over regional trial court’s decision become operative only when the case involve tax. Tax and fee are different from each other. The imposition is tax if the generation of revenue is the primary purpose; regulatory fee, if regulation is the primary purpose. An environmental tax is not a tax but a regulatory fee, as it is imposed for purposes of watershed protection, conservation and management program under  the Watershed Code. Thus, the CTA has no jurisdiction.

APPEAL TO THE COURT OF INACTION OF THE LOCAL TREASURER ON THE PROTEST SHOULD BE FILED WITHIN 30 DAYS AFTER THE LAPSE OF 60-DAYS

 

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Pentagon Gas Corporation v. CIR, CTA Case No. 10868, July 19, 2024.

Up North Holdings, Inc. v. CIR, CTA Case No. 10208, June 25, 2024.

Xytrix Systems Corporation v. CIR, CTA Case No. 10629, August 6, 2024.

Golden Donuts, Inc. v. CIR, CTA Case No. 10336, July 30, 2024.

Country Bank, Rural Bank of Bongabong, Inc. v. BIR, CTA EB No. 2760, CTA Case No. 10864, August 5, 2024.

DOLE Philippines Inc. – Stanfilco Division v. The Sangguniang Panlungsod of the City of Davao et. al., CTA AC no. 286, Civil Case No. R-DVO-20-0252-CV, June 7, 2024.

 

FROM FILING OF PROTEST. Whenever a taxpayer receives a notice of assessment from a local treasurer, he or she can file a protest thereto with the local treasurer within 60 days from receipt of such notice of assessment. Thereafter, the local treasurer has 60 days to decide a protest filed by a taxpayer. Should the local treasurer wholly or partly deny the protest, the taxpayer then has 30 days to file an appeal with the regular courts from (1) the receipt of the denial of the protest; or (2) from the lapse of the 60-day period for the local treasurer to decide on the protest. Significantly, the failure of the local treasurer to decide a protest on time is deemed a “denial due to inaction” and as such can be acted upon by the regular courts. The taxpayer does not have the option to wait for an actual denial by the local treasurer before filing an appeal. Here, the protest was filed on March 13, 2019, the treasurer has until May 12, 2019 to decide. Without the decision, the taxpayer has until June 11, 2019. But where the taxpayer filed the appeal on June 13, 2019, the court has no jurisdiction to rule on the appeal.

 

AVON CASE DOES NOT APPLY TO FDDA. Avon case applies to a situation where the BIR issued identical amounts of assessments in the PAN and FAN, without considering the arguments and documents submitted by a taxpayer in its protest. It does not apply to a situation where FLD and FDDA contains the same amounts of assessments and explanation. An assessment itself differs from a decision on a disputed assessment.

 

CASH BASIS OF ACCOUNTING REQUIRES PROOF THAT TAXPAYER MAINTAINS CASH SALES BOOKS. The taxable income of a taxpayer shall be computed in accordance with the method of accounting regularly employed in keeping its books, but if it does not regularly employ a method of accounting which reasonably shows the correct income, the computation of income shall be made in such manner as in the opinion of the Commissioner clearly reflects such income. Where the taxpayer adopts cash basis of accounting, but it failed to show proof that it regularly employs cash basis method of accounting, such that the sales book has no indication of cash sales or sales on account, the BIR can compute income tax based on accrual/invoice.

BIR’S FAILURE TO PRESENT REGISTRY RECEIPT AND CERTIFICATION OF POSTMASTER WHEN RECEIPT OF PAN IS DENIED, RENDERS THE PAN INVALID; BIR MUST EXPLAIN WHY IT IS RESORTING TO SERVICE BY MAIL. The Supreme Court in the case of CIR v. Metro Star Suprema, Inc. (G.R. No. 185371, December 8, 2010) ruled that issuance and service of PAN is part of due process requirement. PAN is served through personal service, and if not practicable, by substituted service or by mail. The server shall make a written report under oath setting forth the manner, place and date of service, the name of the person who received the same and such other relevant information. The registry receipt shall constitute sufficient proof of mailing and shall be attached to the docket. Where the taxpayer denied receipt by mail, The BIR has the burden to prove that the mailed matter was received. Where the BIR failed to present the registry receipt and the certification of the postmaster to prove od mailing an and receipt, nor present the testimony of the BIR server or personnel who delivered the mail to the post office, the PAN is void.

 

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Public Safety Mutual Benefit Fund, Inc v. Rosette A. Lauian, CTA AC Case No. 245, June 11, 2024

Alberto Lim Tangso/A.L Electrical Shop and Parts Supply v. CIR, CTA Case No. 10367, June 18, 2024

Alberto Lim Tangso/A.L Electrical Shop and Parts Supply v. CIR, CTA Case No. 10367, June 18, 2024.

Ma. Erlinda Ong v. CIR, CTA Case No. 10444, June 13, 2024.

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

Certain requisites must be complied with by the taxpayer-applicant to successfully obtain a credit/refund of input VAT related to zero-rated sales. Said requisites are classified into certain categories, to wit:

 

As to the timeliness of the filing of the administrative and judicial claims:

 

1. The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made. In accordance with Section 112(A) and (C) of the NIRC of1997, as amended by TRAIN Law, the administrative claim for refund of unutilized input VAT must be filed with the BIR within two (2) years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made.
2. That in case of full or partial denial of the refund claim rendered within a period of 90 days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be filed with the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision made.

• Where the taxpayer failed to offer the Denial Letter with proof of receipt, the CTA has no means to determine whether the judicial claim was timely filed.
• In case of inaction within the said 90-day period, petitioner had thirty (30) days from such expiration to file its judicial claim. Any belated decision is not binding upon the taxpayer. The non-receipt of the decision within 90 days is considered inaction and the reckoning point to file the judicial claim within 30 days.
• For regional cases, the power to decide applications or claims for refund of creditable input taxes was delegated to the Regional Director, within the 90-day time frame. The participation of a Revenue District Officer (RDO) after the filing of the claim is limited only to verification/processing. Thus, for applications or claims for refund of creditable input taxes filed with the concerned RDO, the appealable decision to this Court is not one issued by the corresponding RDO, but by the Regional Director.

 

With reference to the taxpayer’s registration with the BIR:

 

3. The taxpayer is a VAT-registered person.

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HP PPS (Philippines), Inc. v. CIR, CTA Case No. 10090, July 2, 2024; Offsourcing Philippines, Inc. v. CIR, CTA Case No. 10257, July 5, 2024.

HP PPS (Philippines), Inc. v. CIR, CTA Case No. 10090, July 2, 2024.

Manulife Data Services, Inc. v. CIR, CTA Case No. 10666, August 2, 2024; Offsourcing Philippines, Inc. v. CIR, CTA Case No. 10257, July 5, 2024; “K” Line Maitime Academy Philippines, Inc. v. CIR, CTA Case No. 10270, June 27, 2024.

Sankyu-Ats Consortium-B v. CIR, CTA Case No. 10495, August 6, 2024.

 

In relation to the taxpayer’s output VAT:

 

4. The taxpayer is engaged in zero-rated or effectively zero-rated sales.

 

Reason for disallowance: sale outside the period of claim; unreported inward remittance; no VAT OR; failed to indicate the nature of the service; or indicated only the billing statement numbers but failed to offer the billing statement.

 

5. For zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b), and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with Bangko Sentral ng Pilipinas (BSP) rules and regulations

 

• sales of goods abroad, in order for an export sale to qualify as zero-rated

 

• The following conditions must be complied with: first, the sale was made by a VAT-registered person; second, there was sale and actual shipment of goods from the Philippines to a foreign country; and third, said sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP.
• In relation to the second condition, any VAT-registered person claiming VAT zero-rated direct export sales must present, among others: one, sales invoice as proof of sale of goods; and two, bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country.
• Reason for the denial: Sales without remittance; sales with bill of lading not in customer’s name; customer is not the remitter; VAT ORs dated in the subsequent quarter or dated outside the validity period of the ATP; missing date and corrections without countersignature; unreadable OR; cancelled OR.

 

• Sale of services to ECOZONE-registered enterprises.Since the Ecozone, by legal fiction, is viewed as a foreign territory, a VAT-registered person’s sales of goods and services to an entity registered and operating within the ecozone in the Philippine customs territory are considered exports to a foreign country subject to zero percent (0%) VAT.

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PPD Pharmaceutical Development Philippines Corp., v. CIR, CTA Case No. 10348, August 6, 2024

Halliburton Worldwide Limited Philippine Branch v. CIR, CTA Case No. 10467, July 26, 2024; Philippine Mining Service Corporation v. CIR, CTA Case No. 10494, July 8, 2024.

Halliburton Worldwide Limited Philippine Branch v. CIR, CTA Case No. 10467, July 26, 2024; Philippine Mining Service Corporation v. CIR, CTA Case No. 10494, July 8, 2024.

Philippine Mining Service Corporation v. CIR, CTA Case No. 10494, July 8, 2024; Nippon Express Philippines Corporation v. CIR, July 5, 2024.

Philippine Mining Service Corporation v. CIR, CTA Case No. 10494, July 8, 2024.

 

• Sale of services to RE Developers

 

To confer 0% VAT on sales of goods, properties and services to an RE Developer, the following conditions must be present: first, the RE Developer must be registered with the DOE and BOI; and second, the local sales of goods, properties and services to the RE Developer are needed for the development, construction, and installation of the RE Developer’s plant facilities and the whole process of exploration and development of RE sources up to its conversion into power.

 

• sales of services, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), towit:

 

• The services fall under any of the categories under Section 108(B)(2), or simply, the services rendered should be other than ”processing, manufacturing or repacking of goods”
• The service must be performed in the Philippines by a VAT-registered person.The ICPA testimony that the services are performed in the Philippines is not sufficient as the ICPA lacks personal knowledge of such fact and merely examined the taxpayer’s documents. Petitioner must prove that the services were rendered in the Philippines.
• The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules.
• The recipient of the services must be engaged in business conducted outside the Philippines or not engaged in business and is outside the Philippines when the services are performed.

In order to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both a Certification of Non-Registration of Corporation/Partnership issued by the Philippine SEC, and proof of incorporation/registration in a foreign country (e.g., Articles/Certificate of Incorporation/Registration and/or Tax

 

__________________________________________

Halliburton Worldwide Limited Philippine Branch v. CIR, CTA Case No. 10467, July 26, 2024.

