Articles

LETTER OF AUTHORITY

A LETTER OF AUTHORITY (LOA) MAY COVER MORE THAN ONE TAXABLE YEAR.  RMO 43-1990 provides that if the audit of the taxpayer shall include more than one taxable period, the other periods or years shall be specifically included in the LOA. In Commissioner of Internal Revenue (CIR) v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010, the Supreme Court ruled that if the CIR intended to include another taxable year, this should have been done by “including it in the LOA or issuing another LOA”. Thus, where the BIR issued a LOA covering January 1, 2010 to December 31, 2013, the LOA is valid. (Commission on Elections v. CIR, CTA Case No. 10588, November 13, 2024)  

A REASSIGNMENT OF REVENUE OFFICER (RO) REQUIRES A NEW LOA. The reassignment, transfer, or substitution of  an RO requires the issuance of a new or amended LOA to authorize the new RO to continue the audit or investigation. A Memorandum of Assignment, Referral Memorandum, or any equivalent document cannot serve as a substitute for the required LOA. Where the LOA was issued authorizing a group of examiners; and the audit was later transferred to another group of examiners through a memorandum of assignment, the assessment is considered void. Moreover, the  taxpayer can question the authority despite failure to raise the issue at the administrative level (CIR v. Sun Life Grepa Financial, Inc. CTA EB No. 2826, CTA Case No. 10080, December 12, 2024)

AN UNREVALIDATED LOA REMAINS VALID EVEN THOUGH THE PERIOD TO CONDUCT AUDIT HAS LAPSED. Under RMO No. 44-2010, an LOA need not be revalidated beginning June 1, 2010. The effect of failure to revalidate is merely to subject the examiners to applicable administrative sanctions but not to render null the LOA. Thus, where the LOA was not revalidated despite the lapse of period to audit, the same remains valid. (Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)

A FINAL ASSESSMENT NOTICE AND/OR FORMAL LETTER OF DEMAND (FAN/FLD) REMAINS VALID DESPITE THE LACK OF AUTHORITY OF ADDITIONAL EXAMINERS WHO RECOMMENDED THE ISSUANCE OF THE FAN/FLD. All audit/investigations should be accompanied by an LOA. Where additional examiners who prepared and signed the audit reports and memorandum recommending the issuance of the FLD/FAN were not authorized under a new or amended LOA, but the original examiner has valid authority to conduct the audit; and where the original examiner recommended the issuance of the Preliminary Assessment Notice (PAN) but the taxpayer did not reply to it, and the additional examiners who prepared the FAN/FLD merely adjusted the interest,  the FLD/FAN remains valid. (Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)

PRESCRIPTION

THE 10-YEAR PRESCRIPTIVE PERIOD SHALL NOT APPLY DUE TO THE BIR’S INCONSISTENT APPLICATION OF 25% AND 50% SURCHARGE AND BIR’S FAILURE TO PROVE ALLEGED WILLFUL NEGLECT TO FILE RETURN. In Mcdonald’s Case, G.R. No. 247747, August 8, 2023, to apply the 10-year prescriptive period, the  assessment notice must state the basis of allegations of falsity or fraud and BIR must have not acted in a manner that is inconsistent with the invocation of the extraordinary prescriptive period or have otherwise misled the taxpayer that the basic period will be applied.  Thus,  where the PAN and FLD/FAN reflected 50% surcharge but the actual amounts were equivalent to 25% of the basic tax due; the BIR’s uncertainty and indecision regarding whether a 25% or 50% surcharge should apply misled the taxpayer and prejudiced its defense, as noted in McDonald’s, the 10-year prescriptive period does not apply (United Graphic Printing Corporation v. CIR, CTA Case No. 10610, October 31, 2024)

AN UNVERIFIED THIRD-PARTY INFORMATION (TPI) AND EXECUTION OF WAIVER CANNOT BE A VALID BASIS OF A 10-YEAR PRESCRIPTIVE PERIOD BASED ON ALLEGED FILING OF A FALSE RETURN. In allegation of false return, the McDonald’s case ruled that the BIR must prove by clear and convincing evidence that the error or misstatement is deliberate or willful, unless there is prima facie evidence of falsity or fraud (30% threshold), in which case, the taxpayer has burden to prove otherwise. If the taxpayer failed to overcome the presumption, the 10-year period applies. If the taxpayer overturned the presumption (by demonstrating that the misstatement inadvertent or attributable to mistake or not deliberate), the BIR cannot rely on the presumption. In this regard, the BIR must observe the following due process: first, the assessment notice must state that the 10-year period is being applied with the basis of allegation of falsity and fraud; and second, the BIR must not act in a manner inconsistent with the invocation of the extraordinary period or have otherwise misled the taxpayer that the basic period will apply. As regards first requisite, the FLD/FAN and Final Decision on Disputed Assessments (FDDA) provide that the BIR is applying the 10-year period and a 50% surcharge was imposed due the alleged failure to report sales in an amount exceeding 30% of that declared in the return. In CIR v. MCC Transport Singapore PTE. LTD, G.R. No. 255382, June 27, 2021,  the Supreme Court ruled that unverified TPI cannot serve as a proper factual basis of an assessment. An assessment must be based on actual facts and substantiated by evidence. Without the necessary confirmation or verification, the data obtained from third-party matching cannot serve as factual basis. As regards the second requisites, the prior execution of a waiver is meant to extend the basic three-year period, which is inconsistent with the invocation of the 10-year extraordinary prescriptive period. (Wellcargo Customs Brokerage, Inc. v. CIR, CTA Case No. 10817, October 2, 2024)

A WAIVER EXECUTED AFTER THE 3-YEAR PERIOD IS HAS NO EFFECT; ITEM OF ASSESSMENT BECOMES INVALID. The BIR has 3 years to assess the taxpayer counted from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later, except, among others, when BIR and taxpayer executed a waiver. Where the waiver was notarized and accepted on May 26, 2015 and May 29, 2015, but the assessment prescribed in April 2015, the assessment for withholding tax is void. (Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)

HONEST MISTAKE AND RELIANCE IN GOOD FAITH FROM BANGKO SENTRAL NG PILIPINAS ADVICE NEGATES FRAUD. In invoking a 10-year prescriptive period, a substantial under declaration of taxable sales, receipts or income or a substantial overstatement of deductions is prima facie evidence of a false or fraudulent return and can still be contradicted by other evidence. Moreover, the error or misstatement in the false return should be deliberate or willful. Where the accused did not include in his tax return the income from sale of gold with the BSP due to reliance in good faith from BSP Davao City Buying Station advice, the honest mistake and reliance with BSP does not make the annual ITR false. (People v. Rizaldy Goloran Chua, CTA Crim Case Nos. O-792 & O-793, October 29, 2024)

LGU MUST PROVE FRAUD FOR THE 10-YEAR PRESCRIPTIVE PERIOD TO APPLY. Local taxes shall be assessed within five (5) years from the date they become due, and no action for collection, whether administrative or judicial, shall be instituted after such period, except when, among others, there is fraud or intent to evade taxes,  in which case the extraordinary period of 10 years shall apply. Fraud is not presumed. Thus, where the LGU did not offer any evidence to substantiate its claim of fraud the 5-year period applies. (City Government of Valenzuela et. al v. NLEX Corporation, CTA AC No. 296, November 15, 2024)

NOTICE OF DISCREPANCY (NOD)      

ABSENCE OF NOD RENDERS THE ASSESSMENT VOID. In the case of CIR v. Pilipinas Shell Petroleum Corp, G.R. Nos. 197945 & 204119-20, July 9, 2018, the Supreme Court ruled, among others, that the taxpayer was deprived of due process when the Commissioner failed to issue a NIC (now NOD). In Avon Case, G.R. Nos. 201398-9, October 3, 2019,  the Supreme Court ruled that Notice of Informal Conference is a part of due process. Thus, where BIR assessed taxpayer for deficiency income tax and VAT, and the PAN was issued on January 29, 2021, without the Notice of Information Conference/Notice of Discrepancy, the taxpayer’s right to due process was violated. (Wellcargo Customs Brokerage, Inc. v. CIR, CTA Case No. 10817, October 2, 2024)

PRELIMINARY ASSESSMENT NOTICE (PAN)

REGISTRY RECEIPT, AFFIDAVIT OF SERVICE AND REPORT ON SERVICE ARE NOT SUFFICIENT TO ESTABLISH RECEIPT OF PRELIMINARY ASSESSMENT NOTICE. Under the NIRC, the taxpayer must be notified via PAN of the BIR’s findings as part of due process. One of the recognized modes of service of PAN is via registered mail. If the taxpayer denies receipt of the PAN, the BIR must prove that the notice was received.  In the cases of CIR v. Villanueva (G.R. No. 249540, 28 February 2024) and CIR v. T Shuttle Services, Inc. (G.R. No. 249540, 28 February 2024), the Supreme Court ruled that BIR must prove that authorized representatives received the PAN. Mere presentation of the registry receipts, without authentication or identification that the signature appearing on the receipt is taxpayer’s or his or her authorized representative’s, is not sufficient to prove actual receipt by the taxpayer. Thus, where  the affidavit of service does not verify the taxpayer’s actual receipt, and the Report on Service by Mail/Courier for the PAN does not demonstrate actual receipt by the taxpayer; and the BIR failed to show that authorized representative received the PAN, the assessment is cancelled (Broadcast Enterprises & Affiliated Media (BEAM), Inc. v. CIR, CTA Case NO. 10712, November 19, 2024)

SERVICE OF PAN VIA PRIVATE COURIER REQUIRES PROOF OF RECEIPT;  SERVICE OF FLD/FAN WITHIN THE 15-DAY PERIOD TO REPLY TO PAN VIOLATES THE TAXPAYER’S DUE PROCESS. One of the recognized modes of service of a PAN is through a reputable professional courier service. In such a case, the server accomplishes the bottom portion of the same notice and makes a written report under oath before a Notary Public or any person authorized to administer an oath. Additionally, the official receipt issued by the professional courier company containing sufficiently identifiable details of the transaction, must be attached to the case docket. An official receipt for courier services alone is not sufficient proof that the subject parcel was received as it is a mere written acknowledgment of the fact of payment in money or other settlement. It does not prove delivery. Moreover, in the case of Prime Steel Mill, Incorporated v. Commissioner of Internal Revenue (G.R. No. 249153, September 12, 2022), citing Commissioner of Internal Revenue v. Yumex Philippines Corporation (G.R No. 222476, May 5, 2021, the Supreme Court has held that the 15-day period provided under RR No. 12-99 for a taxpayer to reply to a PAN forms part and parcel of the due process requirement in the issuance of a deficiency tax assessment and the same must be strictly complied with; otherwise, the assessment becomes null and void. Where the PAN was received on 07 January 2016; but the BIR issued the FAN on 14 January 2016 within the mandatory 15-day period, the BIR violated the taxpayer’s right to due process by issuing a FAN without even awaiting its reply to the PAN, or at least, the lapse of the period provided for the filing thereof. (United Graphic Printing Corporation v. CIR, CTA Case Ni. 10610, October 31, 2024; CIR v. HI-Stakes Gaming Incorporated, CTA EB No. 2841m CTA Case No. 10172, October 3, 2024; Health Plan Philippines, Inc. v. CIR, CTA Case No. 10262, December 4, 2024; John V. Olegarion v. CIR, CTA Case  No. 10967, December 10, 2024)

FAILURE TO DENY AUTHORITY OF ACCOUNTING STAFF/PERSONNEL TO RECEIVE THE PAN AND FDDA RENDERS THE SUBSTITUTED SERVICE VALID. The service of the PAN and FDDA may be made through a substituted service, which can be resorted to among others when the party is not present at the registered or known address, in which case, the notice may be left at the party’s registered or known address, with his/her/its clerk or with a person having charged thereof. Where the PAN and the FDDA were respectively received by a certain Ms. Celia M. Mxxx, an accounting staff and Ms. Cris Marie Cordero, an accounting personnel, without  the taxpayer denying that these persons are not its employees or that they are not clerks or persons having charge of petitioner’s place of business; an where the taxpayer’s witness testified he received the PAN and FDDA as his services was engaged by the taxpayer, the taxpayer is considered to have validly received the PAN and FDDA (Goodyear Steel Pipe Corporation v. CIE, CTA Case No. 10555, December 10, 2024)

FINAL ASSESSMENT NOTICE AND/OR FORMAL LETTER OF DEMAND

WRONG VENUE OF FILING OF PROTEST RENDERS THE ASSESSMENT FINAL AND EXECUTORY; WARRANT OF DISTRAINT AND/OR LEVY (WDL) REMAINS VOID DUE TO PRESCRIPTION. RMC 39-13 provided the list of the offices in which taxpayers may file their protest. These are: (1)  The Office of the concerned Regional Director; (2)  The office of the ACIR-LTS;  (3)  The office of the Assistant Commissioner-Enforcement Service (“ACIR-ES”); and (4)  The office of whoever signed the PANs, FANs, and FLD. Even though the PAN was signed by the Deputy Commissioner, who is an officer of an Regular Large Taxpayer Audit Division, an office under ACIR-LTS, the taxpayer should have filed the protest to the office of the ACIR-LTS, not with the office of the Deputy Commissioner. Thus, the assessment becomes final and executory. Nevertheless, the WDL is void if the prescription sets in regardless whether the assessment is final and executory. (Alphaland Balesin Resort Corporation v. CIR, CTA Case NO. 10485, November 5, 2024)

TAXPAYER’S FAILURE TO DISPUTE ASSESSMENT RENDERS THE ASSESSMENT FINAL, EXECUTORY AND DEPENDABLE; ASSESSMENT CANNOT BE APPEALED TO THE CTA. An assessment is considered “disputed” after a protest is filed against it within 30 days from date of receipt thereof. If a taxpayer fails to file its protest,  the assessment becomes final, executory and demandable, and the CTA has no jurisdiction to entertain the case. One of the modes of service of the FLD is by service through registered mail. Where the taxpayer directly denies receipt of the FLD, the burden of proving the actual receipt of the same lies with the BIR. Where it was admitted by the taxpayer that her staff received the FLD, but the taxpayer failed to timely protest the FLD, the FLD cannot be considered as a disputed assessment. Since there is no disputed assessment, nothing can be acted or decided upon by the BIR and nothing can be brought before the CTA for review  (Jeanifer P. Ajoc v. CIR, CTA Case No. 10642, December 17, 2024; see also (Ortiz Memorial Chapel, Inc. v. CIR, CTA EB No. 2651, CTA Case No. 9805, December 6, 2024)

AN ASSESSMENT, WHICH WAS NOT EXPRESSLY DENOMINATED AS A “FORMAL LETTER OF DEMAND” DOES NOT AFFECT ITS VALIDITY. The Supreme Court has recognized that there is no specific definition or form of an assessment (CIR v. Fitness By Design, Inc., G.R No. 215957, November 9, 2016, 799 Phil391-420.) It has been referred to as a “formal assessment” and/or “final assessment.” What is important is that Formal Letter of demand and FAN must state the facts, law, rules, and regulations upon which the computation of tax liabilities is founded. Furthermore, the formal assessment notice must be served upon the taxpayer; it shall include a demand for payment within a specified period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor.” Thus, the assessment served upon taxpayer denominated as a “Formal Assessment Notice” rather than a “Formal Letter of Demand” is not a fatal mistake that invalidates the tax findings against it when the FAN contains all the information required under the law and rules. (Gcomm Business Supplies Corporation v. CIR, CTA Case No. 10696, November 19, 2024)

PROTEST FILED AFTER 30 DAYS RENDERS THE ASSESSMENT FINAL, EXECUTORY AND DEMANDABLE. The taxpayer has 30 days to file its protest on the FAN/FLD. Thus, where taxpayer received the FAN/FLD on January 4, 2017, but it filed the administrative protest on February 6, 2017 or three days after the deadline, the failure to file the administrative protest within 30 days from FAN/FLD’s receipt is jurisdictional and renders the assessments issued by respondent final, executory and demandable. (SCG Marketing Philippines, Inc. v. CIR, CTA Case No. 10776, October 30, 2024)

A STATEMENT IN THE ASSESSMENT THAT “PLEASE NOTE THAT THE INTEREST AND THE TOTAL AMOUNT DUE WILL HAVE TO BE ADJUSTED IF PAID AFTER THE DATE SPECIFIED HEREIN” AND A DUE DATE IS SPECIFIED WILL NOT AFFECT THE VALIDITY OF THE ASSESSMENT. In Fitness by Design Case, the Supreme Court invalidated the assessment as the amount was subject to modification and entirely dependent on the taxpayer’s payment date when the assessment stated “interest and total amount due will have to be adjusted if paid prior or beyond April 15, 2004”. Moreover, in the same case, the FAN did not set a specific due date. Thus, where the due date of February 17, 2020 was stated explicitly in the FAN/FLD, there is a definite amount of tax liability in this case. Further, the statement in the FLD that “the interest and total amount due will have to be adjusted if paid after the date specified herein” does not make  deficiency withholding tax liability indefinite so as to render the subject FLD/FAN void. This statement merely informs that the interest would have to be adjusted if payment is made after February 17, 2020. Only the 12% deficiency delinquency interest per annum will need to be adjusted if payment is made beyond February 17, 2020. Undeniably, the interest must be recalculated because the BIR cannot predict when the taxpayer will settle the deficiency taxes. Therefore, the total amount due may be adjusted based on the actual payment date. (Commission on Elections v. Commissioner of Internal Revenue, CTA Case No. 10588, November 13, 2024; Hawaiian-Philippine Company v. CIR, CTA Case No. 10726, November 13, 2024; .(Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)

A PHRASE “REQUEST TO PAY” IS CONSIDERED A DEMAND.  A demand may take the form of a request for payment. Using phrases such as “requested to pay” or “requested to settle” does not negate an equivocal demand for payment of deficiency taxes. In the Fitness by Design Case, the Supreme Court did not find issue with the use of the word “request” and the assessment was cancelled for the reason that the absence of the due dates in the FAN negated the demand for payment. Thus, where the FLD/FAN indicated the due date, which confirms the BIR’s intent to demand payment before the indicated date, a “requested to pay [the] aforesaid deficiency tax” does not render the assessment void. (Hawaiian-Philippine Company v. CIR, CTA Case No. 10726, November 13, 2024)

IN REQUEST FOR REINVESTIGATION,FAILURE TO SUBMIT ADDITIONAL DOCUMENTS WITHIN THE 60-DAY PERIOD WILL NOT RENDER THE ASSESSMENT FINAL AND EXECUTORY. Under RR 18-2013,  an assessment shall become “final” if the taxpayer failed to submit relevant information in support of the protest within 60 days in case of requests for reinvestigation. “Final” means that the taxpayer is barred from introducing newly discovered or additional evidence. It does not mean that the assessment is final, executory or demandable. It cannot be taken to mean as a bar to avail the remedy of appeal as the rules  allow taxpayers to appeal. (Health Plan Philippines, Inc. v. CIR, CTA Case No. 10262, December 4, 2024).

ASSESSMENT IS VOID IF SENT VIA PRIVATE COURIER BUT SERVER DID NOT ACCOMPLISH THE BOTTOM PORTION OF THE NOTICE, NO DATE OF RECEIPT AND NO REPORT ON THE SERVICE. Section 228 of the Tax Code provides that the taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment is void. Assessment notices, sent via reputable professional courier service, must comply with the following requirements: the server shall accomplish the bottom portion of the notice; he shall also make a written report under oath before a Notary Public or any person authorized to administer oath under Section 14 of the NIRC, as amended, setting forth the manner, place and date of service, the name of the person/barangay official/professional courier service company who received the same and such other relevant information; and the official receipt issued by the professional courier company containing sufficiently identifiable details of the transaction shall constitute sufficient proof of mailing and shall be attached to the case docket. Where the assessment is issued via LBC, but the server did not accomplish the bottom portion of the notice, leaving the printed name, signature and designation of the person who received the subject assessment notices, and the date of receipt blank; the OR issued by LBC contains no identifiable details of the transaction, merely noting “document” without further specifics, he or she did not present any written report, certification, or any other document from LBC regarding the service of the assessment notice, the assessment is void. (CIR v. Grand Geo Spheres Construction Corp. (CTA EB No. 2763, CTA Case No. 9891, October 8, 2024), October 8, 2024) 

A REVENUE DISTRICT OFFICER’S ADMINISTRATIVE DECISION ON THE PROTEST IS INVALID; 180+30 DAY PERIOD WILL APPLY. The Commissioner’s powers can be delegated only to subordinates with a position of “division chief or higher,” meaning, that the CIR’s power to decide on disputed assessments cannot be validly delegated to a BIR official of a rank lower than that of a division chief. Where the Administrative Decision is issued by the Revenue District Officer, which is not equivalent to or higher than a division chief, it is as though no decision was made. If no valid decision is arrived at, what is applicable is the 180+30-day period, i.e., petitioner had 30 days from the lapse of the 180-day period within which to file the instant Petition. (John V. Olegarion v. CIR, CTA Case  No. 10967, December 10, 2024)

A REPRESENTATIVE MUST BE AUTHORIZED BY SPECIAL POWER OF ATTORNEY FOR SERVICE OF NOTICE TO BE VALID. Revenue Regulations No. (RR) 12-99 expressly provides that in serving the required notices, personal delivery must be acknowledged by the taxpayer or his duly authorized representative. In Mannasoft Technology Corp. v. Commissioner of Internal Revenue, G.R. No. 244202, July 10, 2023, personal delivery shall be made directly to the taxpayer or a person who has been designated or authorized particularly to act for and on behalf of the taxpayer. The recipient acting on the taxpayer’s behalf must possess sufficient authority or discretion. The tax authorities must inquire into the extent of authority the representative actually possesses before serving a tax notice. Thus, where notices were addressed to a certain “Rommel Braga,” the tax agents could have very well requested a special power of attorney or valid identification from this “Rommel Braga,” to verify his supposed authority; and where apart from the bare assertion that this person was respondent’s employee, the BIR did not offer proof that it took the necessary steps to verify and confirm the authority supposedly vested upon the person who received the notices, the assessment is void. (CIR v. Fidela D. Fernandez, CTA EB No. 2791, CTA Case No. 9908, November 6, 2024)

LACK OF DUE DATE IN THE FAN/FLD RENDERS THE ASSESSMENT VOID; A STATEMENT THAT THE “INTEREST WILL BE ADJUSTED IF PAID BEYOND APRIL 30, 2014” IS NOT THE DUE DATE. As held in the Fitness by Design case, the reckoning date of the accrual of penalties and surcharges cannot be considered as the due date for payment of tax liabilities. This was further reiterated in the more recent case of Republic v. First Gas Power Corporation (G.R NO. 214933, February 15, 2022) , where the Supreme Court held that the FAN and FLD subject therein were not valid because they failed to indicate a definite due date for payment. Thus, where the FLD issued against the taxpayer stated that the interest and the total amount due will have to be adjusted if paid beyond April 30, 2014, but the due dates were left blank, the date April 30, 2014 indicated in the FLD, cannot be considered as the due date to pay the assessments as said date only serves as the reckoning date for accrual of penalties and surcharges. (CIR v. Berringer Marketing, Inc., CTA EB No. 2662, CTA Case No. 8978, November 4, 2024)

THE BIR’S FAILURE TO PROVIDE BREAKDOWN AND SCHEDULE SHOWING HOW THE ITEM OF ASSESSMENT IS ARRIVED AT RENDER THE ITEM OF ASSESSMENT VOID. Under Section 228 of the NIRC, the taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. The presumption of correctness of assessment does not apply when the assessment is without foundation or rational basis. Thus, where the FLD/FAN did not provide any breakdown or schedule showing how the amount was arrived at; that BIR merely provided a separate audit working paper, which simply summed up the amounts in the debit portion to the taxpayer’s receivable allegedly taken from the general ledger; and the BIR failed to consider the adjustments such as correction of errors and other adjustment resulting in reduction in sales; and the taxpayer also submitted ICPA report providing for reconciliation, the taxpayer’s right to due process was violated as it was not formally informed of the facts and laws on which the assessment is based. (Hawaiian-Philippine Company v. CIR, CTA Case No. 10726, November 13, 2024)

FAN/FLD IS VOID IF ISSUED RIGHT AFTER THE TAXPAYER RESPONDED TO PAN; IDENTICAL FINDINGS IN PAN AND FAN WITHOUT CONSIDERATION OF THE EXPLANATION OF THE TAXPAYER IN THE REPLY TO THE PAN RENDERS THE ASSESSMENT VOID. As part of the taxpayer’s due process rights in the issuance of a deficiency tax assessment, the taxpayer is granted a period of fifteen (15) days from receipt of the PAN to file a response thereto with the BIR.  Moreover, in Avon Case (G.R. Nos. 201398-99 & 201418-19, October 3, 2018), the Supreme Court ruled that The BIR must render its decision in such a manner that the taxpayer can know the various issues involved, and the reasons for the decisions rendered. Thus, where the taxpayer responded to PAN on December 18, 2020 (Friday); and the BIR issued a letter on Monday, December 23, 2020, informing the taxpayer that the response will not be considered and on the same day the FLD was issued, and the PAN and FLD are identical and no substantial difference between them except for a minor adjustment in computation of the deficiency interest, the assessment is void. (Central Pangasinan Electric Cooperative Inc. v. CIR, CTA Case No. 10724, October 22, 2024 See also First Telecom Philippines, Inc. v. CIR, CTA Case No. 10688, December 18, 2024; Aeon Credit Service (Philippines), Inc. v. CIR, CTA Case No. 10373, December 13, 2024)

THERE IS NO VIOLATION OF DUE PROCESS IF THE BIR ACCEPTED THE TAXPAYER’S EXPLANATION AND REDUCED THE ASSESSMENT. In CIR v. Avon Products Manufacturing, Inc. (Avon Case), G.R. Nos. 201398-99 & 201418-19, October 3, 2018, the Supreme Court set aside the assessment for violation of due process. Among other infractions, the CIR issued identical PAN and FAN, without acknowledging and considering the taxpayer’s reply to the PAN, administrative protest, submission of additional supporting documents. There was no reference to, comment on, or, much less, explanation on the merits of Avon’s explanations. Where the taxpayer ably raised its defenses, which, eventually, were considered by the BIR and resulted in a reduction of the assessment,  and the taxpayer’s reply was acknowledged in the FAN and made part of BIR records, and the BIR cancelled some items of assessment, and the amount due was reduced in the Final Decision on Disputed Assessment, there is no violation of due process. (Gcomm Business Supplies Corporation v. CIR, CTA Case No. 10696, November 19, 2024; Marina Square Properties, Inc. v. CIR, CTA Case No. 10601, December 13, 2024)

IF A PURCHASE DISCOUNT IS GRANTED AFTER THE ISSUANCE OF THE INVOICE, THE DISCOUNT DOES NOT AFFECT THE VAT BASE. As  rule, the tax base of VAT on the sale of goods or property shall be the gross selling price or gross value in money as indicated on the invoice. The tax base may be reduced should there be returns or allowance and/or discount.  Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within the same quarter it was given. Where the discount was agreed upon at the outset, and it was not given automatically, such that it remained conditional upon the taxpayer’s payment within the discount period, the discount should not affect the tax base and the BIR cannot validly disallow or reduce input VAT on purchase discount.(Gcomm Business Supplies Corporation v. CIR, CTA Case No. 10696, November 19, 2024)

ASSESSMENTS FOR DEFICIENCY INCOME TAX ARISING FROM UNDECLARED SALES VS. THIRD PARTY INFORMATION (TPI) IS CANCELLED FOR FAILURE TO VERIFY THE TPI SOURCES. Revenue Memorandum Order (RMO) No. 46- 2004 requires the BIR to verify the amounts it obtained from its computerized/third-party matching by securing confirmation or certification from the TPI source. Where no such confirmation or certification from the TPI sources was made/obtained, the data gathered from the computerized/third party matching are left unverified, thus, are not credible, the resulting assessment is void for lack of factual and legal basis. (Goodyear Steel Pipe Corporation v. CIE, CTA Case No. 10555, December 10, 2024)

THE BIR CANNOT VALIDLY SUBJECT TO INCOME TAX AN UNDECLARED PURCHASE OR IMPORTATION. For income tax purposes, a taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein. The Supreme Court (Commissioner of Internal Revenue vs. The Court of Appeals, et. at., G.R. No, I08576, January 20, 1999) sets forth the three elements in the imposition of income tax, to wit: (1) there must be gain or and profit; (2) that the gain or profit is realized or received, actually or constructively; and, (3) it is not exempted by law or treaty from income tax. Where the BIR failed to establish the taxpayer’s right to receive income or that the gain or profit is realized or received from the alleged undeclared purchases and importations; and where BIR only assumed that the alleged undeclared purchases and importations were sold and then applied petitioner’s gross profit ratio for the TY 20 11 to determine the supposed taxable income therefrom, the assessment lacks factual basis (Goodyear Steel Pipe Corporation v. CIE, CTA Case No. 10555, December 10, 2024)

FINAL DECISION ON DISPUTED ASSESSMENT (FDDA)

A BIR LETTER, EVEN IN THE ABSENCE OF SIGNED FDDA, IS CONSIDERED A FINAL DECISION OF THE BIR. A BIR letter is considered final decision where (1) it expressly mentioned that the assessment had become final, executory and demandable, and considered the deficiency taxes as delinquent taxes; (2) it also mentioned that, since petitioner’s protest was not valid, the BIR did not have to issue the FDDA as the assessment had already become final; (3) a witness unrebutted testimony confirmed that the BIR already informed the taxpayer that it will issue an FDDA and that petitioner eventually received the said Letter; and, (4) the BIR demonstrated no intention of issuing the FDDA, as it remained unsigned and unserved. (Health Plan Philippines, Inc. v. CIR, CTA Case No. 10262, December 4, 2024)

THE FDDA AND THE ATTACHED ASSESSMENT NOTICES ARE VOID FOR FAILURE TO STATE THE DEFINITE DATE FOR THE PAYMENT; BUT A VOID FDDA WILL NOT RESULT IN INVALIDITY OF THE FORMAL LETTER OF DEMAND. In Pascor Case, G.R. No. 128315, June29, 1999, and Fitness by Design Case, G.R No. 215957, November 9, 2016, the Supreme Court ruled that a demand for settlement of the tax liability must be definite and fixed within the specified period. Where the FDDA with Assessment Notices reflected a due date of “March 31, 2021” but was issued on May 19, 2021 and received by petitioner on May 20, 2021, showing that the due date has already lapsed when the FDDA and the corresponding Assessment Notices were issued, making it impossible for petitioner to comply therewith, the said due date and the FDDA is deemed invalid. Nevertheless, despite the infirmity of the FDDA and the attached Assessment Notices, the FLD dated August 5, 2016  remains valid in the absence of any other ground which may nullify it as held in Liquigaz Case, G.R. Nos. 215534 and 215557, April 18, 2016, where the Supreme Court ruled that a void FDDA does not ipso facto render an assessment void. (Goodyear Steel Pipe Corporation v. CIE, CTA Case No. 10555, December 10, 2024; (Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)