PPD Pharmaceutical Development Philippines Corp., v. CIR, CTA Case No. 10348, August 6, 2024; MSCI Hongkong Limited v. CIR, CTA Case No. 10474, July 17, 2024;

PPD Pharmaceutical Development Philippines Corp., v. CIR, CTA Case No. 10348, August 6, 2024;MSCI Hongkong Limited v. CIR, CTA Case No. 10474, July 17, 2024)

Avaloq Philippines Operating Headquarters v. CIR, CTA Case No. 2746, CTA Case No. 1019, July 31, 2024.

PPD Pharmaceutical Development Philippines Corp., v. CIR, CTA Case No. 10348, August 6, 2024; MSCI Hongkong Limited v. CIR, CTA Case No. 10474, July 17, 2024; Stefanini Philippines, Inc. v. CIR, CTA Case No. 10595, June 24, 2024.

PPD Pharmaceutical Development Philippines Corp., v. CIR, CTA Case No. 10348, August 6, 2024; MSCI Hongkong Limited v. CIR, CTA Case No. 10474, July 17, 2024; Stefanini Philippines, Inc. v. CIR, CTA Case No. 10595, June 24, 2024.

PPD Pharmaceutical Development Philippines Corp., v. CIR, CTA Case No. 10348, August 6, 2024; Stefanini Philippines, Inc. v. CIR, CTA Case No. 10595, June 24, 2024.

• Residence Certificate).

 

As regards the taxpayer’s input VAT being refunded:

 

6. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales.However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume.

 

7. The input taxes are not transitional input taxes.

 

8. The input taxes have not been applied against output taxes during and in the succeeding quarters.

 

9. Input tax must comply with invoicing The following information shall be indicated in the VAT invoice or official receipt:

 

• Reasons for the disallowance: unreadable date, description or VAT amount; nature of the service is not indicated or the reference indicated is not attached to the OR; alteration in the address and the countersignature differs from that of the authorized representative; no TIN of the taxpayer; different date in the COR; collection receipt only; VAT was not separately shown.

 

REFUND OF UNUTILIZED CREDITABLE WITHHOLDING TAX (CWT)

 

In filing a claim for refund or credit of creditable withholding tax, compliance with the following must be met:

1. The claim for refund must be filed within the two-year prescriptive period.

• The administrative and judicial remedy of filing a claim for refund of erroneously or excessively paid tax must be done within two (2) years from the date of payment of the tax both in the administrative and judicial levels.
• For actions for refund of excess corporate income tax, the Supreme Court ruled that the two-year prescriptive period should be counted from the filing of the Final Adjustment Return, because it is only during that date that the exact tax liability or refundability of the tax can be determined.

 

__________________________________________

PPD Pharmaceutical Development Philippines Corp., v. CIR, CTA Case No. 10348, August 6, 2024; (MSCI Hongkong Limited v. CIR, CTA Case No. 10474, July 17, 2024; Stefanini Philippines, Inc. v. CIR, CTA Case No. 10595, June 24, 2024.

Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10489; July 5, 2024.

Stefanini Philippines, Inc. v. CIR, CTA Case No. 10595, June 24, 2024; Halliburton Worldwide Limited Philippine Branch v. CIR, CTA Case No. 10467, July 26, 2024.

Tullett Prebon [Philippines], Inc. v. CIR, CTA Case No. 10273,CTA Case no. 10273, June 28, 2024; Service Resources, Inc. v. CIR, CTA Case No. 10503, July 5, 2024.

Service Resources, Inc. v. CIR, CTA Case No. 10503, July 5, 2024; Ford Group Philippines, Inc. v. CIR, CTA Case No. 10507, July 10, 2024; Ayala Corporation v. CIR, CTA Case No. 10496, June 19, 2024.

 

• The law prescribes two options to a taxable corporation whose total quarterly income tax payment in a given taxable year exceeds its total income tax due. The taxpayer may either file a tax refund (either in the form of cash or tax credit certificate) or carry over the excess credit. However, once the carry-over option is taken actually or constructively it becomes irrevocable for that taxable period. The phrase “for that taxable period” refers to the taxable year when the excess income tax, subject of the option, was acquired by the taxpayer.
• In exercising its option, the corporation must signify in its final adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other.

1. The fact of withholding must be established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom.

• Proof of actual remittance of taxes withheld to the BIR is not required in a claim for refund of excess CWT. The claimant-taxpayer is only required to prove that the income payment formed part of the gross income and the fact of withholding. The proof of remittance of the withheld taxes remains the responsibility of the withholding agent.
• Reasons for disallowance: TIN of taxpayer was not complete; no signature of the payor; out of period; typographical error per CWT certificates; incorrect TIN of the taxpayer and name; overclaimed amount.

1. The income upon which the taxes were withheld must be included in the return of the recipient.

• Taxpayer must prove that the income payments from which the substantiated CWTs were withheld were declared as part of taxpayer’s gross income in its Annual ITR. It requires that the SAWT tie up with the General Ledger.

 

VIOLATION OF TAX CODE

 

ACCUSED IS ACQUITTED FOR ALLEGED WILLFUL REFUSAL TO PAY TAX IF ASSESSMENT IS VOID; CTA MAY RULE ON THE CIVIL LIABILITY DESPITE

 

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Service Resources, Inc. v. CIR, CTA Case No. 10503, July 5, 2024; Ford Group Philippines, Inc. v. CIR, CTA Case No. 10507, July 10, 2024; Sonoma Services, Inc. v. CIR, CTA Case No. 10515, July 2, 2024; Ayala Corporation v. CIR, CTA Case No. 10496, June 19, 2024.

Service Resources, Inc. v. CIR, CTA Case No. 10503, July 5, 2024; Ford Group Philippines, Inc. v. CIR, CTA Case No. 10507, July 10, 2024

Tullett Prebon [Philippines], Inc. v. CIR, CTA Case No. 10273,CTA Case no. 10273, June 28, 2024; Service Resources, Inc. v. CIR, CTA Case No. 10503, July 5, 2024; Ford Group Philippines, Inc. v. CIR, CTA Case No. 10507, July 10, 2024.

Ford Group Philippines, Inc. v. CIR, CTA Case No. 10507, July 10, 2024

Service Resources, Inc. v. CIR, CTA Case No. 10503, July 5, 2024; ; Ford Group Philippines, Inc. v. CIR, CTA Case No. 10507, July 10, 2024; Ayala Corporation v. CIR, CTA Case No. 10496, June 19, 2024; Philippine Mining Service Corporation v. CIR, CTA Case No. 10494, July 8, 2024.

Tullett Prebon [Philippines], Inc. v. CIR, CTA Case No. 10273,CTA Case no. 10273, June 28, 2024; Service Resources, Inc. v. CIR, CTA Case No. 10503, July 5, 2024.

Ford Group Philippines, Inc. v. CIR, CTA Case No. 10507, July 10, 2024.

 

ACQUITTAL. One of the elements of the crime of willful refusal to pay tax under Section 255 of the NIRC is that the taxpayer is required to pay tax. Where the PAN and FLD was not served properly (no proof that accused received it and prosecution’s witness admitted that there was no authorization was issued by the accused to the representative), thereby rendering the assessment void, the said element is not met. Moreover, the Court, in the criminal case, may rule on the civil liability despite assessment is void applying the Mendez Case (G.R. Nos. 208310-11 & 208662, March 28, 2023). Where the prosecution failed to present evidence to prove the civil liability, no civil should be imposed.

 

A VEHICLE USED IN TRANSPORTING SMUGGLED GOODS MAY BE SUBJECT OF FORFEITURE IF (A) IT IS A PRIVATE CARRIER OR A LEASED OR CHARTERED COMMON CARRIER; AND (B) OWNER HAS KNOWLEDGE OF THE SMUGGLING. Thus, the vehicle is considered a private carrier if the service is limited only to friend referrals and owner failed to prove that he had ongoing application to engage in trucking business. But since owner has no knowledge of the smuggling, the vehicle cannot be forfeited.

 

ACQUITTAL OF THE ACCUSED IS FINAL AND UNAPPEALABLE EXCEPT WHEN THE PROSECUTION WAS DENIED OPPORTUNITY TO PRESENT CASE OR WHERE THE TRIAL IS A SHAM, IN WHICH CASE, THE COURT ACTED WITH GRAVE ABUSE OF DISCRETION. Thus, where the petition failed to allege any violation of due process or mistrial and merely seeks to correct mistake in the findings of the trial court, the CTA cannot rule on the trial court’s appreciation of the parties’ evidence. Thus, the petition should be denied.

 

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People v. Angelito O. Dela Peña, CTA Crim Case No. O-844, June 20, 2024

Marvin Raluna Reyes v. Commissioner of Customs, CTA Case No. 10340, August 7, 2024.

People of the Philippines v. Hon. Ana Teresa T. Cornejo-Tomacruz et. al., CTA SCA Case No. 0014, July 16, 2024.

 

ASSESSMENT

THE REVENUE OFFICER (RO) TASKED TO AUDIT OR EXAMINE THE BOOKS OF ACCOUNTS OF TAXPAYER MUST BE CLOTHED WITH A PROPER LETTER OF AUTHORITY (LOA). An RO must be armed with authority, through an LOA, to conduct the audit or investigation of the taxpayer. Absent such grant of authority through an LOA, the RO cannot conduct the audit of taxpayer’s books of accounts and other accounting records because such right is statutorily conferred only upon the Commissioner of Internal Revenue (CIR). Here, the authority of RO Arriola and GS Balbi merely sprung from a Memorandum of Assignment (MOA) that Chief Escalada issued.  Thus, the deficiency tax assessments issued against the taxpayer are inescapably void (Central Luzon Drug Corporation v. CIR, CTA Case No. 10045, May 2, 2024; CIR v. Scicindustrial Corp., CTA EB No.  2503, CTA Case No. 9616, May 27, 2024).

 

A CHIEF OF THE REGULAR LARGE TAXPAYERS AUDIT DIVISION CANNOT ISSUE AN LOA. An LOA can only be issued either by the CIR or his duly authorized representative identified in Section 10 (C) of the NIRC of 1997, as amended, which is a Revenue Regional Director. The position equivalent to a Revenue Regional Director for the Large Taxpayers Service is the Assistant Commissioner/Head Revenue Executive Assistants under RMO No. 29-0757. Here, the MOA was signed and issued by Ms. Shirley A. Calapatia, Chief of the Regular L T Audit Division 1. She is neither the CIR, Revenue Regional Director, nor an Assistant Commissioner/Head Revenue Executive Assistant of the LTS. She had no authority to issue the MOA which could have authorized RO Cayabyab to continue the audit/investigation of petitioner.  The MOA cannot be regarded as a valid LOA within the context of the law as the MOA was not signed by the CIR or his duly authorized representative. Since the conduct of the audit of petitioner was legally flawed, the assessments issued against it are inescapably void (NCR Corporation Philippines vs. CIR, CTA Case No. 10498, May 10, 2024).