DATE OF RECEIPT OF THE FDDA MUST BE INDICATED IN THE FDDA OR SUPPORTED BY TESTIMONIAL EVIDENCE. A taxpayer has 30 days from the receipt of the FDDA to file  a judicial appeal. Thus, where the taxpayer claimed that it received the FDDA on April 27, 2021, but the FDDA did not indicate the date of receipt and only the date of issuance, which is on April 14, 2021, is stamped and where the date was not even supported by testimonial evidence, the petition, filed on May 27, 2021, is considered belatedly filed. (Goodyear Steel Pipe Corporation v. CIR, CTA Case No. 10541, November 25, 2024)

APPEAL TO COMMISSIONER

FAILURE TO INDICATE THE DATE OF RECEIPT OF THE FINAL DECISION ON REQUEST FOR RECONSIDERATION RENDERS THE CASE DISMISSIBLE FOR LACK OF JURISDICTION. Under 228 of the NIRC, the taxpayer has 30 days to appeal to the CTA from the receipt of the CIR’s decision or ruling. The Rules of Court clearly requires that the specific material dates shall be indicated in the petition for the purpose of showing that the same was filed on time, and that the petition be accompanied, among others, by material portions of the record that would support petitioner’s allegations. Where the taxpayer failed to provide proof of date of receipt, and the date or receipt was not also indicated in the Final Decision on Request for Reconsideration (FDRR); the taxpayer’s witness did not also testify nor declare the date of the receipt, but rather confirmed that they were unaware of the circumstances surrounding the FDRR’s receipt; the Court is unable to confirm the date of petitioner’s actual receipt of respondent’s FDRR. As a result, it could not thus make a proper determination if petitioner’s instant Petition for Review has been timely filed. (SCG Marketing Philippines, Inc. v. CIR, CTA Case No. 10776, October 30, 2024)

CRIMINAL CASE

FAILURE TO ESTABLISH AUTHORITY OF THE RECIPIENT RESULTS IN INVALIDITY OF ASSESSMENT AND ACQUITTAL OF THE ACCUSED. In substituted service of assessment notices, the rules require that the notice be left with the clerk or a person having charge of the taxpayer’s place of business. Where the BIR examiner failed to verify the identity of the recipient of the documents, and merely assumed that the recipient was the authorized representative, and the records did not show that the recipient was a  “clerk of person having charge” and was not duly authorized by the accused to receive, the assessment is void. (People of the Philippines v. Serafin Panaligan Villalobos, CTA Crim Case No. O-917, November 26, 2024)

IMPORTATION OF CHAINSAWS REQUIRE PRIOR PERMIT BY DENR; IMPORTATION OF USED TIRES IS PROHIBITED; SHIPMENT NOT USED AS INSTRUMENT TO COMMIT ILLEGAL IMPORTATION SHOULD NOT BE FORFEITED. Under Section 117 of the Customs Modernization and Tariff Act (CMTA), regulated goods shall be imported only after securing the necessary requirements before the importation. The importation of chainsaws is regulated under Chain Saw Act of 2002 (RA 9175) to prevent illegal logging. The same law allows importation of chainsaws with prior authorization from the DENR. Otherwise, the importation is unlawful even though DENR authorization is subsequently obtained. Moreover,  under Section 113 (f) of the CMTA, used tires are prohibited import. Thus, they may be seized by the Bureau of Customs. Lastly, under Section 113 (f) of the CMTA, goods imported contrary to law and goods used as instruments in the importation of the former should be seized or forfeited. The word “instrument” is defined as “a means whereby something is achieved, performed, or furthered;” or “one used by another as a means or aid.   Thus, partial seizure is allowed if the remainder of the shipment is not used in the commission of the offense. (ERS Surplus Venture v. Republic of the Philippines, CTA Case No. 10953, October 15, 2024)

THE BIR CANNOT SEIZE GOODS WITHOUT A SEARCH WARRANT WITHOUT PRIOR JUSTIFICATION FOR THE INTRUSION. One of the exceptions to the rule that the BIR must obtain a search warrant is that there was a prior justification for an intrusion or probable cause to enter the premises. Where the BIR seized cigarette raw materials, padlock the taxpayer’s office and warehouse thereby shutting down the taxpayer’s business operation by virtue of a mission order, which was issued based on an unverified allegation or “tip”, and the letter neither identified the signatory nor bore the company’s official letterhead, the seizure is invalid. Moreover, the intrusion is invalid if the Mission order did not comply with the requirements for its issuance such as conduct of “prelude to surveillance”. (People of the Philippines v. GB BEM Cigarette Co.,  CTA Crim No. O-935, November 20, 2024)

LACK OF PARTICIPATION IN THE PREPARATION OF DOCUMENTS AND SHIPMENT NEGATES FRAUD; IMPORTER MAY REDEEM SEIZED GOODS. Section 6 of CAO No. 001-20 provides that a discrepancy amounting to more than 30% of the duty and tax to be paid between what is legally determined and what is declared shall constitute prima facie evidence of fraud in case of misdeclaration, misclassification or undervaluation. Fraud must be actual and intentional. Where the taxpayer was able to refute fraud, the Customs must prove the same. Where it was shown that the taxpayer did not participate in the preparation of shipping documents and actual shipment, fraud is not present. Moreover, without fraud, the  importer may redeem the shipment. (Commissioner of Customs v. Globe Telecom, Inc., CTA EB No. 2782, CTA Case No. 9883, November 14, 2024)

LOCAL BUSINESS TAX

A PROVINCE CANNOT IMPOSE FRANCHISE TAX IF PRINCIPAL PLACE OF BUSINESS IS NOT LOCATED WITHIN ITS JURISDICTION. The Supreme Court in the case of City of Iriga v. Camarines Sur III Electric Cooperative, Inc., G.R. No. 192945, ruled that the situs of taxation for franchise tax is the principal place of business, regardless where the services are delivered. Where the principal place of business is not located in the province, the province cannot impose a franchise tax even though a station of the taxpayer is situated in the province. (TRANSCO v. Province of Davao Del Sur, et. al. CTA Case No. 239, October 31, 2024)

A LENDING DESK/OFFICE ACCEPTING A LOAN APPLICATION IS CONSIDERED DOING BUSINESS, BUT NOT CONSIDERED A SALES OUTLET SUBJECT  TO LOCAL BUSINESS TAX. Local business taxes shall accrue and be paid in the city where there is a branch or sales outlet making sales or transaction; otherwise, the sale shall be recorded in the principal place of business and the taxes due shall accrue and be paid in the city where the principal place of business is located. An act of accepting a loan application, although considered doing business as it is conducted with a view to profit, is not considered a sale transaction. Thus, where a lending desk is in Davao, but the loan applications are processed and approved in Makati, Davao cannot impose local business tax. The taxes due accrue and should be paid in Makati City  (Toyota Financial Services Philippines Corporation v. City of Davao et. al., CTA AC No. 280, October 15, 2024)

PRIOR REGISTRATION WITH THE LGU AS CEMENT MANUFACTURER IS NOT REQUIRED TO AVAIL OF PREFERENTIAL RATE OF LOCAL BUSINESS TAX; LGU MAY ASSESS TAXPAYER USING PRESUMPTIVE INCOME LEVEL ASSESSMENT APPROACH (PILAA) IN THE ABSENCE OF PROOF OF GROSS SALES AND WHEN ORDINANCE PROVIDES THEREFOR; TAXPAYER IS NOT ENTITLED TO PREFERENTIAL RATE IF IT IS NOT EXCLUSIVELY ENGAGED IN MANUFACTURING OF CEMENT AND IT FAILED TO SHOW THAT THE SALES WERE DERIVED FROM SALE OF CEMENT. Manufacturers and/or wholesalers of essential commodities are entitled to a preferential rate for local business tax. Cement is considered an essential commodity. A prior  registration with the LGU Bureau of permits that an entity is a manufacturer is not required, as long as the articles of incorporation of the entity shows that it is engaged in the business of manufacturing of cement. Moreover, the LGU may use PILAA as a method to assess LBT when two conditions occur simultaneously: (1) the taxpayer is unable to provide proof of its gross sales or receipts and (2) such is permitted by the local tax ordinance. Where the taxpayer failed to submit Certification of its gross sales or receipts and Manila ordinance allows the use of PILAA, the LGU validly assessed  the Company using the PILAA. Where the taxpayer is not exclusively engaged in the sale and/or manufacture of cement such that the AOI shows that the taxpayer may engage in sale and/or manufacture of all kinds of minerals and building materials; the certification of total gross receipts/sales does not indicate that the sales were derived solely from the sale of cement; and where the taxpayer’s witness stated that the taxpayer is engaged in wholesale and warehousing, the taxpayer is not entitled to preferential rate. (Holcim Philippines, Inc. v. The City of Manila et. al., CTA EB No. 2758, CTA AC No. 251)

AN ENVIRONMENTAL FEE IS NOT A TAX AND  THUS NOT WITHIN THE JURISDICTION OF THE CTA. The CTA’s appellate jurisdiction over regional trial court’s decisions become operative only when the case involves a tax. Tax and fees are different from each other. An imposition is considered a tax if the generation of revenue is the primary purpose; otherwise, it is a regulatory fee. 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 in assailing the environmental fee. (DOLE Philippines Inc. – Stanfilco Division v. The Sangguniang Panlungsod of the City of Davao et. al., CTA AC no. 285, October 22, 2024); Other charges consisting of (a) Mayor’s Permit; (b) Ecological and Waste Management Charges; (c) Peace & Order Charge; (d) Barangay Clearance; (e) Dr. Pia Scholarship Fund; (f) Fire Inspection Fee- National; and, (g) Penalties for Operating without Permit are not local taxes (NLEX Corporation v. The City of Valenzuela et. al., CTA AC. No. 297, November 18, 2024; see also National Grid Corporation of the Philippines v. Municipality of Bayombong, Nueva Vizcaya et. al., CTA EB No. 2795, October 10, 2024; The City Treasurer of Taguig v. Bellagio Two Condominium Association, Inc., CTA EB No. 2843, RTC SCA Case No. 285, October 3, 2024)

GROSS RECEIPTS, FOR PURPOSES OF IMPOSING LBT, EXCLUDES VAT. The taxpayer is not required to submit copies of its VAT returns. (The City of Valenzuela et. al. v. NLEX Corporation, CTA AC No. 290, November 25, 2024)

LGU WHERE PRINCIPAL PLACE OF BUSINESS IS SITUATED CANNOT VALIDLY COLLECT TAX ON BRANCH SALES; SIGNAGES AND INSTALLATIONS OUTSIDE LGU IS NOT CONSIDERED A BRANCH OR SALES OFFICE. Branches or sales outlets which record their sales therein should pay the local tax due in the city or municipality where they operate. Where an entity has factories, assembly plants, plantations, farms and project offices, the 30-70% rule on payment of local business tax shall apply. Where the entity has shown that it has branches outside of the principal office located in QC, QC LGU cannot impose tax on sales in the branches outside the LGU. (Quezon City et. al. v. Sky Cable Corporation, CTA AC No. 295, October 8, 2024); signages and installations in the LGU (outside of principal office) is not considered a branch or sales office or a fixed place of business where business transactions were held as there is no physical space within the general vicinity of these assets that are used for the generation, booking, and/or recording of revenue for these transactions. (NLEX Corporation v. The City of Valenzuela et. al., CTA AC. No. 297, November 18, 2024)

A BUSINESS SHALL BE CONSIDERED TERMINATED WHEN ITS OPERATIONS ARE STOPPED COMPLETELY AND SHALL BE OFFICIALLY RETIRED WHEN THE CORRESPONDING TAX DUE IS PAID. A mere application for business retirement/termination of business or even actual transfer of principal office to another locality does not automatically relieve the taxpayer from paying any taxes which may have accrued prior to the official closure or termination of business. Thus, where the application for retirement in Makati was filed two years after it has transferred its principal office to Taguig; where the sworn statement of gross sales/receipts showed sales in Makati; and where the Company has not paid, but rather protested the tax due, the Company cannot be said to have retired its business and is still liable for local business tax in Makati even if it has transferred to Taguig. (Lazada E-Services Philippines, Inc. v. City of Makati, City Treasurer of Makati, CTA EB No. 2766, CTA AC No. 261; City of Makati, City Treasurer of Makati v. Lazada E-Services Philippines, Inc., CTA EB No. 2767, CTA AC No. 261, October 24, 2024)

A CONDOMINIUM CORPORATION IS EXEMPT FROM LOCAL BUSINESS TAX UNLESS IT IS ENGAGED IN ACTIVITIES FOR PROFIT. In the case of Yamane v. BA Lepanto Condominium Corporation, G.R. No. 154993, October 25, 2005, the Supreme Court ruled that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise. A condominium corporation may be liable for local business tax if it is engaged in activities for profit under the shelter of the condominium corporation. Thus, where the LGU failed to prove that the condominium corporation  is engaged in any business with a view to generate profit, such LBT assessment has no basis. (Taguig City Government et. al. v. Kensington Place Condominium Corporation, CTA EB No. 2807, SCA Case No. 272, December 3, 2024)

NGCP IS EXEMPT FROM REAL PROPERTY TAX. NGCP is liable to pay franchise tax “in lieu of all taxes”, which includes real property tax. A prior factual determination of the actual use of the properties is a condition for their exemption from real property tax. If these properties are determined to be actually and directly used for NGCP’s electric power transmission, they are exempt; otherwise, they are not. The requirement of “actual and direct use” does not imply total or exclusive usage; it acknowledges that properties may be principally used in a manner that supports NGCP’s franchise. The definition of “actual use” uses the modifiers “principally or predominantly.” The term “exclusive” was purposefully not used by Congress in defining NGCP’s tax exemption. (Heide D. Pangilinan et. al. v. The Central Board of Assessment Appeals and National Grid Corporation of the Philippines (CTA EB No. 2827, CBAA Nos. L-120 & L-121)

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;
  • An application should be filed with the VAT Credit Audit Division (VCAD). Filing with an RDO, which is a wrong office, renders the application not filed. Failure to file before the VCAD is fatal since it is the correct office that has jurisdiction over its claim. Consequently, a taxpayer is considered to have failed to prove timely filing of administrative claim within the two-year prescriptive period. (BW Shipping Philippines, Inc. v. CTA Case No. 10317, November 19, 2024)
  • Taxpayer must prove the date of receipt. A manifestation showing the PHLPOST registered mail barcode and Certification issued by the Central Post office are not sufficient. They must be identified by testimony, and it must be proved that the mail matter pertains to the alleged decision of the BIR. (Chemrez Tehcnologies, Inc. v. CIR, CTA Case No. 10454, December 4, 2024)
• 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.

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

• The taxpayer is a VAT-registered person;
  • Every person subject to any internal revenue tax is mandated to register with the BIR within a certain period of time. If such person maintains a head office, a branch, or facility, such registration shall be made with the BIR office having jurisdiction over said branch or facility. Moreover, said person or entity is required to pay an annual registration fee in the amount of P500 for every separate or distinct establishment or place of business, which specifically includes “facility types where sales transactions occur”. Thus, a facility must be registered with the BIR, and in case sales transactions occur therein, the annual registration fee of P500.00 must be paid. Where a “facility”  houses the contact center agents who would perform contact center services, even if no billing statements or official receipts would be issued therefrom, the facilities should be registered as branches before the commencement or start of the business and paid the annual registration fee. Since the facilities are not register as VAT taxpayer, the refund should be denied. (Foundever Philippines Corporation v. CIR, CTA Case No. 10629, December 13, 2024)

In relation to the taxpayer’s output VAT:

• The taxpayer is engaged in zero-rated or effectively zero-rated sales;
  • The invalid zero-rated sales will effectively result in a disallowance of valid input VAT because the effect of invalid zero-rated sales is as if no zero-rated sales were generated from which the valid input taxes may be imputed (CIR v. Carmen Copper, CTA EB No. 2735, CTA Case No. 10201; Carmen Copper Corporation v. CIR, CTA EB No. 2743, CTA No. 10201, November 26, 2024)
•  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
  • The amounts in the remittances must correspond to the zero-rated sales. Otherwise, the claim is denied.(MD Rio Vista Agri-Ventures, Inc. v. CIR, CTA Case No. 10624, December 10, 2024)

•  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(B)(2), or simply, the services rendered should be other than ”processing, manufacturing or repacking of goods” (Royal Caribbean Cruises Ltd., under the name of RCL Regional Operating Headquarters v. CIR, CTA Case No. 10508, October 15, 2024)
  • The taxpayer must comply with invoicing requirements:
    • The VAT invoice or VAT official receipt must indicate the TIN of the purchaser or client in case of sales in the amount of more than 1,000 or more where the transfer is made to a VAT registered person. (CBK Power Company Limited v. CIR, CTA Case No. 8784, October 31, 2024)

Zero-rated on sale to renewable energy developers:

All RE Developers are entitled to VAT zero-rating on their purchases of local supply of goods, properties, and services necessary for the development, construction, and installation of plant facilities. The law explicitly declares that VAT zero-rating applies to the whole process of exploring and developing renewable energy sources up to their conversion into power, including but not limited to the services performed by subcontractors and/or contractors. For a sale transaction to an RE Developer to qualify for VAT zero-rating under RA No. 9513 and its IRR, the following conditions must be met:

1. The RE Developer must be registered with the Department of Energy and Board of Investments;
2. 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; and

iii.          With regard to the supply of locally-produced RE equipment to an RE Developer, the manufacturer, fabricator, and supplier thereof must also be registered with the DOE and BOI (Air Drilling Associates Pte Ltd. v. CIR, CTA Case No. 10944, December 18, 2024)

As regards the taxpayer’s input VAT being refunded:

• The input taxes are not transitional input taxes.
  • Transitional input tax credit operates to benefit newly VAT-registered persons, regardless of whether they previously paid taxes on the acquisitions of their beginning inventory of goods, materials, and supplies. During the transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer (Air Drilling Associates Pte Ltd. v. CIR, CTA Case No. 10944, December 18, 2024)
• 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.

• Input tax must comply with invoicing requirements.
  • Reasons for disallowance:
    •  Nature of services cannot be ascertained in the supporting OR; incorrect TIN; incomplete address (Air Drilling Associates Pte Ltd. v. CIR, CTA Case No. 10944, December 18, 2024))
    • Not properly supported by VAT Invoices or ORs; purchase dated outside of the claimed period; without TIN; countersign is different from the authorized signatory; authority of the countersign cannot be ascertained; invoice or OR without t signature (Royal Caribbean Cruises Ltd., under the name of RCL Regional Operating Headquarters v. CIR, CTA Case No. 10508, October 15, 2024)
• 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.

• • • 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. (Global Business Power Corporation v. CIR, CTA Case No. 10869, November 20, 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. (Global Business Power Corporation v. CIR, CTA Case No. 10869, November 20, 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.

• • The second requirement mandates petitioner to establish the fact of withholding of the claimed CWTs by presenting a copy of the statement duly issued by the payor (withholding agent) to the payee, showing the names of the payor and payee, the income payment and the amount of tax withheld. BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source) serves as the competent proof to establish the fact of withholding. It is a withholding statement duly issued by the payor to the payee that reflects the amount paid and tax withheld, as described in Section 2.58.3(B) of RR No. 2-98. (Global Business Power Corporation v. CIR, CTA Case No. 10869, November 20, 2024)

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

Excise Tax

Pursuant to Sections 131 and 135, in relation to Sections 204(C) and 229, of the NIRC of 1997, as amended, petitioner is required to prove the following in order for its claim for refund to prosper:

1. Petitioner filed the refund claim within the two (2)-year prescriptive period;
2. The entity to which the petitioner sold the petroleum products is an entity exempt by law from indirect and direct taxes;

• With respect to enterprises located in the Subic Special Economic Zone (SSEZ), their tax exemption only takes effect upon the SBMA’s issuance of a Certificate of Registration (CRT) or Certificate of Registration and Tax Exemption (CRTE). It is only from the date of issuance of the CRTE will the concerned business enterprise be entitled to the tax exemption from national and local taxes granted under Section 12(c) of RA No. 7227, as amended (Petron Corporation v. CIR, CTA Case No. 10632, October 28, 2024)

3. The petitioner is the statutory taxpayer which actually paid the excise taxes sought to be refunded on the same imported petroleum products sold to the exempt entity.

It is incumbent upon the taxpayer to prove, with preponderant evidence, that: (i) it imported lubricating oils and its additives and paid the excise taxes on said importations; and, (ii) the imported lubricating oils and its additives actually became a component in the blending process that eventually produced the finished goods or lube products  that were sold to its tax-exempt customers.  (Petron Corporation v. CIR, CTA Case No. 10632, October 28, 2024)

ONLY DECISIONS OR RULINGS ISSUED BY THE COMMISSIONER OF CUSTOMS ARE SUBJECT TO APPEAL TO THE CTA. Inaction does not fall within this purview. Thus, a petition for refund of duty and tax filed with the CTA on the inaction of the COC is dismissed. (LTJS Store v. Hon District Collector of Customs, CTA Case No. 10581, November 13, 2024)

IMPORTATION OF PRESCRIPTION DRUGS AND MEDICINES FOR DIABETES, HIGH CHOLESTEROL, AND HYPERTENSION IS EXEMPT FROM VAT EFFECTIVE JANUARY 1, 2020 UNDER THE TRAIN LAW. RMC No. 62-2020 providing that exemption becomes effective on January 23, 2020 is void as administrative regulations cannot prevail what the law prescribes. (Boehringer Ingelheim (Philippines), Inc. v. CIR, CTA Case No. 10758, October 22, 2024; CTA CASE NO. 10854, December 17, 2024)

SALE OF SHARES TO NRFC IS NOT SUBJECT TO INCOME TAX APPLYING RP-THAILAND TAX TREATY. The net capital gains (being gains from dealings in property) from the sale of shares of stock in a domestic corporation made outside the stock exchange by an NRFC may be subject to CGT but may be exempted therefrom “to the extent required by any treaty obligation binding upon the Government of the Philippines. Where a certificate of residence was submitted to prove that the petitioner is an NRFC and the real property interest is less than 50% of the entire assets, the petitioner is entitled to a refund of the final withholding tax paid. (Cal-Comp Precision (Thailand) Limited, v. CIR, CTA Case No. 10899, November 20, 2024)

ORIGINAL COPIES OF PROOF OF PAYMENT OF EXCISE TAX IS REQUIRED IN REFUND, UNLESS PHOTOCOPIES ARE NOT OBJECTED TO. Excise tax is paid by the owner or importer upon importation and prior to removal from the customs house. For purposes of refund, the 2-year prescriptive period is reckoned from the date of actual payment of excise taxes. Thus, the taxpayer must first show the date of actual payments of the excise taxes. In the case of Kuwait Airways Corporation v. Tokyo Marine and Fire Insurance Co., Ltd., G.R. No. 213931, November 17, 2021, The Supreme Court ruled that a photocopy of an original, therefore, may consist of a “duplicate” if there is no question that it is an accurate reproduction of the original.” Thus, where the BIR did not object to the admission on the manner identified in court but subject to the condition that the documents are compared with the original documents, but the taxpayer merely submitted photocopies, the proof of payment should not be admitted in evidence, and therefore refund should be denied (Pilipinas Shell Petroleum Corporation v. CIR, CTA Case No. 10241, October 29, 2024)

DIGEST OF 2023 SUPREME COURT TAX DECISIONS

ASSOCIATION DUES, MEMBERSHIP FEES, AND OTHER ASSESSMENTS/CHARGES ARE NOT SUBJECT TO INCOME TAX, VALUE- ADDED TAX AND WITHHOLDING TAX. They only constitute contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by recreational clubs to their exclusive members. They represent funds “held in trust” by these clubs to defray their operating and general costs and hence, only constitute infusion of capital. Neither do they arise from transactions involving the sale, barter, or exchange of goods or property. Nor are they generated by the performance of services. (Antel Sea View Towers Condominium Corporation v. BIR, G.R. No. 247770, January 11, 2023)

BIR REGULATIONS IMPOSING 5% FRANCHISE TAX ON POGO LICENSEES AND ON OFFSHORE-BASED POGO IS UNCONSTITUTIONAL. BIR regulations cannot be passed without statutory basis. Moreover, it cannot amend a law. Here, RMC 102-2017 imposed POGO licensees 5% franchise tax. Such regulations (issued prior to the enactment of a law), is invalid. Moreover, it is unconstitutional as it amended the PAGCOR Charger. Further, taxes cannot be imposed on offshore-based POGO licensees who do not derive income in the Philippines and who do not provide goods or services consumed in the Philippines. Here, RMC No. 102-2017 imposed income tax, VAT and other applicable taxes on offshore-based POGO licensees on their income derived from non-gaming operations or other related services. All the components of offshore gaming do not involve and are not performed within the Philippine territory. None of the components likewise deal with Filipino citizens. Again, the placing of bets occurs outside the Philippines; the players must not be Filipino citizens, or within the Philippines; and the payment of the prize also occurs outside of the Philippines. In other words, offshore-based POGO licensees derive no income from the sources within the Philippines because the “activity” which produces income occurs and is located outside the territory of the Philippines. The flow of wealth or the income-generating activity — the placing of bets less the amount of payout — transpires outside the Philippines. (Saint Wealth Ltd. et. al v. CIR, G.R. NO. 252965, January 10, 2023; Marco Polo Enterprise Limited et. al. v. CIR, G.R. No. 254102, January 10, 2023)

THE LAW DOES NOT REQUIRE DIRECT ATTRIBUTABILITY OF THE INPUT VAT FROM THE PURCHASE OF GOODS TO THE FINISHED PRODUCT WHOSE SALE IS ZERO-RATED IN ORDER FOR SUCH INPUT VAT TO BE REFUNDABLE. The Tax Code provides that a VAT- registered person, whose sales are zero-rated or effectively zero-rated, may apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. It suffices that the purchase of goods, properties, or services upon which the input VAT is based, can be attributed to the zero-rated sales. The law does not limit itself to purchases of goods which are to be converted into or intended to form part of a finished product for sale, or to be used in the chain of production. (CIR v. Cargill Philippines, Inc., G.R. Nos. 255470-71. January 30, 2023; CIR v. Toledo Power Company, G.R. Nos. 255324 & 255353. April 12, 2023.)

INPUT VAT ON RENEWABLE ENERGY DEVELOPER’S PURCHASES MAY BE PASSED ON AND MAY BE CLAIMED AS REFUND IN THE ABSENCE OF COMPLIANCE WITH THE REQUIREMENTS OF THE GOVERNMENT AGENCY. Renewable Energy Developer’s  purchases of local supply of goods, properties, and services needed for the development, construction, and installation of plant facilities by RE developers is not subject to VAT.  However, the DOE lists the following certifications which must be obtained before an RE Developer can avail of the fiscal incentives under Republic Act No. 9153: DOE Certificate of Registration, DOE Certificate of Accreditation, Certificate of Endorsement by the DOE, Registration with the BOI, and Certificate of Income Tax Holiday Entitlement. Here, the taxpayer did not comply with the requirements (i.e. not registered with DOE). Therefore, its purchases are subject to input VAT. Moreover, Sale of power generated through hydropower to NPC is zero-rated. Thus, the input VAT is subject of refund. (CBK Power Company Limited v. CIR, G.R. No. 247918, February 1, 2023)

TAXPAYER MAY SUBMIT NEW AND ADDITIONAL EVIDENCE IN INPUT VAT REFUND. Sale of power or fuel generated through a renewable source of energy is VAT-zero rated; The 120 (now 90)-day period to decide on refund case should be counted from the application, not from submission of all requirements. The BIR can only inform taxpayer to submit additional documents; it cannot dictate what type of supporting documents should be submitted. Lastly, the CTA is not limited by the evidence presented in the administrative claim; the claimant may present new and additional evidence to the CTA to support its case for tax refund  (CIR v. CE Casecnan Water and Energy Company, Inc., G.R. No. 212727, February 1, 2023)

INTEREST ON LOAN TO AFFILIATES IS NOT SUBJECT TO VAT. Under the Tax Code, VAT is imposed if the transaction is in the course of trade or business. This includes incidental transactions. An isolated transaction may be considered incidental. It is imperative, however, in order for a transaction to be considered incidental to the main line of business, there must be shown some intimate connection between the transaction in question and the main business activity. Otherwise, it makes no sense to hold a transaction incidental to a primary business activity where no causal link or tie could even be traced.  Thus, where the taxpayer’s primary purpose is that of a management service company, extending of loan to affiliates by way of accommodation is not incidental to main business. Thus, the interest is not subject to VAT. Consequently, the granting of a loan to an affiliate as a form of financial assistance, and entered into but a few times, cannot by any stretch of the imagination be considered as akin to managing, controlling, or directing the affairs of, or advertising or publicizing, the business of another. The  financial assistance in this case could not normally be embraced in the activity of managing or administering the affairs of, or even promoting, a business.  (Lapanday Foods Corporation v. CIR, G.R. No. 186155, January 17, 2023)

INTERCOMPANY LOANS AND ADVANCES ARE SUBJECT TO DOCUMENTARY STAMP TAX (DST). In the Filinvest Case (decided in 2011), the Supreme Court ruled that instructional letters, as well as journal and cash vouchers evidencing advances made by Filinvest Development Corporation(FDC) to its affiliates, qualified as loan agreements upon which DST may be imposed. Retroactive application of Filinvest is not prejudicial to taxpayers, as the same was merely an interpretation of Section 179 of the NIRC, which has been in effect since December 23, 1993. Here, the taxpayer was assessed for taxable year 2009. The taxpayer argues that the prevailing rule in 2009 when the subject transactions were made was that intercompany advances covered by mere inter-office memos were not loan agreements subject to DST under the NIRC. Unless The Filinvest overturned a prior doctrine of the Court, its retroactive application would not be prejudicial to taxpayers. The Court’s interpretation of a statute merely establishes the contemporaneous legislative intent that the interpreted law carried into effect. In this case, SMC failed to establish the existence of a ruling, prior to Filinvest, which declared that intercompany loans and advances through memos and vouchers do not constitute debt instruments subject to DST under Section 179 of the NIRC. (San Miguel Corporation v. CIR, G.R. No. 257697, April 12, 2023; CIR v. San Miguel Corporation, G.R. No. 259446, April 12, 2023)

HOLDING COMPANY IS NOT SUBJECT TO LOCAL BUSINESS TAX. Banks and other financial institutions, including non-bank financial intermediaries (NBFI) are subject to local business tax on their dividends. Where the company is a mere holding company for shares of stock owned by the government, and it only managed the dividends for the benefit of the coconut farmers, and it does not fall under the requisites of bank and NBFI, whose principal function include lending and investing, and it receives funds from group of persons regularly and recurringly, the company is not subject to LBT. (City of Davao et. al v. Te Deum Resources, Inc., G.R. No. 243068, January 17, 2023)

NATIONAL POWER CORPORATION’S MACHINERY IS SUBJECT TO REAL PROPERTY TAX. The Local Government Code exempts from RPT all machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. To successfully claim exemption, the claimant must prove that: “(a) the machineries and equipment are actually, directly, and exclusively used by local water districts and GOCCs; and (b) the local water districts and GOCCs claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power. Where NPC never alleged that the properties were actually, directly, and exclusively used for pollution control and environmental protection nor did it not introduce evidence on the direct, immediate, and actual use of the properties as would control pollution and protect the environment, the property is considered not exempt. (National Power Corporation V. Provincial Government of Bulacan, G.R. No. 207140, January 30, 2023)