FAN/FLD ISSUED IN 2014 FROM VALUE-ADDED TAX (VAT) FILING DEADLINE IN 2010 RENDERS THE VAT ASSESSMENT PARTIALLY PRESCRIBED. The three-year prescriptive period for issuing a VAT assessment shall be counted from the last day of the 25-day period from the close of the taxable quarter within which to file the quarterly VAT return, or the date of actual filing of the quarterly VAT return, whichever comes later. Thus, if the deadlines for the three (3) quarters are April, July and October 2010, respectively, but the BIR issued the FLD/FAN in January 2014, the assessment is partially prescribed.  (Applied Food vs. CIR, CTA No. 9952, May 23, 2024).

10-YEAR PRESCPRITIVE PERIOD WILL NOT APPLY WHEN BIR DID NOT ALLEGE FAILURE TO FILE RETURN, BIR IMPOSED 25% SURCHARGE, AND TAXPAYER ATTACHED THE RETURN IN THE PETITION; BIR HAS 3 YEARS TO COLLECT FROM FORMAL LETTER OF DEMAND/FINAL ASSESSMENT NOTICE (FLD/FAN). The BIR has 3 years to assess, except when there is a failure to file a return among other grounds, in which case, 10-year prescriptive period shall apply. Where the BIR did not allege that taxpayer failed to file the return, the FLD/FAN imposed 25% surcharge instead of 50%, and the taxpayer attached the return in the petition, and the BIR failed to prove that taxpayer failed to file the return, the 3-year prescription applies. Moreover, the BIR has another 3 years to collect. Where the FLD/FAN was issued on March 2, 2015 but the preliminary collection letter was issued on April 17, 2018, the collection effort is prescribed. (Ma. Erlinda Ong v. CIR, CTA Case No. 10265, May 3, 2024)

 

10-YEAR PRESCRIPTION APPLIES ONLY TO SPECIFIC TAXES MENTIONED. In the case of McDonald’s Philippines realty Corp v. CIR,  G.R. No. 247737, August 8, 2023, the Supreme Court ruled that for a 10-year period prescription to apply, the BIR must state in the assessment notice that the extraordinary period is applied and the basis of allegation of omission, falsity, or fraud as the case may be. Thus, where the BIR failed to expressly referred the 10-year period to VAT only, excluding EWT, the 10-year prescriptive period does not apply to EWT. (Japan Airport Consultants, Inc. et. al. v. CIR, CTA Case No. 10592, May 23, 2024)

WAIVER MUST STATE THE KIND AND AMOUNT OF TAX DUE. Assessment of internal revenue taxes must be made within three (3) years, counted from the actual date of filing of a tax return, or the last day prescribed by law for filing of a tax return, whichever is later, except when waiver is validly executed. The Supreme Court ruled that waiver must state the kind and amount of tax due (CIR v. First Philippine Industrial Corporation, G.R. No. 266404, August 23, 2023). Thus, where the waiver states “all internal revenue taxes” without express mention of particular taxes and the respective amounts, the waiver is invalid.(Applied Food vs. CIR, CTA No. 9952, May 23, 2024; Plastic Container Packaging Corporation, CTA Case No. 10095, May 23, 2024). Note: waiver was executed on June 21, 2013.

FLD/FAN WITHOUT RULING ON THE TAXPAYER’S ARGUMENTS IN THE REPLY TO THE PAN RENDERS THE ASSESSMENT VOID.  The BIR must consider the matters raised by the taxpayer. It cannot simply reproduce the PAN’s contents in the subsequent FLD/FAN without mentioning of the taxpayer’s arguments or any discussion on the merits (Ang Tibay Case and Avon Case). Where the FLD/FAN made no reference to the taxpayers reply to the PAN and the CIR did not mention any of the taxpayer’s arguments, much less give an intelligent discourse in resolving each matter raised, the assessment is void.  (Applied Food vs. CIR, CTA No. 9952, May 23, 2024; Plastic Container Packaging Corporation, CTA Case No. 10095, May 23, 2024; Neuftech Philippines v. CIR, CTA Case No. 10442, May 29, 2024)

 

 

BIR’S FAILURE TO PRESENT REGISTRY RECEIPT AND CERTIFICATION OF POSTMASTER WHEN RECEIPT OF PAN IS DENIED, RENDERS THE PAN INVALID; BIR MUST EXPLAIN WHY IT IS RESORTING TO SERVICE BY MAIL; FILING OF PROTEST WILL NOT CURE AN INVALID ASSESSMENT. The Supreme Court in the case of CIR v. Metro Star Suprema, Inc. (G.R. No. 185371, December 8, 2010) ruled that issuance and service of PAN is part of due process requirement. PAN is served through personal service, and if not practicable, by substituted service or by mail. The server shall make a written report under oath setting forth the manner, place and date of service, the name of the person who received the same and such other relevant information. The registry receipt shall constitute sufficient proof of mailing and shall be attached to the docket. Where the taxpayer denied receipt by mail, The BIR has burden to prove that the mailed matter was received. Where the BIR failed to present the registry receipt and the certification of the postmaster to prove od mailing an and receipt, nor present the testimony of the BIR server or personnel who delivered the mail to the post office, the PAN is void. Likewise, Service by FLD/FAN  shall be by personal delivery or when not practicable, by substituted service or by mail. Where the BIR did not present competent evidence proving that the personal service was not practicable, nor explained or discussed in the answer ot memorandum why the BIR resorted to service by mail, the FLD/FAN is void. Lastly, as held in the Supreme Court case of Mannasoft v. CIR,  (G.R. No. 244202, July 10, 2023), the defect due process will not be cured by the taxpayer’s protest to the FAN. (Ma. Erlinda Ong v. CIR, CTA Case No. 10265, May 3, 2024)

 

 

THE NON-SERVICE OF THE PAN AND THE IMPROPER SERVICE OF THE FLD/FAN VIOLATE PETITIONER’S RIGHT TO DUE PROCESS AND RENDER THE ASSESSMENT VOID. The taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN and that its issuance and service to the taxpayer is part of the due process requirement. As to the service of the FLD /FAN, Section 3.1.6 of RR No. 18-2013 expressly provides that the service shall be made by personal delivery, and it is only when personal service is not practicable that the notice shall be served by substituted service or by mail. Here, no PAN was received by the taxpayer and the FAN was improperly served because there was no competent evidence proving that personal service was not practicable. Thus, the deficiency tax assessments are void (Erlina T. Ong vs. CIR, CTA Case No. 10265, May 3, 2024).

 

180-DAY PERIOD OF INACTION RUNS FROM FILING OF THE PROTEST; CIR IS NOT GIVEN A FRESH OR SEPARATE 180-DAY PERIOD WITHIN WHICH TO DECIDE THE ADMINISTRATIVE APPEAL. The Supreme Court ruled that there is no new or separate 180-day period granted to the CIR to act on the administrative appeal. There is a singular 180-day period counted from the protest or the submission of the required documents. Thus, where the taxpayer’s 180-day period from receipt of the protest ended on May 20, 2018; taxpayer appealed the FDDA received on November 29, 2018 to the CIR on December 21, 2018 and filed the petition with the CTA on July 19, 2018, the CTA has no jurisdiction considering that 180-day period of inaction runs from May 20, 2018. (Friendlycare Foundation, Inc. v. CIR, CTA Case No. 10123, May 30, 2024)

 

CONSULTANCY SERVICES IS EXEMPT FROM VAT PURSURANT TO A TAX ASSUMPTION AGREEMENT BETWEEN THE PHILIPPINES AND JAPAN. In the case of Mitsubishi Corp. – Manila Branch v. CIR (G.R. No. 175772, June 5, 2017), the Supreme Court ruled that  the Philippines may assume all fiscal levies and taxes. This assumption is a form of concession [given to Japanese suppliers, contractors or consultants in consideration of a loan to be used for an implementation of a project], and collection of taxes from entities enjoying benefits of a tax assumption arrangement is erroneous. Thus, where in an Exchange of Notes between Philippines and Japan, the Philippines assumes taxes, the consultancy services supplied to Government is exempt from VAT (Japan Airport Consultants, Inc. et. al. v. CIR, CTA Case No. 10592, May 23, 2024).

 

NO SURCHARGE AND INTEREST SHOULD BE IMPOSED IF ASSESSMENT IS INCORRECT.

Surcharge and interest are computed on the basis of tax. Where the assessment is incorrect, surcharge and interest should be cancelled. (Japan Airport Consultants, Inc. et. al. v. CIR, CTA Case No. 10592, May 23, 2024)

 

COURT MAY RULE ON ASSESSMENT IF APPLICATION FOR COMPROMISE IS BASED ON DOUBTFUL VALIDITY. The CIR’s decision on a taxpayer’s applications for compromise may be reviewed by the court touching on validity of the assessment, if the ground cited to support the application for compromise is doubtful validity of the assessment. Where the basis for compromise is financial incapacity, the court cannot rule on the validity of the assessment. (Dante R. Gutierrez v. CIR, CTA Case No. 10477, May 10, 2024; CIR v. Oro Dare Logistics; CTA EB No. 2699, CTA Case No. 9846, May 10, 2024) Dissenting Opinion: Court may review validity of the assessment.