ALKYLATE IS NOT SUBJECT TO EXCISE TAX. Refund, in the nature of exemption, is construed against a taxpayer. However, if refund is based on taxpayer’s erroneous payment of the tax or government’s exaction in the absence of law, such rule does not apply. Here, alkylate is not among the articles subject to excise tax. In the absence of law expressly imposing excise tax on alkylate, statute must be construed against the government. In any case, alkylate does not fall under the category of “other similar products of distillation” subject to excise tax.(Petron Corporation v. CIR, G.R. No. 255961, March 20, 2023)

FRAUD MUST BE PROVED IN INVOKING 10-YEAR PRESCRIPTIVE PERIOD; NON-FILING OF DST DOES NOT JUSTIFY 10-YEAR PRESCRIPTION FOR ALL OTHER TAXES; WITHHOLDING TAXES ARE INTERNAL REVENUE TAXES. As a rule, the BIR must assess the internal revenue taxes within 3 years after the last day prescribed by law, except when taxpayer filed a false or fraudulent return, in which case, 10-year prescription applies. However, in invoking the extraordinary period of 10-years, fraud is never imputed.  The Court has refrained from sustaining findings of fraud upon circumstances which, at most, create only suspicion. The mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.” Bare allegation of falsity or fraudulency, without proof, is insufficient to remove the present case outside the purview of the three-year prescriptive period under Section 203. Here, the BIR did not present any evidence to prove the falsity of the taxpayer’s tax return in order to justify the 10-year period. Moreover, non-filing of its DST returns should not trigger the ten-year assessment period for all of its deficiency tax liabilities. A plain reading of both Sections 203 and 222 would show that the prescriptive periods therein are reckoned from the last day of filing of each return for each type of tax. By no stretch of imagination can it be concluded that the period of one should apply to all. Lasty, withholding taxes are subject to prescription considering that it is an internal revenue tax. Withholding taxes do not cease to become income taxes just because it is collected and paid by the withholding agent. (CIR v. Parity Packaging Corporation, G.R. No. 249045, January 11, 2023) –

DATE OF BIR ACCEPTANCE OF WAIVER MUST BE INDICATED; OTHERWISE, WAIVER IS VOID. In cases of waiver, RMO 20-90, the BIR is mandated to sign the waiver indicating that the BIR accepted and agreed to the waiver. Here, the waiver bears no date of the acceptance by the BIR. Thus, the assessment is invalidated on the ground of prescription. (CIR v. Amparo Shipping Corporation, G.R. No. 259049, January 11, 2023)

WILLFULNESS IN CRIMINAL CASES MEANS THE ACT IS VOLUNTARY OR INTENTIONAL. To successfully prosecute a violation of Section 255, it must be shown that: (1) the taxpayer is required to pay any tax, make or file a return, keep any record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations; (2) the taxpayer failed to do so; and (3) the act is willful. As regards the third requisite, the word willfully means voluntary, intentional violation of known legal duty. Here, Joel consciously and voluntarily refused to comply with his duty to make a return, as he is a doctor by profession and businessman, he is expected to know and understand the matters concerning his practice and business.  (People of the Philippines v. Mendez, G.R. Nos. 208310-11, March 28, 2023; Mendez v. People, G.R. No. 208662, March 28, 2023)

PRIOR ASSESSMENT IS NOT REQUIRED IN CRIMINAL ACTION. When a criminal action for violation of the tax laws is filed, a prior assessment is not required. Neither a final assessment is a precondition to collection of delinquent taxes in the criminal tax case. The criminal action is deemed a collection case. Therefore, the government must prove two things: one, the guilt of the accused by proof beyond reasonable doubt, and two, the accused’s civil liability for taxes by competent evidence (other than an assessment). If before the institution of the criminal action, the government filed (1) a civil suit for collection, or (2) an answer to the taxpayer’s petition for review before the CTA, the civil action or the resolution of the taxpayer’s petition for review shall be suspended before judgment on the merits until final judgment is rendered in the criminal action. However, before judgment on the merits is rendered in the civil action, it may be consolidated with the criminal action. In such a case, the judgment in the criminal action shall include a finding of the accused’s civil liability for unpaid taxes relative to the criminal case. (People of the Philippines v. Mendez, G.R. Nos. 208310-11, March 28, 2023; Mendez v. People, G.R. No. 208662, March 28, 2023)

10-YEAR PRESCRIPTION REQUIRES BIR TO DISCLOSE BASIS OF THE MISSTATEMENT; FALSE RETURN MUST BE COUPLED WITH INTENT TO EVADE TAX. The BIR has 3 years to assess the taxpayer, unless the 10-year extraordinary period applies in case of fraud, false return or failure to file tax. Presumption of fraud or falsity arises if there is under declaration of sales or overstatement of expenses exceeding the 30% threshold (amount declared). Before presumption arises, the BIR must observe due process by providing computation by which it ascertained the misstatement. Moreover, the BIR cannot adopt a position inconsistent with the invocation of the 10-year period (i.e. extension of waivers and issuance of assessment a day prior to the lapse of 3-year period). On the other hand, the presumption may be overcome by good faith, mistake, carelessness or ignorance. Not all types of error or falsehood in a return will make available the 10-year exception. Thus, where the assessment did not provide computation giving rise to the presumption and the alleged undeclared receipts was not actually collected by the taxpayer as it relates to VAT assessment, the 10-year period shall not apply (McDonald’s Philippines Realty Corporation v. CIR, G.R. No. 247737, August 8, 2023)

AMENDED RETURN IS THE RECKONING POINT FOR PRESCRIPTION IF THE AMENDED IS NOT SUBSTANTIAL SUCH AS AMENDMENT OF FORMS. The reckoning of the three-year prescriptive period for the making of assessment is the (1) last day prescribed by the law for the filing of return, or (2) the date of actual filing of the return, whichever comes later. The running of the three-year prescriptive period for issuing an assessment for deficiency VAT commences at 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. In Phoenix Assurance Case, the Supreme Court ruled in case of amended returns, the running of the prescriptive period should commence from the date of the filing of the original return or amended return. Ultimately, the answer hinged on whether the amendment was substantial or not. Where the monthly VAT return was amended to quarterly VAT return to correct the form, but the amount is the same, thus, the reckoning point is the amended VAT returns. (Lapanday Foods Corporation v. CIR, G.R. No. 186155, January 17, 2023)

FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) WITHOUT STATING THE FACTUAL AND LEGAL BASIS IS VOID. Revenue Regulations 12-99 states that FDDA must (a) state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based; otherwise, the decision shall be void, in which case, the same shall not be considered a decision on a disputed assessment and (b) that the same is his final decision. Where the FDDA merely informs the taxpayer of its supposed tax liabilities without basis, the FDDA is void. (CIR V. Manila Medical Services, Inc. (Manila Doctors Hospital) G.R. No. 255473, February 13, 2023)

CONVERSION OF LETTER NOTICE REQUIRES LETTER OF AUTHORITY; OTHERWISE, ASSESSMENT IS VOID. Pursuant to RMO No. 32-2005, in case of unresolved Letter Notice (LN), the revenue officer (RO) assigned to handle the LN shall recommend the issuance of LOA to replace the LN. Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug. The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR himself . Any tax assessment issued without an LOA is a violation of the taxpayer’s right to due process and is therefore “inescapably void (CIR v. Ermilo Tan Ng Hua, G.R No. 259264, January 23, 2023) –

ASSISTANT REGIONAL DIRECTOR HAS NO POWER TO ISSUE LOA. Pursuant to  Section 6 of the NIRC, the CIR or his duly authorized representative may authorize the examination of the taxpayer. The Regional Director is the authorized representative contemplated by the NIRC. An LOA issue by the officer-in-charge Assistant Regional Director, a mere ARD, is void is not among the authorized officers that possess the power to issue LOA. Therefore, the assessment is void. (CIR v. Amparo Shipping Corporation, G.R. No. 259049, January 11, 2023)

FDDA, ISSUED PRIOR TO THE LAPSE OF 60-DAY PERIOD TO SUBMIT DOCUMENTS IN CASE OF REQUEST FOR REINVESTIGATION, IS VOID. Assessment may be protested administratively by filing a request for reconsideration or reinvestigation within 30 days from the receipt of the assessment. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. In case of reinvestigation, the 60-day period commence from the filing of the protest to the FAN and not PAN. Therefore, where the BIR failed to give the taxpayer the opportunity to submit relevant documents within 60-days, wherein the FDDA was issued prior to the lapse of the 60-day period, the FDDA was issued prematurely in violation of the taxpayer’s right to due process. (CIR v. Maxicare Healthcare Corporation, G.R No. 261065, July 10, 2023)

WARRANT OF DISTRAINT AND/OR LEVY (WDL) IS NOT THE FINAL DECISION ON THE ASSESSMENT. The taxpayer may appeal to the CTA either after the lapse of the 180-day period or receipt of the final decision of the BIR. Where the BIR issued the WDL after the lapse of the 180-day period, and the taxpayer protested the WDL, the taxpayer was awaiting the  decision of the BIR. The WDL is not the final decision on the protest appealable to the CTA. Issuance of WDL is premised that the taxes are delinquent, which is not present in case of valid request of reinvestigation pending for resolution by the BIR. (Mannasoft Technology Corporation v. CIR, G.R. No. 244202, July 10, 2023)

RECEIPT BY THE CLIENT SERVICE ASSISTANT AND SECURITY GUARD OF THE NOTICE OF INFORMAL CONFERENCE AND FAN, RESPECTIVELY, WITHOUT INDICATION OF AUTHORITY RENDERS THE ASSESSMENT VOID; DEFECT IS NOT CURED BY FILING OF PROTEST. Taxpayer must be properly notified of its findings. Moreover, personal delivery must be acknowledged by the taxpayer or his duly authorized representative. Here, the NIC, the PAN, and the FAN bear indications that they were personally served. However, those who received them were not authorized representatives of the taxpayer as they have been served upon one “Ms. Gladys Badocdoc,” whose indicated position was “Client Service Assistant.” The FAN, on the other hand, was personally served upon a certain “Angelo Pineda,” who was a reliever security guard at that time, and who was not even an employee of petitioner.  No indication of authority to act on behalf of the taxpayer was provided. Hence, the assessment is void.  The defect in complying with the requirements of due process was not cured by the fact that the taxpayer was able to file a protest to the FAN. (Mannasoft Technology Corporation v. CIR, G.R. No. 244202, July 10, 2023)

AMENDED DECISIONS ARE PROPER SUBJECTS OF MOTIONS FOR RECONSIDERATION WHEN THEY ARE BASED ON ADDITIONAL EVIDENCE OR THE RE-EVALUATION OF PREVIOUSLY SUBMITTED EVIDENCE. Where the Amended Decision was rendered based on the additional evidence presented by party to bolster its claim, the “new” decision requires the parties adversely affected thereby to seek reconsideration with the CTA Division before they would be allowed to appeal to the CTA En Banc. Their failure to do so is fatal to their cause. (CIR v. Coral Bay Nickel Corporation, G.R. Nos. 243523-24, February 15, 2023)

TAX ASSESSMENTS

A SEPARATE LETTER OF AUTHORITY (LOA) IS NEEDED FOR THE EXAMINATION OF OTHER TAXPAYERS. An LOA defines and limits the scope of audit and examination that revenue officers can undertake with respect to a particular taxpayer’s books of accounts and other accounting records for purposes of determining the tax liability. One of these limitations is naming the taxpayer to be subjected to a tax audit. In this case, the Revenue Officers (ROs) named in the LOA were authorized to undertake an audit and examination of Jimmy Kho only. It does not authorize the extension of such investigation to Winplus Sales Center, Inc., who has separate juridical personalities from petitioner. This is true even if such parties are related to petitioner. (Jimmy Kho vs. Commissioner of Internal Revenue, CTA Case No. 10308; 14 September 2023)

A MEMORANDUM OF ASSIGNMENT (MOA) CANNOT BE USED AS A SUBSTITUTE FOR AN LOA. An MOA simply notifies a taxpayer of the transfer of an audit/investigation to another set of revenue officers. Unlike an LOA, a MOA does not show that the new set of revenue officers who will pursue the audit are properly authorized to do so. In contrast, and importantly, an LOA is a special grant of authority to a specific set of revenue officers to examine a taxpayer’s books of accounts and other accounting records for purposes of determining the taxes due. In the present case, the LOA, was issued by OIC – Assistant CIR Nestor S. Valeroso of the LTS authorizing ROs Reynante Martirez and Sheila Samaniego, and GS Rolando Balbido of RLTAD-1, to audit and examine Star Songs, Inc.’s books of accounts and other accounting records for all internal revenue taxes including DST and other taxes for the period from 1 January 2013 to 30 June 2014 pursuant to a mandatory audit because of a merger/consolidation that took place which included Star Songs, Inc. as one of the parties to such event. Subsequently, Ms. Shirley A. Calapatia, Chief of RLTAD-1, issued an MOA referring the continuation of the audit/verification of Star Songs, Inc.’s internal revenue tax liabilities for the period 1 January 2013 to 30 June 2014 to RO Carolyn V. Mendoza and GS Rosario A. Arriola. Through the audit/examination conducted by RO Mendoza and GS Arriola of Star Songs, Inc.’s books of accounts and other accounting records, the PAN, FLD/FAN, and FDDA were issued against Star Songs, Inc. Consequently, due to the absence of an LOA authorizing RO Mendoza and GS Arriola, to examine Star Songs, Inc., the present deficiency tax assessments are void. Accordingly, no tax collection can be pursued based on these assessments. (Commissioner of Internal Revenue vs. ABS-CBN Film Productions, Inc. CTA EB No. 2619; 28 September 2023)

AN EXAMINATION MADE BY A REVENUE OFFICER NOT NAMED IN THE LOA IS INVALID. The absence of LOA issued in favor of the ROs who continued the assessment or examination is a patent nullity. In this case, no LOA (either amended, substituted, or otherwise) was issued by the CIR or his duly authorized representatives under the names of the ROs who continued and completed the audit and examination of the taxpayer. Ergo, the absence thereof tainted the whole examination process, and resultant tax assessments with invalidity. (Sellery Phils. Enterprises Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10049; 6 September 2023; Fort Palm Spring Condominium Corporation vs. Hon. Caesar R. Dulay, in his capacity as Commissioner of the Bureau of Internal Revenue, CTA Case No. 9999; 5 September 2023). Even though the group supervisor (one of the ROs named in the LOA before her promotion to group supervisor) reviewed the findings by the ROs who conducted and completed the audit and examination, there was nothing for the group supervisor to review or check, since the findings unearthed by the ROs who conducted the audit and examination were a patent nullity (3M Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9841; 19 September 2023)

A REINVESTIGATION CONDUCTED BY AN RO NOT NAMED IN THE LOA IS VOID. A new or amended LOA is necessary for the substitute or replacement RO to continue the audit or investigation. In this case, an RO not named in the LOA conducted the reinvestigation and submitted her findings to the regional director who, on the basis of which, issued the FDDA with details of discrepancies. Since no LOA was issued in favor of the RO who conducted the reinvestigation, the subject tax assessments issued against the taxpayer were void. (Montalban Methane Power Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10038; 21 September 2023; Racal Motorsales Corporation vs. Bureau of Internal Revenue (CTA Case No. 9737; 14 September 2023)