 

THIRD PARTY INFORMATION (TPI) INFORMATION REQUIRES CERTIFICATIONS. Sources of TPI and confirmation requests and/or certifications/sworn statements from third parties must be presented in evidence, otherwise, the discrepancies based on third-party information is void. (Japan Airport Consultants, Inc. et. al. v. CIR, CTA Case No. 10592, May 23, 2024)

 

IMPORTATION OF RICE REQUIRES IMPORT PERMIT. NFA MC No. AO-2015-06-12, which has the force and effect of law requires importers of rice to secure an Import Permit per Bill of Lading. Without the import permit, the shipment is illegal. (Calumpit Multi-Purpose Cooperative v. Bureau of Customs et. al. CTA Case No. 10023, UDK SP 028, May 30, 2024)

 

SURVEILLANCE REQIURES THE BIR EXAMINER TO BE IN THE OFFICE OF THE TAXPAYER. In issuing  48-Hour Notice, 5-Day VCN and Closure Order, RMO No. 3-2009 requires that a taxpayer must be noncompliant. The taxpayer, to be considered non-compliant, must have resulted from surveillance/stocktaking activities of the BIR. The BIR must have initially conducted a surveillance or stocktaking against the taxpayer. Otherwise, the taxpayer may not be categorized as a non-compliant taxpayer. Where the BIR did not conduct a surveillance for 10 days and the BIR examiner only visited only once for four hours and rather proceeded to the post-evaluation, the taxpayer cannot be considered non-compliant (Rebecca Duka v. CIR, CTA Case No. 10393, May 29, 2024)

 

WARRANT OF GARNISHMENT (WG) SHOULD BE QUESTIONED IN THE CTA WITHIN 30 DAYS FROM RECEIPT. The CTA has jurisdiction to review the warrant of garnishment under “other matters” within 30 days. Where the WG was received in 2016, but the petition was filed only in 2021, the period to question WG has lapsed. (Dante R. Gutierrez v. CIR, CTA Case No. 10477, May 10, 2024)

 

CTA HAS JURISDICTION TO REVIEW THE CIR’S DISAPPROVAL OF AN OFFER TO COMPROMISE. The CTA has authority to take cognizance of “other matters,” arising from the National Internal Revenue Code of 1997, as amended (Tax Code), and other laws administered by the BIR, which necessarily includes rules, regulations, and measures on the collection of tax. Here, the filing of the present petition was prompted by the CIR’ s Notice of Denial and the simultaneous attempt to collect alleged deficiency taxes from Oro Dare; matters that fall within the Court’s jurisdiction over “other matters,”.  The scope of CTA’s review includes the correctness of the CIR’ s ruling relative to the compromise, in which an attempt to collect had been incorporated, and the attendance of any grave abuse of discretion (CIR vs. Oro Dare Logistics Corporation, CTA EB No. 2699, May 10, 2024).

 

REFUND / ISSUANCE OF TAX CREDIT

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

Certain requisites must be complied with by the taxpayer-applicant to successfully obtain a credit/refund of input VAT related to zero-rated sales. Said requisites are classified into certain categories, to wit:

As to the timeliness of the filing of the administrative and judicial claims:

• The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;
• That in case of full or partial denial of the refund claim rendered within a period of 90 days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be filed with the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision.
  • The 90 + 30-day periods to appeal are both mandatory and jurisdictional. After the lapse of the 90-day period, petitioner had 30 days to elevate its claim to the CTA. The claimant need not wait for the decision of the BIR after the 90-day waiting period. It should file a judicial claim for refund with the CTA. (Orica Philippines, Inc. v. CIR, CTA Case No. 10152, May 8, 2024)

With reference to the taxpayer’s registration with the BIR:

• The taxpayer is a VAT-registered person;

In relation to the taxpayer’s output VAT:

• The taxpayer is engaged in zero-rated or effectively zero-rated sales;
• For zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b), and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations
• sales of services, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), to wit:
  • The services fall under any of the categories under Section 108(B)(2), or simply, the services rendered should be other than ”processing, manufacturing or repacking of goods” (Maxima Machineries, Inc. CTA Case No. 9453, June 30, 2021)

As regards the taxpayer’s input VAT being refunded:

• The input taxes are not transitional input taxes.
• The input taxes are due or paid.
• The input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume. In this case, the exempt sales must be considered in the allocation as well.
  • The law does not require that the input tax be directly attributable to zero-rated sales. CIR v. Oceanagold (Philippines), Inc. v. CTA EB No. 2721, CTA Case No. 9957, May 10, 2024)
• Input tax must comply with invoicing requirements.
• the input taxes have not been applied against output taxes during and in the succeeding quarters.

REFUND OF UNUTILIZED CREDITABLE WITHHOLDING TAX

• In filing a claim for refund or credit of creditable withholding tax, compliance with the following must be met:

 

1. The claim for refund must be filed within the two-year prescriptive period. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024; Global Energy Supply Corporation v. CIR, CTA Case No. 10501, May 3, 2024)

 

• the two-year prescriptive period should be counted from the filing of the Final Adjustment Return, because it is only during that date that the exact tax liability or refundability of the tax can be determined. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024; Global Energy Supply Corporation v. CIR, CTA Case No. 10501, May 3, 2024)

 

• The law prescribes two options to a taxable corporation whose total quarterly income tax payment in a given taxable year exceeds its total income tax due. The taxpayer may either file a tax refund (either in the form of cash or tax credit certificate) or carry over the excess credit. However, once the carry-over option is taken actually or constructively it becomes irrevocable for that taxable period. The phrase “for that taxable period” refers to the taxable year when the excess income tax, subject of the option, was acquired by the taxpayer.
  • In exercising its option, the corporation must signify in its final adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024)

 

2. The fact of withholding must be established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024; Global Energy Supply Corporation v. CIR, CTA Case No. 10501, May 3, 2024)

 

• Proof of actual remittance is not a condition to claim for a refund of unutilized tax credits.(Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024)
• The lack of taxpayer’s address is not fatal to the petitioner’s claim as the taxpayer’s name and TIN were clearly stated in the forms, showing that the forms were indeed issued to the taxpayers (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024)

 

3. The income upon which the taxes were withheld must be included in the return of the recipient.  (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024; Global Energy Supply Corporation v. CIR, CTA Case No. 10501, May 3, 2024)

 

• A general ledger without the detailed transactions comprising the revenue/sales wherein the court cannot trace or verify whether the income payments formed part of the sales in the ITR is not sufficient to prove the claim. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024)

 

REFUND OF ERRONEOUSLY OR ILLEGALLY COLLECTED TAXES

CLAIM FOR REFUND OF ERRONEOUSLY PAID TAX FILED AFTER TWO YEARS PRESCRIBES; 6-YEAR PRESCRIPTIVE PERIOD UNDER CIVIL CODE IS NOT APPLICABLE.

The taxpayer has 2 years from date of payment of tax to file an administrative claim before filing a judicial claim with the court. Both claims must be filed within 2 years, regardless of any supervening cause that may arise after the payment. Thus, where the DST and withholding tax were paid on July 3, 2014 and July 9, 2014, respectively, the taxpayer until July 3, 2016 and July 9, 2016 to file its administrative and judicial claim. Considering that the admin and judicial claim were filed only on December 12, 2016 and February 7, 2022, respectively, the CTA has no jurisdiction. Moreover, the 6-year prescriptive period for actions under the Civil Code will not apply considering that the Tax Code is a special law that explicitly provides for mandatory period for claiming a refund for taxes erroneously paid. (Lyk Property Holdings, Inc. v. CIR, CTA Case No. 10754, May 8, 2024).

 

 

A MEMORANDUM OF ASSIGNMENT (MOA) CANNOT REPLACE A LETTER OF AUTHORITY (LOA). The Deputy Commissioner and other BIR officials authorized by the CIR himself are permitted to issue an LOA. Among the BIR officials expressly authorized by the Commissioner of Internal Revenue (CIR) to issue the LOA are the Assistant Commissioners, and Head Revenue Executive Assistants. Thus, where the revenue officers who suggested the issuance of the Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN) and Final Decision on Disputed Assessment (FDDA) do not appear on the LOA and the authority to examine and audit the taxpayer originated from a MOA issued by a chief, a person without authority to examine the taxpayers, the assessment should be void. (CIR V. Tann Philippines, Inc.; (Commissioner Internal Revenue v. Hard Rock Café (Makati City) Inc.; CTA EB No. 2690; April 12, 2024); an LOA not only applies in RDO but also in the Office of the Commissioner (CIR v. Diaego Philippines, CTA EB No. 2702, CTA Case No. 9522, April 25, 2024)

 

LOA AT THE REINVESTIGATION STAGE IS NOT REQUIRED; A MOA ISSUED AT THE REINVESTIGATION STAGE IS SUFFICIENT AND WILL NOT RENDER THE ASSESSMENT VOID.  The Tax Code requires authority from the CIR or authorized representative before an examination of a taxpayer in the form of LOA. While the law explicitly requires an LOA to be addressed to a revenue officer before an examination of a taxpayer and recommendation of an assessment may be had, the law does not specifically require the same for purposes of recommending a final decision on a disputed assessment. Moreover, even assuming that an LOA is required to conduct the reinvestigation, its absence would only invalidate the resulting decision, such as the FDDA, but not the assessment. Thus a MOA issued by the Revenue District Officer (RDO) to another revenue officers at the reinvestigation stage should not invalidate the FAN previously issued against the taxpayer. (Commissioner of Internal Revenue V. RCL Feeders Phils., Inc; CTA EB No. 2772; April 29, 2024)

 

LOA COVERING 2 YEARS IS VOID. Revenue Memorandum Order (RMO) Nos. 36-99 and 19-2015 require the issuance of one LOA per Taxable Year (TY) or a period to be audited. In CIR v. De La Salle University Case (G.R. No. 196596 November 9, 2016), the Supreme Court (SC) ruled that BIR must specify each taxable year or period on separate LOAs. Thus, a LOA covering portion of 2 taxable years is void. (CIR. Sofgen Holdings Limited- Philippine Branch, CTA EB No. 2695, CTA Case NO. 9691, April 12, 2024)

 

THIRD PARTY INFORMATION (TPI) MUST BE SUPPORTED BY AUTHENTICATED SWORN STATEMENT AND REGISTERED RETURN CARD [IF SOURCE IS IN ANOTHER RDO. In determining discrepancies via TPI, the BIR must obtain sworn statement from TPI sources to attest the veracity of the data provided. To obtain sworn statements, the BIR must send confirmation required to the third-party sources. If the TPI source is from other RDO, the BIR confirmation request must be supported by registered return cards. Here, the allegation of underdeclared purchase based on TPI had no registered return card and authenticated sworn statement. Thus, the findings based on TPI is considered unverified information and finds no basis. (Powernet Systems Corp v. Commissioner of Internal; CTA Case No. 10383; April 11, 2024)

 

FORMAL LETTER OF DEMAND’S (FLD) STATEMENT THAT “WITHIN THE TIME SHOWN IN THE ECLOSED ASSESSMENT NOTICE” WITHOUT DATE IN THE FAN RENDERS THE ASSESSMENT VOID; THE FDDA’S FAILURE TO PROVIDE REASONS FOR THE REJECTION OF THE EXPLANATIONS AND DEFENSES OF THE TAXPAYER RENDERS THE FDDA VOID. An assessment must contain a demand of payment within a prescriptive period. In Fitness by Design Inc. case, the SC ruled that BIR’s FAN is void if it fails to indicate a due date. Thus, were the FLD indicates “within the time shown in the enclosed assessment notice” by the spaces in the FAN which should contain the due dates in each noticer were left blank, the assessment is void. Moreover, In the case of CIR v. Avon Products Manufacturing, Inc. (Avon case), the SC clarified that the obligation to provide factual and legal bases in assessments also include the duty to state the reasons for the rejection of a taxpayer’s defenses and explanations against issues raised during tax investigation. Where the FDDA failed to indicate explanations, contentions and evidence submitted by the taxpayer, the FDDA is void. (Major Shopping Management Corporation v. Commissioner of Internal Revenue; CTA Case No. 9300; April 25, 2024; see also(Marina Square Properties, Inc., v. Commissioner of Internal Revenue; CTA Case No.10349; April 11, 2024; (Travellers International Hotel Group, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10445; April 18, 2024; Commissioner Of Internal, Revenue v. Capitol Steel Corporation; CTA EB No. 2585; April 25, 2024; (Commissioner of Internal Revenue V. RCL Feeders Phils., Inc; CTA EB No. 2772; April 29, 2024)

 

10-YEAR PRESCRIPTIVE PERIOD WILL NOT APPLY IF FAN/FDDA DID NOT STATE THAT THE APPLICABLE PRESCRIPTIVE PERIOD IS 10 YEARS. internal revenue taxes must be assessed within three (3) years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later, except for an extraordinary period of 10 years to assess based on fraud. In invoking fraud, the factual basis must be stated and communicated to the taxpayer. The CIR should show that the fact are communicated to the taxpayer. It must clearly state the allegations of fraud. Thus, where the FAN or FDDA did not explicitly state that the applicable period is 10 years, the extraordinary period should not apply. (TYC Trading & Manufacturing Philippines, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10247; April 18, 2024

 

WARRANT OF DISTRAINT AND/OR LEVY (WDL) ISSUED AFTER 14 YEARS FROM ISSUANCE OF FLD RENDERS THE COLLECTION EFFORT INVALID. The BIR as 3 years to collect taxes for assessment issued within the 3-year period. The 3-year period to collect begins when the assessment notice is released, mailed or sent to the taxpayer; or five (5) years applying the extraordinary period. The BIR’s collection efforts are initiated by distraint, levy, or court proceeding. The distraint and levy proceedings are validly begun or commenced by the issuance of a WDL and service thereof on the taxpayer. A judicial action for the collection of a tax is initiated: (a) by the filing of a complaint with the court of competent jurisdiction; or (b) where the assessment is appealed to the CTA by filing an answer to the taxpayer’s petition for review wherein payment of the tax is prayed for. Where FLD was released on December 27, 2007, but the WDL was issued on June 8, 2022, the BIR has until December 27, 2012 to collect or December 27, 2012 applying the extraordinary period. Thus, the collection effort was barred by prescription (South Cotabato Electric Cooperative, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10937; April 18, 2024)

 

PETITION FILED AFTER FOUR (4) YEARS FROM RECEIPT OF THE WDL IS DISMISSIBLE FOR LACK OF JURISDICTION. The WDL is a proof of finality of the assessment and is considered a denial of the protest. Its issuance is considered as “other matters” within the jurisdiction of the CTA. The taxpayer’s remedy is to appeal within 30 days from the date it was notified of the WDL. Where the taxpayer received the WDL on August 28, 2015, but it only filed the petition on November 17, 2020, the CTA has no jurisdiction to act on the case.  (Ronaldo Reyes Cruz v. Commissioner of Internal Revenue and Register Of Deeds For The Province Of Bulacan Meycauayan Branch; CTA CASE N0.10404; April 11, 2024)

 

PEZA-REGISTERED ENTERPRISE IS ENTITLED TO INCENTIVES AS SHOWIN IN THE LETTER ISSUED BY PEZA. Section 23 of RA No. 7916, as amended, gives the PEZA-registered enterprises the option to choose between two (2) sets of fiscal incentives: (a) the five percent (5%) preferential tax rate on its gross income and (b) ITH, exempting the enterprise from income tax bus subject to all other taxes Only income actually gained or received by the Ecozone Enterprise related to the conduct of its registered business activity are covered by fiscal incentives. Moreover, the incentives shall apply only to registered operations of the Ecozone Enterprise and only during its registration with PEZA. Where the taxpayer is registered with the PEZA as in ECOZONE IT enterprise covering the transaction, whereby a letter by PEZA Director General issued a letter approving the its PEZA application, including its extension, the taxpayer is entitled to ITH incentive (Wipro Philippines, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10329; April 22, 2024)

 

NET-OPERATING LOSS CARRY-OVER (NOLCO) EXCESS CREDITS CREDITED FORWARD TO SUCCEEDING PERIOD AND EXCESS MINIMUM CORPORATE INCOME TAX (MCIT) OVER NORMAL CORPORATE INCOME TAX (NCIT) CARRIED FORWARD TO THE SUCCEEDING PERIOD WITHOUT FACTUAL AND LEGAL BASIS SHOULD BE CANCELLED. The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment is void. Thus, where the items of NOLCO, Excess MCIT over NCIT carried forward to succeeding period were found only in the computation of the deficiency income tax liability of the taxpayer but FLD and FDDA shows no discussion at all in the said findings, the item of assessment is considered void. (Powernet Systems Corp v. Commissioner of Internal; CTA Case No. 10383; April 11, 2024)

 

 

PAYMENTS TO GENERAL PROFESSIONAL PARTNERSHIP (GPP) IS EXEMPT FROM EXPANDED WITHHLDING TAX (EWT). Income payments made to a GPP, as a juridical person, are exempt from income tax, vis- a-vis the EWT. The partners of said GPP are the ones liable in their individual capacities for the payment of income tax, pursuant to the afore-quoted Section 26 of the 1997 Tax Code, as amended. Thus, where the taxpayer supported the professional fees with articles of partnership, the item of assessment should be cancelled. (TYC Trading & Manufacturing Philippines, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10247; April 18, 2024

 

ITEM OF ASSESSMENT NOT PROTESTED BECOMES FINAL, EXECUTORY AND DEMANDABLE. When the assessment is comprised of several issues, only the particular issues validly protested are considered disputed; while the particular issues undisputed become final executory and demandable. Thus, where the taxpayer failed to dispute disallowed expenses due to non-withholding, salaries and wages not subjected to Withholding Tax on Compensation (WTC) and Value-Added Tax (VAT), the same becomes final. (Powernet Systems Corp v. Commissioner of Internal; CTA Case No. 10383; April 11, 2024)

 

 

NO DONOR’S TAX SHOULD BE IMPOSED IF SELLING PRICE IS HIGHER THAN THE FAIR MARKET VALUE (FMV) OF THE SOLD SHARES NOT LISTED AND TRADED THRU LOCAL STOCK EXCHANGE. Under the Tax Code, where the property is transferred for less than an adequate and full consideration, the amount by which the FMV exceed the value of the consideration shall be considered a gift subject to donor’s tax. In Revenue Regulations (RR) No. 6-2013, the FMV of the shares not listed and traded in local stock exchange shall be the higher of among others, the fair market value as determined by the independent appraiser, requiring application of adjusted net asset method for determining the value of the shares (subscription receivable should be a deduction from capital stock under the equity section). Thus, where the selling price is higher than the fair market value, no donor’s tax should be imposed. (Kepwealth, Inc v. Commissioner of Internal Revenue; CTA Case N0.10353; April 17, 2024)

 

REFUNDS

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

 

Certain requisites must be complied with by the taxpayer-applicant to successfully obtain a credit/refund of input VAT related to zero-rated sales. Said requisites are classified into certain categories, to wit:

As to the timeliness of the filing of the administrative and judicial claims:

1. The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;
2. That in case of full or partial denial of the refund claim rendered within a period of ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be filed with the CTA within thirty (30) days from receipt of the decision.
   • The 90-day period to appeal are both mandatory and jurisdictional. After the lapse of the 90-day period, petitioner had 30 days to elevate its claim to the CTA.  (Franklin Baker Company of the Philippines v. CIR, CTA Case No. 10407 April 23, 2024)
   • For regional cases, the power to decide was delegated to the Regional Director. RDO’s participation is limited only to verification and processing. The appealable decision to the CTA is not the one issued by the RDO but that of Regional Director (Sankyu-Ats Consortium-B v. CIR, CTA Case No. 10313, April 18, 2024)

With reference to the taxpayer’s registration with the BIR:

3. The taxpayer is a VAT-registered person;

In relation to the taxpayer’s output VAT:

4. The taxpayer is engaged in zero-rated or effectively zero-rated sales;

5. For zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b), and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;
   • sales of goods abroad, in order for an export sale to qualify as zero-rated, the following essential elements must be present:
     • the sale was made by a VAT registered person;
     • there was sale and actual shipment of goods from the Philippines to a foreign country, as evidenced by the following:
       • sales invoice as proof of sales of goods; the invoice must comply with the invoicing requirements
       • bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country;
     • the sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP. Amounts shown in the summary of VAT zero-rated sales supported with sales invoices must be traced with certainty to the certificates of inward remittance (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024; Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)
   • sales of goods to PEZA-registered entities – the following requisites must be present: (1) the sale must be made by a VAT registered person; and (2) the sale of goods must be to an entity entitled to the incentives under Executive Order No. 226 otherwise known as the Omnibus Investment Code of 1987, and other special laws as shown by PEZA Certificate of Registration (Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)
     • Proof of documents: (a) the sales invoice or official receipt as proof of sale of goods or services; and (b) any proof of the buyer’s entitlement to tax incentives under other special laws (i.e., Certificates of Registration with the PEZA pursuant to RA No. 7916, as amended, for the pertinent period/taxable year) (Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)
     • Reasons for denial of zero-rated sales: Sale of services supported by VAT sales invoice and not by ORs; sale of services supported by billing statement and not by OR; Sale of goods with VAT sales invoice by the sales amount is labelled as VAT exempt; Sales without supporting documents (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024)
     • Sale of power generated through renewable sources of energy is zero-rated (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024)
     • Renewable Energy Developers are entitled to VAT zero-rating on its purchases of local goods, properties and services needed for the development, construction and installation of its plant facilities.(Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024)
       • For a purchase transaction of an RE Developer to qualify for VAT zero-rating, the taxpayer must be able to present the following documents of the RE Developer:
         • Department of Energy (DOE) Certificate of Registration (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024); otherwise, input VAT may be passed on and may be refunded where sale is zero-rated
         • Registration with the Board of investments (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024); and,