ONLY ROS WHO WILL AUDIT AND EXAMINE TAXPAYER FOR PURPOSES OF ISSUING A TAX ASSESSMENT ARE REQUIRED TO BE ARMED WITH AN LOA AUTHORIZING THEM TO PERFORM SUCH INVESTIGATION. When the BIR docket is referred to a new set of ROs after a deficiency tax assessment has already been issued such as but not limited to: a) when there is a need to resolve a Protest filed by a taxpayer against an FLD/FAN; or b) when there is a need to decide on a request for reconsideration filed by a taxpayer against an FDDA, a new LOA is not required for the new set of ROs. Primarily, this is because the new set of ROs will no longer be conducting an audit and examination of the taxpayer’s books of accounts and other accounting records but will simply be reviewing the findings of the previous ROS which resulted in the already issued tax assessment. At this stage, there is no longer a potential encroachment on the taxpayer’s person and property which the LOA requirement was imposed to avoid. Consequently, only ROS who will actually audit and examine a taxpayer for purposes of issuing a tax assessment are required to be armed with an LOA authorizing them to perform such an investigation. In this case, the actual audit and examination which resulted in the issuance of the was conducted by RO Pagulayan and GS Bautista since it was through their efforts that the FLD/FAN was issued by the BIR. Both RO Pagulayan and GS Bautista were duly authorized to perform such investigation of the taxpayer’s books of accounts and other accounting records. With respect to RO Torio and GS Cruz, they did not perform an actual audit and examination of the petitioner’s books of accounts and other accounting records when the present case was re-assigned to them through an MOA. There was no need for them to conduct such an investigation since a deficiency tax assessment had already been issued. Rather, when they were asked to resolve petitioner’s Protest, they simply reviewed the findings of RO Pagulayan and GS Bautista. Although an FDDA was issued through RO Torio and GS Cruz’s efforts, the same was done without them having to actually audit and examine once more petitioner’s books of accounts and other accounting records. As such, there was no potential or actual encroachment on petitioner’s person and property that needed to be protected through the LOA requirement. (Jimmy Kho vs. Commissioner of Internal Revenue, CTA Case No. 10308; 14 September 2023)

IN COMPUTING FOR THE REGLEMENTARY PERIOD TO FILE A PETITION FOR REVIEW WITH THE CTA, THERE IS ONLY ONE (1) “180-DAY PERIOD” OF INACTION TO SPEAK OF. There is a singular 180-day period, i.e., the period counted from the filing of the protest or the submission of the required documents. Accordingly, if an authorized representative of the CIR denies the protest within the 180-day period and the taxpayer appeals to the CIR, the CIR has the remainder of the 180-day period within which to act. And if there is no action, the taxpayer may appeal to the CTA within 30 days after the lapse of the said remaining period. It also follows that if the taxpayer waits for the decision of the CIR’s representative and the same is issued after the lapse of the 180-day period, the same may be appealed to the CTA. In the latter case, the 180-day period is no longer a consideration and the only remedy for the taxpayer is to wait for the CIR’s decision before elevating its case to the CTA, if the same is not favorable. (Benguet Electric Cooperative, Inc. (BENECO) vs. The Commissioner on Internal Revenue, CTA Case No. 9967; 11 September 2023)

WHEN THE TAXPAYER DENIES RECEIPT OF THE PAN AND FAN, IT BECOMES INCUMBENT UPON THE COMMISSIONER OF INTERNAL REVENUE (CIR) TO PROVE THAT THE TAXPAYER RECEIVED THE SAME. Under Section 3 (v), Rule 131 of the Rules of Court, there is a disputable presumption that a letter duly directed and mailed was received in the regular course of the mail. However, the presumption is subject to direct denial, in which case the burden is shifted to the party favored by the presumption to establish that the mailed letter was actually received by the addressee. Unfortunately, the registry receipts submitted in evidence by the CIR hardly suffice to prove that the PAN and FAN were indeed served and received by the taxpayer or by any of its authorized representative/s. The said registry receipts merely proved the fact of mailing, and nothing more. The glaring fact remains that nowhere can it be seen from the evidence presented that the said PAN and FAN were actually served and received by the taxpayer or by any of its authorized representative. Hence, the subject tax assessments are void for violating the taxpayer’s right to due process. (Fort Palm Spring Condominium Corporation vs. Hon. Caesar R. Dulay, in his capacity as Commissioner of the Bureau of Internal Revenue, CTA Case No. 9999; 5 September 2023; Sellery Phils. Enterprises Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10049; 6 September 2023)

WHEN THE TAXPAYER PUTS FORWARD A DEFENSE THROUGH A REPLY OR RESPONSE ON THE PAN, THE BIR MUST GIVE REASON WHY SAID DEFENSES ARE LACKING IN MERIT IN THE FLD/FAN. Item II (3) of RMO No. 26-2016 allows the BIR to issue the FLD/FAN against the taxpayer, irrespective of whether the latter replied on the PAN. However, when the taxpayer puts forward its defenses, through a reply or response on the PAN, the BIR must give reason why said defenses are lacking in merit. The BIR’s FLD/FAN issued against petitioner failed to satisfy said dictum, resulting in transgression of the latter’s right to due process. The defenses posed by petitioner in its reply or response on the PAN, must be answered by the BIR in the FLD/FAN, and not in the FDDA. For one, the FDDA is issued by the BIR in ruling on the taxpayer’s administrative protest on the FLD/FAN. The FDDA is not meant as the answer to the taxpayer’s reply or response on the PAN. For another, should the BIR find the taxpayer’s explanation in its reply or response on the PAN unsatisfactory, the BIR would issue the FLD/FAN. Necessarily, the duty to give reason as to why the taxpayer’s defenses against the PAN, must be immediately explained in the FLD/FAN. Besides, to subscribe with the BIR’s reasoning that the taxpayer’s defenses in its response or reply on the PAN, may still be belatedly addressed in the FDDA would defeat the very purpose for which the mechanism on the PAN and the chance to respond thereto were made—an opportunity for both the taxpayer and the BIR to settle the case at the earliest possible time without need for the issuance of the FAN, much more, the FDDA. (The Residences a Greenbelt Condominium Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9942, 27 September 2023)

ISSUANCE OF A FAN BEFORE THE LAPSE OF THE TAXPAYER’S PERIOD TO RESPOND TO THE PAN RENDERS THE FAN VOID. Respondent issued the FAN on January 14, 2013 or barely five (5) days after receipt by petitioner of the Preliminary Assessment Notice (PAN), without regard to the fifteen (15)-day period within which petitioner is allowed by law to respond to the PAN. Clearly, the BIR violated the taxpayer’s right to due process. (D.M. Wenceslao & Associates, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9764; 15 September 2023)

THE FAILURE OF THE BIR IN THE PAN AND FLD TO PROVIDE COPIES OF ANNEXES WITHOUT WHICH THE TAXPAYER COULD NOT VALIDATE THE BIR’S COMPUTATION OF ITS SALES SUBJECT TO 0% VAT VIOLATES THE TAXPAYER’S RIGHT TO BE INFORMED OF THE FACTS AND LAW ON WHICH THE ASSESSMENT IS BASED. Under Section 3 (v), Rule 131 of the Rules of Court, there is a disputable presumption that “a letter duly directed and mailed was received in the regular course of the mail.” However, the presumption is subject to controversion and direct denial, in which case the burden is shifted to the party favored by the presumption to establish that the subject mailed letter was actually received by the addressee. In the instant case, petitioner directly denied receipt of Annex “A-7” of the PAN and Annex “B-l ” of the FLD. The burden then shifts to respondent to establish that petitioner received the said attachments. However, CIR failed to present any proof to discharge said burden. As it stands, the evidence shows that the taxpayer did not receive said attachments, in violation of petitioner’s right to due process. On this point alone, cancellation of the deficiency assessment against the taxpayer is warranted. (Global Cars Phils., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10225, 7 September 2023)

SALES TO A FREEPORT ZONE-REGISTERED ENTERPRISE ARE SUBJECT TO VAT ZERO-RATING. Sales by VAT-registered entities to enterprises duly registered with the Subic Bay Metropolitan Authority (SBMA) pursuant to Republic Act No. 7227 are subject to VAT zero-rating. Here, Westcoast Automotive Corporation (“WAC”), is a freeport zone-registered enterprise registered with SBMA. Upon consummation of the contract between the petitioner and WAC, ownership of the automobiles passes on to WAC. The automobiles will then form part of WAC’s inventory considering that WAC’s primary purpose is to engage in the sale and distribution of motor vehicles. The tax treatment of any subsequent sale between WAC and its customers will then depend on the identity of WAC’s customers but have no bearing on the petitioner. Hence, the taxpayer is not liable for the VAT assessed. (Global Cars Phils., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10225, 7 September 2023)

THE FAILURE OF THE RO TO COMPLETE THE AUDIT WITHIN THE PRESCRIBED PERIOD DOES NOT RENDER NULL AND VOID THE ISSUED LOA BUT MERELY SUBJECTS THE RO TO ADMINISTRATIVE SANCTIONS. Revenue Memorandum Circular (RIMC) No. 23-2009 categorically states that failure on the part of the concerned RO to request for revalidation of an LOA or upon the expiration of the “revalidation period” does not nullify the same, nor will it affect or modify the rules on the reglementary period within which an assessment may be validly issued. The effect of such failure is merely to subject the concerned ROs to applicable administrative sanctions, and not to render null the issued LOA. More significantly, the lapse of the said period of audit would not have the effect of revoking the authority given to the concerned ROs. Considering that the present LOA was issued on April 1, 2013, the above-quoted provisions of RNIO No. 044-2010 must already apply, as the same was already in full effect at the time of the issuance of the said LOA. Correspondingly, the lack of revalidation of the subject LOA, despite the lapse of the 120-day period, does not nullify the same. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317 dated 14 September 2023)

WITHHOLDING TAX ASSESSMENTS ARE SUBJECT TO THE PERIOD OF LIMITATION OF THREE (3) YEARS UNDER SECTION 203 OF THE NIRC. Except as provided in Section 222 of the NIRC of 1997, 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. Withholding tax assessments are also within the purview of deficiency internal revenue taxes and thus, are also subject to the period of limitation of three (3) years under Section 203 of the NIRC of 1997. In case the FLD and Audit Results/Assessment Notices were received by the taxpayer only after the end of the three (3)-year prescriptive period, there is no doubt that the FLD and Audit Results/Assessment Notices were issued beyond the said prescriptive period to assess under Section 203 of the NIRC of 1997, thereby rendering the assessments void. However, as regards DST and IAET assessments where the taxpayer did not file a tax return, the ten (10) year prescriptive period under Section 222(a) of the NIRC of 1997 applies. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317, 14 September 2023)

THE CIR HAS ANOTHER THREE (3) YEAR PERIOD WITHIN WHICH TO COLLECT THE TAXES DUE IN CASE OF ASSESSMENTS ISSUED WITHIN THE 3-YEAR ORDINARY PRESCRIPTIVE PERIOD. Citing the Supreme Court case of CIR vs. Court of Tax Appeals Second Division and QL Development, Inc., the CTA held that in cases of assessments issued within the three (3) year ordinary period in accordance with Section 203 of the NIRC, the CIR has another three (3)-year period within which to collect the taxes due. The three (3)-year period to collect starts to run from the date the FLD/FAN is released, mailed, or sent by the BIR to the taxpayer. However, such period to collect is tolled whenever a request for reinvestigation has been filed by a taxpayer which was subsequently approved by the CIR. In the case at bar, the BIR issued the FLD/FAN on 6 November 2014. The taxpayer then filed a Protest on the FLD/FAN on December 12, 2014. Since the protest filed by the taxpayer merely requested for a reconsideration (not reinvestigation) of the VAT assessment issued against him, the running of the three (3)-year period to collect assessed taxes was not suspended by the filing of such protest. For this reason, the CIR should have instituted collection efforts to collect the deficiency VAT assessment within three (3) years from 6 November 2014 or until 6 November 2017. However, the earliest date on which CIR enforced collection of the deficiency VAT assessment was 4 December 2020 when a WDL was sent to the taxpayer to collect the deficiency VAT assessment. Hence, the CIR’s right to collect the deficiency VAT assessment issued against the taxpayer has definitely prescribed. (Jimmy Kho vs. Commissioner of Internal Revenue (CTA Case No. 10308, 14 September 2023; see also Commissioner of Internal Revenue vs. Citiparking Management Corporation, CTA EB No. 2626, 29 September 2023)

A REQUEST FOR RECONSIDERATION DOES NOT SUSPEND THE RUNNING OF THE PRESCRIPTIVE PERIOD FOR COLLECTION. There is no merit to the CIR’s argument that Citiparking’s request for reconsideration before the CIR, in the Letter dated December 5, 2011, suspended the running of the prescriptive period for collection. A perusal of the said Letter dated December 5, 2011, shows that the same is merely a request for reconsideration which would not suspend the running of the prescriptive period for collection. (Commissioner of Internal Revenue vs. Citiparking Management Corporation, CTA EB No. 2626, 29 September 2023)

A WAIVER OF THE STATUTE OF LIMITATIONS WHICH DOES NOT INDICATE THE NATURE AND THE AMOUNT OF THE TAX DUE IS INVALID. For a waiver of the statute of limitations to be valid and have the effect of extending the three (3)-year prescriptive period to assess under Section 203 of the NIRC of 1997, it is required (among others) that the waiver indicates the nature and the amount of the tax due. According to the Supreme Court, these details are material as there can be no true and valid agreement between the taxpayer and respondent absent these pieces of information. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317, 14 September 2023; Commissioner of Internal Revenue vs. PHILUSA Corporation, CTA EB No. 2566, 13 September 2023)

A WAIVER OF THE STATUTE OF LIMITATIONS MUST BE EXECUTED BY THE TAXPAYER AND ACCEPTED BY THE BIR BEFORE PRESCRIPTION SETS IN. The CTA noted that, in violation of the requirement in Commissioner of Internal Revenue v. Kudos Metal Corporation (Kudos Metal) (G.R. No. 178087; 5 May 2010), both the dates of execution by the taxpayer and dates of acceptance by the BIR occurred after the prescription had set in.  In Kudos Metal, the Supreme Court summarized the rules governing the proper execution of waivers under Revenue Memorandum Order (RMO) No. 20-90 and Revenue Delegation Authority Order (RDAO) No. 05-01, and requires among others that “Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.”  (Commissioner of Internal Revenue vs. PHILUSA Corporation, CTA EB No. 2566, 13 September 2023)

FLD AND FDDA THAT FAIL TO STATE A DUE DATE FOR THE PAYMENT OF THE TAXPAYER’S TAX LIABILITIES ARE VOID. A valid assessment does not only include a computation of tax liabilities, it also includes a demand for payment within a period prescribed. FLDs and FDDAs which do not state a due date are void since they hardly fall under the jurisprudential definition of a tax assessment under the NIRC, considering that they lack “a due tax liability that is definitely set and fixed.” They do not purport to be a demand for payment of tax due, which a final assessment notice should supposedly be. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317, 14 September 2023; Commissioner of Internal Revenue vs. PHILUSA Corporation, CTA EB No. 2566, 13 September 2023).

PROJECT INVESTMENT AGREEMENTS (PIAs) ARE NOT CONTRACTS OF SALE. PIAs are akin to contracts to sell since in a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement, the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price. (JTKC Land, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10059, 4 September 2023)

PROJECT INVESTMENT AGREEMENTS (PIAs) ARE NOT INVESTMENT CONTRACTS. The Supreme Court in Power Homes Unlimited Corporation v. Securities and Exchange Commission, et al. (G.R. No. 164182; 26 February 2008) explained that the concept of Howey test was adopted to define investment contracts under Republic Act (RA) No. 8799 or “The Securities Regulation Code” (SRC). Thus, in our jurisdiction, to be classified as an investment contract, there must be: (1) an investment of money; (2) in a common enterprise; (3) with expectation of profits; and, (4) primarily from the efforts of others. Using the above parameters, as also already discussed in the assailed decision, the CTA observed that petitioner failed to establish the common enterprise among the 19 alleged “investors”. (JTKC Land, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10059, 4 September 2023)

ASSESSMENT IS VOID IF SUCH DID NOT CONTAIN THE AMOUNT OF DEFICIENCY TAX, SURCHARGES, INTEREST, PENALTIES, AND THE DUE DATE. Section 195 of the Local Government Code (RA No. 7160) provides that the notice of assessment that will be issued by a local government unit against its taxpayers must not only contain the nature of the tax, fee or charge but also the amount of deficiency, the surcharges, interests and penalties. In the instant case, petitioner grounded its judicial action against respondents on the letter dated 4 June 2009, demanding payment of NPC’s franchise obligation without specifying the amount due and due date. Thus, there was no amount of deficiency tax assessment yet issued against the petitioner since an assessment must contain a fixed tax due. The absence of an assessment containing a fixed tax due is tantamount to an assessment without definite amount which is null and void. Hence, there is no basis to remand the case to the court a quo for the substantiation of the parties’ respective claim as an assessment that is null and void, bears no valid fruit. (National Power Corporation vs. Province of Dinagat Islands and Ermilinda C. Biol, CTA EB No. 1723; 19 September 2023)

IT IS INCUMBENT UPON THE CITY OF MANILA TO STATE THE PARTICULAR PROVISION OF THE MANILA REVENUE CODE IN THE LOA. Respondents must be aware that the essence of due process in administrative proceedings is not only for the petitioner to file a protest letter and have the opportunity to be heard but as well as the opportunity to properly and intelligently prepare for the answer to such charges. However, respondent City Treasurer in her Letter dated January 7, 2014, instead of responding to petitioner’s inquiry and providing the particular tax rate in the Manila Revenue Code as the basis of the LOA, merely cited the “Gross on Learning Institution and Rental Income” as the basis of her computation without providing the specific tax rate in the Manila Revenue Code which was used in arriving at the deficiency local business tax of petitioner. Even if Section 195 of the Local Government Code of 1991 does not expressly require the assessment notice to specifically cite the provision of the ordinance, reference to the local tax ordinance is vital considering that the Manila Revenue Code provides multiple provisions on business taxes and at varying rates. (Malayan Education System, Inc. (formerly known as Malayan Colleges, Inc. and presently operating under the name of Mapua University vs. City of Manila, City Mayor, and City Treasurer, CTA AC No. 260, 19 September 2008)

COMPROMISE PENALTIES ARE ONLY AMOUNTS SUGGESTED IN SETTLEMENT OF CRIMINAL LIABILITY AND MAY NOT BE IMPOSED OR EXACTED ON THE TAXPAYER IN THE EVENT OF REFUSAL TO PAY THE SUGGESTED AMOUNT. A compromise is, by its nature, mutual in essence. It implies agreement. One party cannot impose it upon the other. Considering that there is no indication that petitioner consented to the subject compromise penalties, the said total amount cannot likewise be sustained. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317, 14 September 2023)

UNDER SECTION 203 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, THE CIR HAS THREE (3) YEARS TO ASSESS AND COLLECT AN INTERNAL REVENUE TAX. CIR only had three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. If the taxpayer filed its VAT Quarterly Return for the months of: (1) January, February and March 2014 on April 25, 2014; and (2) April, May and June 2014 on July 25, 2014, CIR had three (3) years from the filing thereof, or until: (1) April 25, 2017; and (2) July 25, 2017, to issue an assessment against the taxpayer for its: (1) January, February and March 2014 VAT Quarterly Return; and (2) April, May and June 2014 VAT Quarterly Return, respectively. Since the CIR issued a FAN / FLD on January 10, 2017 covering the taxpayer’s deficiency VAT assessment for the 1st and 2nd quarters of 2014, the same is not barred by prescription. (Racal Motorsales Corporation vs. Bureau of Internal Revenue, CTA Case No. 9737, 14 September 2023)

A DULY REGISTERED COOPERATIVE IS EXEMPT FROM LOCAL BUSINESS TAX. Cooperatives are exempt from the payment of local business taxes pursuant to Section 133(n) of the Local Government Code and Article 61 of RA No. 9520. The proviso in Section 61(3) of RA No. 9520 that “all sales or services rendered for non-members shall be subject to the applicable percentage taxes except sales made by producers, marketing or service cooperatives” does not pertain to local business tax, but pertains to percentage tax under the NIRC. Nowhere in the LGC did the law pertain to local business taxes as “percentage taxes.” Hence, the CTA declined to construe the proviso allowing the imposition of percentage tax as granting petitioner the power to impose local business taxes on a cooperative selling to non-members. (The City Government of Tayabas represented by Hon. Ernida A. Reynoso, City Mayor, et al. vs. St Jude Multi-Purpose Cooperative, represented by its Manager, Melanie Fontarum, CTA AC No. 254 6 September 2023)

A DULY REGISTERED COOPERATIVE IS EXEMPT FROM REAL PROPERTY TAX.  Cooperatives are exempt from the payment of real property taxes pursuant to Section 234 of the Local Government Code and Article 61 of RA No. 9520. Anent respondent’s exemption from real property taxes, it has already been settled by the Supreme Court in Provincial Assessor of Agusan Del Sur us. Filipinas Palm Oil Plantation, Inc. (G.R. No. 183416; 5 October 2016) that “all real property owned by cooperatives” are exempt “without distinction.” The Supreme Court continued that “nothing in the law suggests that the real property tax exemption only applies when the property is used by the cooperative itself. Similarly, the instance that the real property is leased to either an individual or corporation is not a ground for withdrawal of tax exemption.” (The City Government of Tayabas represented by Hon. Ernida A. Reynoso, City Mayor, et al. vs. St Jude Multi-Purpose Cooperative, represented by its Manager, Melanie Fontarum, CTA AC No. 254, 6 September 2023)

SECTION 7B.14 (C) OF THE REVISED MAKATI REVENUE CODE (RMRC) IS VOID FOR BEING INCONSISTENT WITH SECTION 195 OF THE LOCAL GOVERNMENT CODE. The CTA in Division correctly invalidated Section 7B.14 (c) of the RMRC concerning “payment under protest” for being inconsistent with Section 195 of the LGC, which does not require prior payment to validly protest the assessment. In setting aside Section 7B.14(c) of the RMRC, the CTA is simply guided by the well-established doctrine that ordinances, which are inferior in status, should not contravene and should remain consistent with the law. Otherwise, the ordinance is void. (City of Makati and Jesusa E. Cuneta in her capacity as the Makati City Treasurer, CTA EB No. 2634, 18 September 2023)

LBT IS LEVIED ON THE ENTITY’S GROSS RECEIPTS DERIVED FROM THE CONDUCT OF ITS PRINCIPAL TRADE OR BUSINESS. It is settled that LBT under Section 143 of the LGC is levied on the entity’s gross receipts derived from the conduct of its principal trade or business. While respondent may be subject to LBT on its gross receipts derived from the conduct of its principal trade or business as a holding company following Section 143 of the LGC, its dividend and interest income derived from investment on shares of stock and other money market placements cannot be subject to LBT because such income is not derived from the pursuit of its principal business activity. (City of Makati and Jesusa E. Cuneta in her capacity as the Makati City Treasurer, CTA EB No. 2634, 18 September 2023))

HOLDING COMPANIES ARE NOT LIABLE FOR LBT PURSUANT TO SECTION 143(F) OF THE LGC. For respondents to be properly assessed under Section 3A.02(h) of the RMRC, petitioners must show that respondent is doing business as a bank or a non-bank financial intermediary. The CTA in Division has meticulously discussed that respondent does not fall under the purview of “banks and other financial institutions” as defined under Section 131(e) 33 of the LGC and that respondent is neither a financial intermediary nor lending investor, finance and investment company, pawnshop, money shop, insurance business, stock market, stockbroker, and dealer in securities. As a “holding company,” respondent’s main business is simply to hold shares to control the policies of its subsidiaries; thus, respondents cannot be taxed under Section 3A.02(h) of the RMRC. Also, the Supreme Court has already settled that holding companies are not liable for LBT pursuant to Section 143(f) of the LGC as they are not considered banks or non-bank financial intermediaries. Consequently, petitioners’ assessment of respondent pursuant to Section 3A.02(h) of the RMRC is erroneous. In fine, the RTC Makati City did not err in, and the Court in Division in sustaining, the cancellation of the subject assessment, levying LBT on respondent’s other income, namely, its management fees, investment income, and revenues from its employees’ benefit pension plan for being ultra vires. (City of Makati and Jesusa E. Cuneta in her capacity as the Makati City Treasurer, CTA EB No. 2634, 18 September 2023)

REFUND OF ERRONEOUSLY OR ILLEGALLY ASSESSED OR COLLECTED TAX

PAYMENTS MADE UNDER PROTEST PURSUANT TO A VOID DEFICIENCY TAX ASSESSMENT CAN BE REFUNDED. Section 229 of the NIRC, as amended, allows the recovery of taxes erroneously or illegally collected. An “erroneous or illegal tax” is defined as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which is some other similar respect is illegal. Deficiency tax assessments based on an audit and examination conducted by ROs not authorized to do so under a LOA are void because the same was a result of an illegal examination conducted by the BIR. A fortiori, the EWT, FWVAT, and Miscellaneous Tax (compromise penalties) for TY 2014, paid under protest by 3M, in the total amount of P13,398.898.25, were unlawfully collected by the BIR and should be refunded to 3M (3M Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9841, 19 September 2023)

PERIOD TO FILE CLAIM FOR REFUND. Within two (2) years from the date of payment of tax, the claimant must first file an administrative claim with respondent before filing its judicial claim with the courts of law. Both claims must be filed within a two (2)-year reglementary period. (San Miguel Brewery Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8955; 14 September 2023; Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 9627,9697, 9760, 9830, and 9856; 8 September 2023). The timeliness of the filing of the claim is mandatory and jurisdictional and the CTA cannot take cognizance of a judicial claim for refund filed either prematurely or out of time. As for a judicial claim, our tax laws explicitly provide that it should be filed within two (2) years from payment of the tax “regardless of any supervening cause that may arise after payment”. (San Miguel Brewery Inc. vs. Commissioner of Internal Revenue ,CTA Case No. 8955; 14 September 2023; British American Tobacco (Philippines), Limited vs. Commissioner of Internal Revenue, CTA Case No. 9998; 12 September 2023; Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10483; 4 September 2023). As regards respondent’s contention that petitioner is in bad faith for allegedly filing an administrative claim before the BIR one (1) month before its claim for refund prescribes, depriving the BIR of making an assessment and/or audit investigation on its claim, the CTA found the same without merit. Verily, the primary purpose of filing an administrative claim was to serve as a notice of warning to the CIR that court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code  however does not mean that the taxpayer must await the final resolution of its administrative claim for refund, since doing so would be tantamount to the taxpayer’s forfeiture of its right to seek judicial recourse should the two (2)-year prescriptive period expire without the appropriate judicial claim being filed. Thus, considering the rationale behind the rule requiring the prior filing of an administrative claim for refund before the judicial claim, the CTA held that the period of thirty (30) days given to respondent to decide on petitioner’s administrative claim was sufficient to resolve the matter. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue, CTA Case No. 10284; 26 September 2023). From the language of the law, it does not matter how far apart the administrative and judicial claims were filed, or whether respondent was actually able to rule on the administrative claim, so long as both claims were filed within the two-year prescriptive period. (Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10483, 4 September 2023)

PERIOD TO FILE CLAIM FOR REFUND OF EXCISE TAXES ON DOMESTIC PRODUCTS; WHEN RECKONED. For excise tax on domestic products in general, the return is filed and the excise tax is paid by the manufacturer or producer before removal of the products from the place of production. Hence, the date of payment of excise tax on domestic products depends on the date of actual removal of the taxable domestic products from the place of production. Thus, the reckoning of the two (2)-year prescriptive period under Sections 204(C) and 229 should be from the date of “actual removal” of the taxable domestic products from the place of production; and not from the date when the pertinent excise tax return was filed and/or when the corresponding excise tax was paid. In the present case, in 2013, petitioner filed Excise Tax Returns and paid excise taxes; and actually removed its beer products from its plants, the earliest date was made on January 2, 2013. Such being the case, petitioner had two (2) years from the said date or until January 2, 2015, at the earliest, within which to file its administrative and judicial claims for refund. (San Miguel Brewery Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8955, 14 September 2023)

OPTIONS AVAILABLE TO A TAXPAYER WHENEVER IT OVERPAYS ITS ANNUAL INCOME TAX FOR A TAXABLE YEAR. Under Section 76 of the NIRC, there are two options available to the corporation whenever it overpays its income tax for the taxable year: (1) to carry over and apply the overpayment as tax credit against the estimated quarterly income tax liabilities of the succeeding taxable years (also known as automatic tax credit) until fully utilized (meaning, there is no prescriptive period); and (2) to apply for a cash refund or issuance of a tax credit certificate within the prescribed period. Such overpayment of income tax is usually occasioned by the over-withholding of taxes on the income payments to the corporate taxpayer. (Sonoma Services, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10272; 22 September 2023). 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 Annual Corporate 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. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue, CTA Case No. 10284; 26 September 2023)

REQUISITES TO CLAIM FOR REFUND OF CREDITABLE WITHHOLDING TAX. In addition to the requisites provided under Section 76 of the NIRC of 1997, the taxpayer must satisfy the following three (3) requisites (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10284; 26 September 2023; Sonoma Services, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10272; 22 September 2023); GHD Pty Ltd. (formerly Gutteridge Haskins & Davey Pty Ltd.) vs. Commissioner of Internal Revenue (CTA EB No. 2637; 6 September 2023)):

1. The claim for refund must be filed within the two-year prescriptive period as provided under Sections 204(C) and 229 of the NIRC, as amended

While the law provides that the two years is counted from the date of payment of the tax, jurisprudence, however, clarified that the two-year prescriptive period to claim a refund commences to run at the earliest on the date of the filing of the final adjustment return or adjusted final tax return because this is where the figures of the gross receipts and deductions have been audited and adjusted, reflective of the results of the operations of a business enterprise. Thus, it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue, CTA Case No. 10284; 26 September 2023; Sonoma Services, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10272; 22 September 2023)

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.