Re. sales of services, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), to wit:

• The services fall under any of the categories under Section 108(6)(2), or simply, the services rendered should be other than ”processing, manufacturing or repacking of goods”- service related to any software is allowed (Citco International Support Services Limited-Philippine ROHQ v. CIR, CTA Case No. 10403, April 18, 2024)
• The service must be performed in the Philippines by a VAT-registered person.  The agreement must specify that the services shall be performed in the Philippines (Citco International Support Services Limited-Philippine ROHQ v. CIR, CTA Case No. 10403, April 18, 2024); If the service agreement does not bear any indication that the services were to be performed in the Philippines but the witness testified so, the element is complied with; however, nature of services must be indicated in the supporting ORs (Zuellig Pharma Asia Pacific Ltd. Phils. ROHQ, v. CIR CTA Case No. 9025, April 19, 2024)
• The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules. Payment must be supported by Certificate of Inward Remittance. (Citco International Support Services Limited-Philippine ROHQ v. CIR, CTA Case No. 10403, April 18, 2024)
• The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in and business who is outside the Philippines when the  services were performed (Citco International Support Services Limited-Philippine ROHQ v. CIR, CTA Case No. 10403, April 18, 2024)

 

As regards the taxpayer’s input VAT being refunded:

6. The input taxes are not transitional input taxes. Transitional input tax credit operates to benefit newly VAT- registered persons, whether or not they previously paid taxes in the acquisitions of their beginning inventory of goods, materials and supplies. During the period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024; Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)

 

7. The input taxes are due or paid;

Input tax must comply with invoicing requirements. Reasons for disallowance:

Domestic purchase of goods supported with billing statement; domestic purchase of services supported with billing statement; domestic purchase of services supported with VAT sales invoice; domestic purchase of goods with non-VAT sales invoice; unreadable date and description of goods, etc.; without business style; incomplete address; without description of services rendered (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024)

BOC’s certification of remittance to the Bureau of Treasury is required; IERD pertain merely to import declaration but not sufficient to prove payment of VAT on importation. (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024)

Nput VAT supported by SI/OR that are photocopy only; corrections not sountersiged by authorized personnel; VAT not separately indicate; overclaimed input VAT(Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)

 

8. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume
9. the input taxes have not been applied against output taxes during and in the succeeding quarters

Taxpayer must clearly establish that the amount was not applied against the output VAT liability during and in the succeeding quarters. CTA will not simply assume that the amount declared in Line 23D is the amount sought to be refunded.  (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024)

 

 

PAGCOR CONTRACTEES AND LICENEES ARE EXEMPTED FROM INCOME TAX. The exemption of PAGCOR and its licensees and contractees from payment of all kinds of taxes, except the five percent (5%) franchise tax, has been upheld by the Supreme Court in the Bloombery Case. Where the taxpayer is a holder of Casino License granted by PAGCOR, it is exempt from income tax but must comply with the requirements: (1) that it is a licensee of PAGCOR; (2) that it derives income from the casino operations as a licensee; (3) that it pays license fee, which must be inclusive of the five percent (5%) franchise tax; and, (4) that it paid income tax. Where the license fees received is net of shares in the gross gaming revenue of the casino of 5% franchise tax, the taxpayer is entitled to refund. Dissenting Opinion: it must be proven that PAGCOR remitted the 5% to the BIR. (Premiumleisure and Amusement, Inc. v. CIR, CTA EB No. 2712, CTA Case No. 10060, April 22, 2024)

 

WATER UTILITY SERVICES ARE SUBJECT TO FRANCHISE TAX. Section 108 of the 1997 NIRC, as amended, provides the general rule that the sale or exchange of services is subject to Value-Added Tax (VAT). Section 119 of the 1997 NIRC, as amended, on the other hand, enumerates the entities who are engaged in sale or exchange of services that are subject to franchise tax instead of VAT under the general rule laid down in Section 108. The term ‘franchise’ has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress. Where a taxpayer is engaged in the sale of services as a water utility, it is subject to franchise tax. (Davao City Water District v. CIR; CTA EB 2725; April 2, 2024)

 

SALE OF SHARES APPLYING TAX TREATY IS EXEMPT FROM INCOME TAX SUBJECT TO CONDITIONS. Capital gains realized during the taxable year from the sale or other disposition of shares of stock in a domestic corporation made outside the stock exchange and any gain derived from such dealings in property derived by a foreign corporation are subject to income tax, exempt to the extent required by treaty obligation. Here, the RP-Germany Tax treaty requires the following: taxpayer is a resident of Germany; There is an alienation of shares of a domestic corporation; and the assets of the domestic corporation do not principally consist of immovable property in the Philippines. “Principally” means more than 50% of the entire assets in terms of value as may be proved by the financial statement. (Siemens Altiengesellschaft v. Commissioner of Internal Revenue; CTA Case No. 10797; April 24, 2024)

 

LOCAL GOVERNMENT CODE

 

BILLING STATEMENT ISSUED BY THE LGU IS NOT CONSIDERED AN ASSESSMENT. Local government Code provides two procedures in refund of local business tax. Section 195 applies when there is assessment, and Section 196 in case of recovery of an erroneously paid or illegally collected tax. Moreover, Assessment must state the nature of the tax, fee, or charge, the amount of deficiency , surcharge interest and penalties. Thus, where the LGU merely issued a billing statement without the foregoing elements required of an assessment, the taxpayer’s refund is governed by Section 196. Section 196 requires that the taxpayer should file its refund administratively and judicially within 2 years from date of payment. Where the taxpayer paid the tax on January 20, 2020, but the judicial claim is filed on February 3, 2022, the claim is prescribed. Bellagio One Condominium Association et. al.  v. City Treasurer of Taguig City et. al. (CTA AC No. 277, April 22, 2024)

 

LGU HAS 60 DAYS TO DECIDE TAXPAYER’S PROTEST ON LOCAL BUSINESS TAX; INACTION IS CONSIDERED DEEMED DENIAL APPEALABLE TO THE REGIONAL TRIAL COURT WITHIN 30 DAYS. Under Section 195 of the LGC, when the taxpayer protest the assessment, the LGU has 60 days to decide; inaction is considered deemed denial. The taxpayer has 30 days from the date of receipt of adverse decision, or deemed denial, whichever comes earlier, within which to appeal to the RTC. Here, the LGU issued First and Second Notice containing the LBT assessment. The taxpayer protested against First notice on March 1, 2012 but was not acted by the LGU or considered the assessment deemed denied on April 30, 2012. The taxpayer has until May 30, 2012 to appeal. But since TP filed on ly on July 10, 2012, the appeal prescribed. Assuming Second Notice is considered new LBT assessment, the taxpayer did not observe the 60-day period and thus the appeal is premature. (Service Resources, Inv. v. Pasig City et. al., CTA EB No. 2719, CTA AC 243), April 23, 2024

 

VIOLATIONS OF THE TAX CODE

 

CRIMINAL CASE FOR FAILURE TO PAY TAX, WHERE INFORMATION IN COURT IS FILED AFTER SEVEN (7) YEARS FROM FINALITY OF ASSESSMENT, WARRANTS THE DISMISSAL OF THE CASE FOR PRESCRIPTION. In case of willful refusal to pay deficiency tax, the five-year prescriptive to prosecute runs from the finality of the assessment (failure to pay within the period given in the FAN/FLD), and is interrupted by filing of information in court. Where the FLD/FAN was issued and served on December 15, 2010, the assessment becomes final and executory on January 15, 2011. The prosecution has until January 15, 2016 to file a case. Where the case was filed on January 10, 2023 or after seven years, the offense is prescribed. (People of the Philippines v. Julieta N. Ariete; CTA Crim. Case No. A-18; April 8, 2024; People of the Philippines v. Star Asset Management NPL Inc., et. al. CTA EB Crim No. 129, CTA Crim Case No. O-995); five-year period to run from filing of complaint if the date of the commission of the offense is not known. (People v. Bernardo, CTA EB Crim No. 123, CTA Crim Case No. O-931, April 16, 2024)

 

 

TAX ASSESSMENTS

A LETTER OF AUTHORITY (LOA) IS NOT INVALIDATED BY A BUREAU OF INTERNAL REVENUE (BIR) LETTER ADDING ADDITIONAL EXAMINERS. It is presumed that the BIR regularly performed its official duty. The taxpayer must present proof to the contrary. Here, the BIR issued a letter without LOA adding additional examiners, but without replacing or transferring the original examiners. Since the taxpayer failed to prove that the new examiners recommended the issuance of the Preliminary Assessment Notice (PAN), the LOA is valid. (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue (CIR); CTA CASE NO. 9871; March 1, 2024)

AN ASSESSMENT BASED ON LETTER NOTICE (LN) WITHOUT LOA IS VOID. An LN is entirely different and serves a different purpose than a LOA. After the LN has served its purpose, the RO should have properly secured an LOA before proceeding with the further examination and assessment of the petitioner. An LOA addressed to an RO is specifically required under the National Internal Revenue Code (NIRC) before an examination of a taxpayer may be had while an LN is not found in the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR’s RELIEF System. In the case at bar, the PAN and FAN were based on the LN, which was not converted to LOA. The Court has consistently held that, in cases where the BIR conducts an audit without a valid LOA, or in excess of the authority duly provided therefor, the resulting assessment shall be void. (Commissioner of Internal Revenue v. Port Barton Development Corporation; CTA EB No. 2703; March 14, 2024)

UNLESS UNDERTAKEN BY THE CIR HIMSELF OR HIS DULY AUTHORIZED REPRESENTATIVES, OTHER TAX AGENTS MAY NOT VALIDLY CONDUCT ANY AUDIT EXAMINATIONS WITHOUT PRIOR AUTHORITY. The CIR’s duly authorized representatives are as follows: (1) Regional Directors; (2) Deputy Commissioners; (3) Assistant Commissioner/Head Revenue Executive Assistants (for Large Taxpayers); and, (4) other officials but only upon the CIR’s prior authorization. In the instant case, the BIR mobilized its Revenue Officers (RO) to conduct such verification procedures through the issuance of a Mission Order. Absent a LOA, the assessment or examination is a nullity; and, a void assessment bears no fruit. (Commissioner of Internal Revenue v. Formula Sports; CTA EB No. 2674; March 6, 2024)

LACK OF FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) DOES NOT VIOLATE TAXPAYER’S RIGHT TO DUE PROCESS; PENDING APPEAL, THE TAX LIABILITY IS NOT YET DELINQUENT AND THE WARRANT OF GARNISHMENT (WG) IS PREMATURE. Applying the CIR v. Liquigaz case where the BIR did not issue the FDDA, but it issued a Final Notice Before Seizure (FNBS), the assessment remains valid. The FNBS may be considered as the final decision of the Bureau of Internal Revenue (BIR). Moreover, the right to collect of the BIR requires that the tax liability is delinquent. While the NIRC did not define delinquent tax, regulations provided instances when tax is delinquent to include assessment notices that have become final and executory when no appeal to the CIR or CTA within the reglementary period. Further, The Supreme Court ruled in LRTA and Mannasoft Cases that the Warrant of Distraint and/or Levy (WDL) is void if the assessment is not yet demandable. Here, the taxpayer has a pending appeal with the CTA. Thus, the WG issued by the BIR is void. (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue; CTA CASE NO. 9871; March 1, 2024)

FINAL ASSESSMENT NOTICE/FORMAL LETTER OF DEMAND’s (FAN/FLD) FAILURE TO ADDRESS THE ARGUMENTS OF THE TAXPAYER IN THE PAN AND REITERATION IN VERBATIM THE PAN’S DETAILS OF DISCREPANCY RENDERS THE ASSESSMENT VOID. A taxpayer must be fully apprised of the factual and legal bases of the assessments, and must not be left unaware on how respondent or his authorized representatives appreciated the explanations or defenses raised by petitioner in connection with the assessments. Here, the subject FAN/FLD did not address any of the arguments posed by taxpayer in the protest letter in response to the PAN. The BIR only reiterated verbatim in the Details of Discrepancy of the said FLD, what it stated in the Details of Discrepancy of the undated PAN, save for the adjustments in one basic income tax due and basic deficiency VAT only. Thus, the inevitable conclusion is that petitioner’s right to due process, under Section 228 of the 1997 NIRC, as amended, and Section 3.1.3 of RR No. 12-99, as amended, was violated. As a consequence, the said deficiency 1ncome tax and VAT assessments are rendered void. (Beta Electromechanical Corp., v. Commissioner of Internal Revenue; CTA Case No. 10040, March 5, 2024) The Supreme Court, in the Avon case, held that the CIR must give the particular facts upon which the CIR’s conclusions are based, and those facts must appear in the record. Here, the BIR failed to address the arguments/explanations raised by TPI in its Reply to PAN when it rejected the same through the issuance of the FLD. Considering the violation of TPI’s right to due process provided under Section 228 of the NIRC of 1997, as amended, and RR No. 12-1999, the Court finds that the FLD as well as the subsequent issuances of the CIR to TPI, including the FDDA dated September 22, 2014, are all considered void. (Transnational Plans, Inc., v. Commissioner of Internal Revenue; CTA EB NO. 2549; March 26, 2024)

A GOVERNMENT INSTRUMENTALITY IS EXEMPT FROM PAYING REAL PROPERTY TAX (RPT). Considering that Petitioner National Food Authority (NFA) is a government instrumentality and exempt from RPT, the act of the City Assessor in demanding payment of RPT from NFA has no basis. (National Food Authority v. City Government of Bogo; CTA AC No. 263; March 5, 2024)

IN APPEALING THE INACTION OF THE CIR ON THE APPEALED PROTEST, THE 180-DAY PERIOD SHALL BE COUNTED FROM THE DATE OF FILING OF THE PROTEST, NOT APPEAL TO THE CIR. In determining the timeliness of an appeal from the inaction of the CIR, there is only one “180-day period” of inaction to speak of which shall be counted from the date of filing of the protest (if the protest is a request for reconsideration) or from the submission of the relevant supporting documents (if the protest is a request for reinvestigation) and not from the date when the decision of the CIR’s duly authorized representative was appealed to the CIR. Here, the taxpayer filed the Petition for Review on May 22, 2018 allegedly due to the inaction of the CIR. The taxpayer erroneously applied the 180-day period counting from appeal to the CIR; consequently, the instant Petition for Review was prematurely filed. Petitioner’s only recourse would be to await respondent’s final decision on its administrative appeal and appeal the same before the CTA within 30 days from receipt thereof. (Bayugan Farmers Multi-purpose cooperative v. Commissioner of Internal Revenue; Case No. 9928; March 7, 2024)

REGISTRY RECEIPT IS NOT IN ITSELF PROOF OF SERVICE OF PAN WITHOUT BEING ACCOMPANIED BY THE AUTHENTICATING AFFIDAVIT UNDER OATH) OF THE PERSON WHO ACTUALLY MAILED THE PAN. A PAN may be served via registered mail when personal service is not practicable. If taxpayer denies receipt of the PAN, the BIR should dispute the denial. In proving receipt, the registry receipt is not sufficient proof of service without an affidavit under oath of the mailer. Moreover, the registry receipt must contain sufficiently identifiable details of the transaction (i.e. date, place of service and name of the professional courier service company who received the same). Thus, PAN is not considered validly served and LOA is void if BIR merely alleged that it served the notice via registered mail. (Bohol JSL Enterprises Incorporated v. Commissioner of Internal Revenue; CTA Case No. 1057; March 21, 2024; Konica Minolta Marketing Services v. Commissioner of Internal Revenue; CTA CASE No. 10255; March 01, 2024)

THIRD PARTY INFORMATION (TPI) MUST BE SUPPORTED BY AUTHENTICATED SWORN STATEMENT AND REGISTERED RETURN CARD [IF SOURCE IS IN ANOTHER REVENUE DISTRICT OFFICE  (RDO)]. In determining discrepancies via TPI, the BIR must obtain sworn statements from TPI sources to attest the veracity of the data provided. To obtain sworn statements, the BIR must send confirmation required to the third-party sources. If the TPI source is from another RDO, the BIR confirmation request must be supported by registered return cards. Here, the allegation of underdeclared purchase based on TPI had no registered return card and authenticated sworn statement. Thus, the findings based on TPI is considered unverified information and finds no basis. (Bohol JSL Enterprises Incorporated v. Commissioner of Internal Revenue; CTA Case No. 1057; March 21, 2024 (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue; CTA CASE NO. 9871; March 1, 2024)

PRELIMINARY COLLECTION LETTER (PCL) ISSUED BY THE BIR PENDING ADMINISTRATIVE APPEAL WITH THE OFFICE OF THE CIR IS VOID. In Light Rail Transit Authority v. Bureau of Internal Revenue, the Supreme Court explained that to ground the collection measures on the premise of the existence of “delinquent taxes” is incorrect. A PCL, as well as a FNBS, WDL, or other means of summary administrative collection, remain tentative for as long as there is a pending administrative appeal before the Office of the CIR. The assessment is still non-demandable. As such, collection measures emanating from such assessment shall be void and of no force and effect. Here, the assessment against the taxpayer remained non-demandable as BIR Collection Division issued the assailed PCL prior to the CIR’ s final resolution of petitioner’s motion for reconsideration. (C.U.T. Commercial Corporation v. Bureau of Internal Revenue; CTA Case No. 9933; March 22, 2024)

WATERWORKS SYSTEM FEES EARNED BY MUNICIPALITY IS EXCLUDED FROM INCOME TAX, BUT IS NOT AUTOMATICALLY EXEMPT FROM VAT. For income to be excluded from gross income and be excused from income taxation under section 32(b)(7)(b) of the NIRC, as amended, the following conditions must concur: (1) the income must be derived by the government or political subdivision thereof; (2) such income emanated from a public utility or exercise of essential governmental function; and (3) said income accrued to the government or political subdivision. Here, the Municipality of Pulilan is one of the political subdivisions of the State and proceeds from the municipal water system accrues to the general fund. Further, having demonstrated that the water system fees were derived by petitioner as a public utility, i.e., supply of water to constituents, it need not establish that said fees were earned in the exercise of essential governmental function; however the taxpayer must prove that the fees earned are exempt from VAT.(Municipality of Pulilan v. Commissioner of Internal Revenue; CTA Case No. 10259; March 22, 2024)

THE SERVICE OF ASSESSMENT TO AN ADMINISTRATIVE ASSISTANT NOT AUTHORIZED BY THE TAXPAYER TO RECEIVE THE FAN/FLD RENDERS THE ASSESSMENT VOID. While the board of directors generally exercise corporate powers, conduct all business, and control all properties of the corporation, the corporation, through its board of directors may validly delegate some of its functions and powers to corporate officers, committees or agents. In the present case, the FAN was served on petitioner at its registered address through an administrative assistant, who is not duly authorized to receive the FAN. Thus, the assessment issued against petitioner is null and void for violating procedural due process. (Royal Palm Residences v. Commissioner of Internal Revenue; CTA Case No. 10222; March 27, 2024

TAX REFUNDS 

SINCE ALKYLATE DOES NOT BELONG TO THE SAME CATEGORY AS NAPHTHA AND REGULAR GASOLINE, THE SAME SHOULD NOT BE SUBJECTED TO EXCISE TAX. Alkylate is not among the excisable articles enumerated in Sec. 148(e) of the 1997 NIRC, as amended. Neither can it be categorized as “other similar products of distillation” precisely because it is not a direct product of distillation. Here, the pieces of evidence for the petitioner, including the testimonies of expert witnesses. which respondent failed or did not even attempt to rebut, clearly established that alkylate is produced through the process of alkylation and not distillation, and that alkylate does not belong to the same category as naphtha and regular gasoline: hence. not subject to excise tax. (Petron Corporation v. Commissioner of Internal Revenue CTA Case Nos. 10073,10120 and 1020; March 7, 2024)

IN CLAIMING TAX CREDIT FOR EXCISE TAXES ON PETROLEUM SOLD TO EXEMPT ENTITIES, THE CLAIMANT MUST PROVE THAT THE PETROLEUM SOLD MUST BE THE ONE IMPORTED. Under the NIRC, petroleum products sold to entities which are by law exempt from direct and indirect taxes are exempt from excise tax. To justify a grant of tax credit for excise taxes paid on importation, taxpayer claimant must establish the following: first, the entity to which the petitioner sold the petroleum products is an entity exempt by law from direct and indirect taxes; and, second, petitioner paid the excise taxes on its importation of bunker oil fuel and special oil fuel subsequently sold to the tax-exempt entities under Section 135(c) of the NIRC, as amended. Here, petitioner failed to submit the Official Registry Books that proves that the same petroleum products on which the petitioner paid excise taxes was the same petroleum products sold to an entity exempt by law from direct and indirect taxes. Thus, tax refund or credit shall be denied. (SL Harbor Bulk Terminal v. Commissioner of Internal Revenue; CTA Case No. 10320; March 13, 2024)

APPEAL TO THE CTA OF THE RDO’S DENIAL OF INPUT VAT REFUND IS DISMISSIBLE AS RDO’S DECISION IS MERELY RECOMMENDATORY. Only the CIR is empowered to decide refunds of internal revenue taxes. By exception, such authority vested in the CIR may be delegated “to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed. The RDO officials are not authorized to give the final decision. Thus, where the claimant filed its administrative claim before RDO No. 44; received a letter from RDO denying the administrative claim, such denial cannot be appealed to the CTA. The RDO’s denial is  at best merely recommendatory, subject to the approval of the CIR or Regional Director. Thus, the appeal is dismissed for lack of jurisdiction. (Firmenich Inc., v. Commissioner of Internal Revenue; CTA Case No.10209; March 13, 2024)

NRFC IS CONSIDERED DOING BUSINESS IN THE PHILIPPINES IF IT APPOINTS AGENT IN THE PHILIPPINES. One of the zero-rating requirements is that the NRFC is not engaged in trade or business in the Philippines. The SEC Certificate of Non-Registration does not conclusively demonstrate that the NRFC is not doing business in the Philippines. Moreover, agency agreement allowing the NRFC to transact or engage in local trade or business through the claimant, without establishing that the agent/claimant solicits orders on its own or independently without the instruction of the NRFC, the NRFC is considered doing business in the Philippines. (Firmenich Inc., v. Commissioner of Internal Revenue; CTA Case No.10209; March 13, 2024)

FOR A SALE OR SUPPLY OF SERVICES TO BE SUBJECT TO THE VAT RATE OF ZERO PERCENT (0%) UNDER SECTION 108(B)(2) OF THE NIRC, AS AMENDED, THE SERVICES MUST BE PERFORMED IN THE PHILIPPINES BY A VAT-REGISTERED PERSON. Here, The Services Agreement between petitioner and non-resident foreign corporation does not bear any indication that the subject services were to be performed by petitioner in the Philippines. A scrutiny of the articles/clauses of the Services Agreement reveals that it does not categorically state that the contracted services thereof shall be performed by the petitioner in the Philippines. Furthermore, no other evidence was offered to show that the subject services were indeed performed in the Philippines. Considering petitioner’s failure to establish its zero-rated or effectively zero-rated sales for the subject period, the subject refund cannot be granted. (Williams-Sonoma Phil., v. Commissioner of Internal Revenue; CTA CASE N0.10325; March 14, 2024)

REIMBURSED CHARGES CANNOT BE A SOURCE OF INPUT VAT. Reimbursed charges could not be considered paid for the by the taxpayer. Moreover, the taxpayer does not recognize the reimbursement as income or receipt. Consequently, claimant cannot simultaneously receive reimbursement for the amount it advanced (on the premise that these were not really its expenses) and applied for refund of the related input VAT as if these were really incurred by the taxpayer. (Pilipinas Kyohritsu, inc. V. Commissioner of Internal Revenue, CTA Case No. 10463; March 22, 2024)

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT (ICPA) CERTIFICATION, WITHOUT SUFFICIENT SUPPORTING DOCUMENTS, IS INSUFFICIENT TO REINFORCE REFUND CLAIMS. Mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof unless offered and actually verified by the Court. In the case before us, only the following clients of petitioner shall be considered in the determination of its refund claim: (1) Marketing Convergence Inc.; and (2) Land Bank of the Philippines. The reason-only these two (2) clients have their corresponding invoices, official receipts, billing statements, and contracts, which would tend to show the terms/ periods covered of the license contract, along with the amounts, necessary for the Court to verify the accurate deferred subscription amount for CY 2017, which it paid. (SAS Institute Inc v. Commissioner of Internal Revenue; CTA Case No.10537, March 22, 2024)

THE COURT CANNOT ACCEPT MERE RECOMPUTATIONS WITHOUT ITS SUPPORTING SOURCE DOCUMENTS IN JUSTIFYING DISCREPANCIES. The correct amount of tax base or income payment is the determinative factor in computing the correct withholding tax. Here, Petitioner’s explanation that the discrepancy was due to mere inadvertence in entering the amounts in the tax base section of the online returns for its remittances is self-serving, considering that it failed to present the source documents (i. e., approved disbursement voucher, collection list, invoices or official receipts, or other adequate records) showing the purported correct tax base. Thus, the Court cannot simply accept the recomputation made by the petitioner without its supporting source documents. (Provincial Government of Bohol v. Commissioner of Internal Revenue; CTA Case No. 10394, March 24, 2024)

VIOLATION OF THE TAX CODE

FOR CRIMINAL CASES HEARD BEFORE THE CTA, IT IS THE FILING OF AN INFORMATION THE CTA, NOT THE FILING OF A COMPLAINT BEFORE THE DOJ, THAT INTERRUPTS THE PRESCRIPTIVE PERIOD. Sec. 2, Rule 9 of the RRCTA provides that all criminal actions before the Court in Division in the exercise of its original jurisdiction shall be instituted by the filing of an information in the name of the People of the Philippines. The institution of the criminal action shall interrupt the running of the period of prescription. In the case at bar, the information was filed before the CTA in Division on 6 September 2022 for the alleged fraudulent income tax return filed in 2013. Considering that the prescription for a tax investigation based on fraud is ten years, the right of the State to prosecute had already been prescribed. (People of the Philippines v. Antonio Valeriano M. Bernardo; CTA EB CRIM. NO. 124; March 8, 2024)

EXPENDITURE METHOD AS BASIS TO ESTABLISH FAILURE TO PAY TAX IN CRIMINAL CASES REQUIRES PROOF OF LIKELY SOURCE OF INCOME. To establish failure to pay tax as one of the element of violation of Tax Code (Section 255 – willful failure to pay tax, make return or supply correct information and Section 254 – tax evasion), expenditure method may be resorted to, which is based on the theory that where the amount of money which a taxpayer spends during a given year exceeds his reported income, and the source of such money is otherwise unexplained, it may be inferred that such expenditures represent unreported income. In  a criminal case is filed against the taxpayer, the need for evidence of a likely source of income is a prerequisite (i.e. omissions of income in the return, nature of business is such that it has capacity to generate substantial income, proof of under declaration, keeping of separate set of books, use of false invoices or documents etc.). Here, the BIR only provided certifications, TCTs, GIS, Deeds of Absolute Sale, and LTO car registration which are hardly evidence of a likely source of income. Thus, the accused is acquitted. (People of the Philippines v. Janet Lim Napoles; CTA CRIM. CASE NOS. 0-485, 0-486, 0-487′ 0-488, 0-490, 0- 491, 0-492, 0-493, 0-494, 0-495, 0-496 & 0-498; March 21, 2024)

FAILURE ON THE PART OF THE PROSECUTION TO PROVE THAT THE PAN AND THE FAN WERE DULY SERVED AND RECEIVED BY THE ACCUSED CORPORATION OR ANY OF ITS RESPONSIBLE OFFICERS CREATES REASONABLE DOUBT FOR A CONVICTION OF THE CRIME OF VIOLATION OF SECTION 255, IN RELATION TO SECTIONS 253 AND 256 OF THE NIRC OF 1997; CIVIL LIABILITY IS EXTINGUISHED WITHOUT CRIMINAL LIABILITY; CRIMINAL LIABILITY PRESCRIBES AFTER 5 YEARS FROM RECEIPT OF FAN UNTIL FILING OF INFORMATION WITH COURT. To sustain a conviction of the crime of violation of Section 255 (tax evasion), in relation to Sections 253 and 256 of the NIRC of 1997, it must be established that the failure to taxes is willful despite receipt of PAN, FAN, PCL and FNBS. In the present case, prosecution did not present evidence to prove that the PAN and the FAN were duly served and received by the accused corporation or any of its responsible officers. Therefore, a conviction for tax evasion could not be sustained. Moreover, civil action is deemed instituted in a criminal action. While civil aspect may survive an acquittal based on reasonable doubt, no civil liability should be imposed as the assessment notices were not duly served. Lastly, violations for Tax Code prescribe after five years, from the discovery thereof (after receipt of the final notice and demand with taxpayer’s refusal to pay) and shall be interrupted by filing of information in court. Assuming FAN was duly served and received, where FAN attains finality on January 9, 2012 but the information was filed on June 19, 2019, the criminal action is prescribed.  (People of the Philippines v. Robust Security Inc.; CTA EB Crim No. 098; March 26, 2024.) It is the filing of a complaint before the CTA, not DOJ, that interrupts the prescriptive period (People of the Philippines v.Bernardo, CTA EB Crim No. 124, CTA Crim )

FAN/FLD’S INCORRECT DATE OF PAYMENT, EXTENSION OF FOUR DAYS TO PAY THE INTEREST, AND STATEMENT THAT INTEREST WILL HAVE TO BE ADJUSTED RENDERS THE ASSESSMENT VOID. The FAN/FLD must include the computation of tax liability and must demand for payment within a period prescribed. Where the FAN’s due date of payment was erroneously stamped January 7, 2018, but the FAN was issued on December 7, 2018; interest was computed four days beyond the deadline, giving impression that taxpayer need not pay the interest within the prescribed deadline; and FAN contains a statement that “the interest and the total amount due will have to be adjusted if paid after the date specified therein”, the FAN is considered not to contain a definite and actual demand to pay and is considered void. (IBMS Technology Phils. Corporation v. Commissioner of Internal Revenue; CTA Case 10177; March 15, 2024), Failure to indicate the due date negates demand for payment (Commissioner of Internal Revenue v. Ritegroup Inc., CTA EB No. 2729; March 12, 2024)