The Supreme Court affirmed that the CWT certificate is the competent proof to establish the fact that taxes are withheld and that proof of actual remittance is not a condition to a claim for refund of unutilized tax credits. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10284; 26 September 2023)

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

The income payments/management fees of P56,587,650.68 related to the claimed CWTs of P8,488,147.60 or P8,488,148.00 formed part of petitioner’s taxable income per its 2017 Annual ITR. Verily then, petitioner is considered to have complied with the third requisite. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue, CTA Case No. 10284. 26 September 2023)

An examination of the ICPA report and the relevant annexes thereto shows the matching procedure used the income payments subjected to CWT to the ORS and of the GL of FY 2015. However, petitioner’s GL for FY2015 (that would have allowed the CTA to trace and verify that the income payments were declared in 2015) was never presented during the trial. Also, the CTA agreed with respondent’s observation that the Annual ITR for 2015 and the related ORS (which petitioner deemed sufficient evidence) are not adequate for the CTA to ably determine that the income payments were indeed declared in 2015. It is noted that the Annual ITR merely reflected the gross revenue while the ORS showed the specific income payments. As it is, there is dearth of evidence linking the specific income payments in the OR with the gross revenue in the Annual ITR, thus the CTA cannot validate the ICPA’s findings. The CTA makes an independent verification and it is not bound to accept the conclusion reached in the ICPA report. (GHD Pty Ltd. (formerly Gutteridge Haskins & Davey Pty Ltd.) vs. Commissioner of Internal Revenue, CTA EB No. 2637, 6 September 2023)

DETERMINING THE RECOVERY PERIOD IN A FINANCIAL OR TECHNICAL ASSISTANCE AGREEMENT. Based on the foregoing provisions of the FTAA, petitioner had 36 months or three (3) years from the approval of its PDMF on 11 October 2005, or until 11 October 2008, to develop and construct mining production facilities. Thereafter, it had to submit, within 30 days, another Work Program for the period of 3 years for the actual production activities (including the commencement of commercial production). Clearly from the foregoing, petitioner should have commenced commercial operation and production within the 4th quarter of 2008 up to 4th quarter of 2011. Consequently, the recovery period would have ended in the 3rd quarter of 2015 to fourth quarter of 2016 (subject periods of the instant refund), regardless of petitioner’s declaration of the commencement of commercial production on 27 March 2013. Accordingly, the subject payments of excise taxes that were made between 01 July 2015 and 19 December 2016 (which are beyond the recovery period) are not rendered erroneous nor illegal. (Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 9627,9697, 9760, 9830, and 9856, 8 September 2023)

PAYMENTS OF EXCISE TAXES DURING THE RECOVERY PERIOD. Even assuming arguendo that the subject payments of excise taxes were made within the recovery period, DAO No. 99-56 and the FTAA  state categorically that, in case the excise taxes paid are not recovered, the same would merely form part of the Government’s share or the same shall be deducted from the latter’s share. Note that Section 3(g)(1) of DENR DAO NO. 99-56, in part, states: “Any taxes, fees, royalties, allowances, or other imposts, which should not be collected by the Government, but nevertheless paid by the Contractor and are not refunded by the Government before the end of the next taxable year, shall be included in the Government Share in the next taxable year. (Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue (CTA Case Nos. 9627,9697, 9760, 9830, and 9856, 8 September 2023)

DEFINITION OF THE TERM “DETRIMENTAL” FOR FTTA PURPOSES. Section Il of the FTAA provides for a definition of terms. The definition of the word “detrimental” is, however, not provided therein. With the absence of a technical definition, resort to the plain or literal meaning of the word is in order. The term “detriment” means “[a]ny loss or harm suffered in person or in property”. Thus, per the subject FTAA, petitioner must show that the collection of excise tax during the Recovery Period resulted in loss or harm in its person or property. (Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 9627,9697, 9760, 9830, and 9856; 8 September 2023)

THE PAYMENT OF EXCISE TAXES MUST BE DETRIMENTAL TO THE CONTRACTOR’S RECOVERY OF PREOPERATING EXPENSES AND PROPERTY EXPENSES. Even assuming arguendo that the subject payments of excise taxes were made within the recovery period, petitioner failed to prove that the payments of the subject excise taxes, during the said 5-year period, were detrimental to its recovery of the said pre-operating and property expenses. As it is, the records of these cases do not yield any evidence showing that such excise tax payments resulted in losses (to petitioner). Moreover, petitioner failed to present evidence that its payments of excise taxes had an adverse effect on its financial position and/or performance as it did not also offer in evidence its Audited Financial Statements during the subject period. Even the ICPA Report is silent as to a supposed detrimental effect of the payments of the excise taxes during the Recovery Period. With the above disquisitions, this Court thus finds no erroneous or illegal collection of excise taxes that may be refunded to petitioner. (Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 9627,9697, 9760, 9830, and 9856; 8 September 2023)

IMPORTATION OF ALKYLATE IS NOT SUBJECT TO EXCISE TAX. The pieces of evidence for petitioner, including the testimony of an expert, which respondent failed or did not even attempt to rebut, clearly established that alkylate is not a product of distillation; hence, not subject to excise tax. In fact, in the subsequent case of Petron Corporation v. Commissioner of Internal Revenue (G.R. No. 255961; 20 March 2023), the Supreme Court has already categorically and unequivocally declared that alkylate does not fall under the category of “other similar products of distillation” subject to excise tax. (Petron Corporation vs. Commissioner on Internal Revenue, CTA Case No. 9947, 27 September 2023)

EXCEPTION TO THE DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES. Petitioner has already filed an administrative claim for refund or tax credit in 2018. However, since the two (2)-year period provided in Section 229 of the NIRC of 1997, as amended, was already about to lapse, petitioner filed its judicial claim within the said two (2)-year period without waiting for respondent’s decision. This present case is one of the jurisprudentially-recognized exceptions on the doctrine of exhaustion of administrative remedies, i.e., where insistence on its observance would result in the nullification of the claim being asserted. Settled is the rule that in cases of recovery of erroneously paid or illegally collected tax under Section 229 of the NIRC of 1997, as amended, both the administrative claim for refund and the filing of the suit in Court should be made before the expiration of two (2) years from the date of payment regardless of any supervening cause that may arise after payment. Even if petitioner would raise the matter before the SOF, the latter’s resolution of the issue would still be meaningless for petitioner considering that any supervening cause (i.e., the SOF’s favorable ruling) could no longer extend the two (2)-year period provided in Section 229 of the NIRC of 1997, as amended. Therefore, given the limited time frame remaining for petitioner to file its judicial claim, appealing CMC No. 164-2012 with the SOF may result in the nullification petitioner’s claim for refund; thus, the CTA held that direct recourse to it is understandable and warranted. (Petron Corporation vs. Commissioner on Internal Revenue, CTA Case No. 9947, 27 September 2023)

A TAXPAYER’S BALANCE IN THE IRSIS MAY BE REFUNDED WHEN THE SAME MAY NO LONGER BE UTILIZED BY THE TAXPAYER. The Internal Revenue Stamp Integrated System (IRSIS) balance stated in a taxpayer’s ledger may be refunded under Section 229 of the NIRC of 1997, as amended, when the said balance may no longer be utilized by the same taxpayer such as when the latter is no longer a going concern (since it may fall under the category of “any sum alleged to have been excessively … collected”). After all, to reiterate, erroneous or wrongful payment includes excessive payment because they all refer to payment of taxes not legally due. Furthermore, the return of what was erroneously paid is founded on the principle of solutio indebiti, a basic postulate that no one should unjustly enrich himself or herself at the expense of another. The caveat against unjust enrichment covers the government. In this case, petitioner was able to show that it has ceased its business operation in the Philippines and it has already obtained the required tax clearance in connection therewith. Such being the case, any balance reflected on petitioner’s ledger relative to internal revenue stamps (as it can no longer be utilized), may be refunded as long as the same has been duly substantiated. (British American Tobacco (Philippines), Limited vs. Commissioner of Internal Revenue, CTA Case No. 9998, 12 September 2023)

THERE IS NO ERRONEOUS OR ILLEGAL TAXES THAT ARE REFUNDABLE IN CASE OF PAYMENT OF TAXES IN RELATION TO AN APPLICATION FOR COMPROMISE SETTLEMENT. Section 6 of RR No. 30-2002,  as amended by RR No. 9-2013  provides that no application for compromise settlement shall be processed without the full settlement of the offered amount, and that in case of disapproval of the application for compromise, the amount paid upon filing shall be deducted from the total outstanding tax liabilities. Based on the foregoing regulation, the amount offered must be paid before the application for compromise settlement may be processed, and that in cases where the application is disapproved, the amount paid shall be deducted from the total outstanding tax liabilities. In this case, as petitioner itself insists, the amount of total outstanding tax liabilities has yet to be determined because they have yet to become final and executory, as they are currently pending with the CTA, and may even be the subject of appeals. Accordingly, based on RR No. 30-2002, as amended, the amount paid pursuant to the application for compromise settlement will be applied towards such outstanding tax liabilities yet to be determined, if any, and may not be the subject of a refund at this time. Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue. (Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10483, 4 September 2023)

REQUISITES FOR THE APPLICATION OF THE PRINCIPLE OF SOLUTIO INDEBITI. In the case of Commissioner of Internal Revenue vs. San Miguel Corp. (G.R. Nos. 180740 & 180910; 11 November 2019), the Supreme Court held that the principle of solutio indebiti applies where (1) payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. Notably in this case, there is a binding relation between the payor, the petitioner that filed an application for compromise settlement in relation to deficiency tax assessments for three (3) taxable years, and the respondent, the taxing authority in this jurisdiction. Moreover, the payment was made, not through mistake, but in pursuit of an application for compromise settlement. (Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10483, 4 September 2023)

APPLICABILITY OF THE PRINCIPLE OF SOLUTIO INDEBITI TO THE GOVERNMENT. The Government comes within the scope of the solutio indebiti principle as elucidated in Commissioner of Internal Revenue vs. Fireman’s Fund Insurance Company (G.R. No. L-30644; 9 March 1987) where the Supreme Court held that: “Enshrined in the basic legal principles is the time-honored doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the Government is not exempted from the application of this doctrine. (GHD Pty Ltd. (formerly Gutteridge Haskins & Davey Pty Ltd.) vs. Commissioner of Internal Revenue CTA EB No. 2637, 6 September 2023)

TAX REGULATIONS CANNOT IMPOSE ADDITIONAL REQUIREMENTS OTHER THAN WHAT IS REQUIRED UNDER THE LAW AS A CONDITION FOR TAX EXEMPTION. Evidently, the foregoing provision states that the existence itself of the law, treaty (which in this case is the Philippine-Kuwait Tax Treaty that took effect on January 1, 2014) or agreement to which the Philippines is a signatory already suffices. Accordingly, requiring the international carriers covered by any treaties or agreements to provide proof of actual enjoyment by Philippine carriers of income tax exemption in the home country of the international carrier unduly expands the law and, in turn, creates an additional burden upon international carriers which this Court cannot tolerate. Settled is the rule that tax regulations cannot impose additional requirements other than what is required under the law as a condition for tax exemption. It can be said that the third paragraph of Section 4.2 (B) of RR No. 15-2013, which requires actual proof of enjoyment by Philippine carriers of income tax exemption in the home country of the international carrier, should be invalidated as it negates the availment of the reliefs provided for under international agreements. More so, respondent seems to be asking for the impossible, for it cannot be expected that petitioner could have access to the records of Philippine carriers operating in Kuwait that could have verified the latter’s actual enjoyment of the exemption on income tax provided for by its home country in favor of Philippine carriers. (Kuwait Airways Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10107; 4 September 2023)

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, 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. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023); AMMEX I-Support Corporation vs. Commissioner on Internal Revenue (CTA Case No. 10190; 5 September 2023))

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(Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 1045,  28 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190, 5 September 2023).

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

3. The taxpayer is a VAT-registered person(Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 1045,  28 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190, 5 September 2023).

In relation to the taxpayer’s output VAT:

4. The taxpayer is engaged in zero-rated or effectively zero-rated sales(Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10450, 28 September 2023).

1. 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 BSP rules and regulations Petitioner presented documents such as: (1) Certificate of Inward Remittance issued by BDO Unibank, Inc. dated 14 March 2019; and (2) ORS issued for zero-rated sales. As noted by ICPA L.S. Gomez, petitioner’s zero-rated sales amounting to Php 30,402,837.98 are traceable to the Certificate of Inward Remittance and are all supported with zero-rated ORS. (AMMEX I-Support Corporation vs. Commissioner on Internal Revenue (CTA Case No. 10190; 5 September 2023));

1. • Re. sales of goods abroad, in order for an export sale to qualify as zero-rated
     • there was sale and actual shipment of goods from the Philippines to a foreign country, as evidenced by the following:
       • Whenever there is an actual shipment of goods from the Philippines to a foreign country, regardless of the incentive the exporter is enjoying, it must be supported with a certificate of inward remittance or a bank-certified credit memo to show that it was paid for in acceptable foreign currency-and accounted for in accordance with the rules and regulations of the BSP. Export sales under Section 106(A)(2)(a)(5) of the NIRC must also be paid for in acceptable foreign currency (Carmen Copper Corporation vs. Commissioner of Internal Revenue, CTA EB No. 2596, 25 September 2023)

o 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. Note that the Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10450, 28 September 2023).

o Sale of goods, properties, or services made by a VAT-registered supplier to a BOI-registered entity. In Commissioner of Internal Revenue v. Filminera Resources Corporation (G.R. No. 236325; 16 September 2020), the Supreme Court ruled that sales made to a BOI-registered buyer are export sales subject to the zero percent (0%) rate if the following conditions are met: (1) the buyer is a BOI-registered manufacturer/producer; (2) the buyer’s products are 100% exported; and, (3) the BOI certified that the buyer exported 100% of its products. For this purpose, the BOI Certification is vital for the seller-taxpayer to avail of the benefits of zero-rating. The certification is evidence that the buyer exported its entire products and shall serve as authority for the seller to claim for refund or tax credit. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10450, 28 September 2023).

o 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:

1. • • 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” (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue (CTA EB No. 2640; 15 September 2023))

1. • • The service must be performed in the Philippines by a VAT-registered person (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue, CTA EB No. 2640, 15 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190; 5 September 2023)

1. • • Petitioner proved that the services were rendered in the Philippines by submitting the following in evidence:
       1. Service agreement;
       2. Unrebutted testimony of the ICPA that the services rendered to its client;
       3. By its very nature as an ROHQ, petitioner is tasked to provide qualifying services to its foreign affiliates and is allowed to derive income in the Philippines by performing such services pursuant to Section (2) (3) of RA 8756 which amended EO No. 226.  (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue, CTA EB No. 2640, 15 September 2023)
       4. As an ROHQ, petitioner is considered as a resident foreign corporation which is taxable only on tis income from sources within the Philippines pursuant to Section 23 (F) of the 1997 NIRC.

1. • • The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue, CTA EB No. 2640, 15 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190; 5 September 2023)

1. • • 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, (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue, CTA EB No. 2640, 15 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190; 5 September 2023)

1. • • There must be sufficient proof of both components, namely: (1) that its clients or affiliates are foreign corporations (which can be proven by the SEC Certifications of Non-Registration of Company); and, (2) that they are not doing business in the Philippines (the prima facie proof of which is the articles of association/certificates of incorporation stating that these affiliates are registered to operate in their respective home countries, outside the Philippines). In the instant case, to prove that it rendered services to NRFCs doing business outside the Philippines, petitioner presented their SEC Certifications of Non-Registration of Company and consularized foreign registration documents (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023); AMMEX I-Support Corporation vs. Commissioner on Internal Revenue (CTA Case No. 10190; 5 September 2023)

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 (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023).

Contrary to the CIR’s position, there is nothing in the afore-quoted Section 112 (A) of the NIRC of 1997, as amended, which requires that the input taxes subject of a claim for refund be directly attributable to zero-rated sales or effectively zero-rated sales. Input taxes that bear a direct or indirect connection with a taxpayer’s zero-rated sales satisfy the requirement of the law. (Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2568; 19 September 2023)

With respect to its input taxes attributable to zero-rated sales, it is the taxpayer (and not the court) who is given the option to either: (1) charge a portion of its input taxes attributable to zero-rated sales to the output taxes, and refund the balance, if any; or, (2) refund all of the input taxes attributable to zero-rated sales. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023)

1. The input taxes are not transitional input taxes. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023);

1. The input taxes have not been applied against output taxes during and in the succeeding quarters. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023);

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

1. A statement that the seller is a VAT-registered person, followed by its TIN;
2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT, provided that (i) the amount of tax shall be shown as a separate item in the invoice or receipt, (ii) if the sale is exempt from VAT, the term “VAT exempt sale” shall be written or printed prominently on the invoice or receipt, or (iii) if the sale is subject to zero percent (0%) VAT, the term “zero-rated sale” shall be written or printed prominently on the invoice or receipt; and (iv) if the sale involves goods, properties or services, some of which are subject to and some of which are VAT-zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the VAT on each portion of the sale shall be shown on the invoice or receipt. The seller has the option to issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale;
3. In the case of sales in the amount of one thousand pesos (P1,0000.00) or more, where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and TIN of the purchaser, customer or client;
4. Date of transaction; and,
5. Quantity, unit cost and description of merchandise or nature of service.

It bears noting that our VAT system is invoice-based, i.e., taxation relies on sales invoices or ORs.  Also, Section 237 of the NIRC of 1997, as amended, uses the word “shall” and thus operates to impose a duty which may be enforced. Consequently, the taxpayer-claimant is duty bound to ensure full compliance with the invoicing requirements. Furthermore, along with the entity name, the address serves as a connection between petitioner’s ORS and the foreign registration documents. Based on the foregoing, the entire amount of petitioner’s zero-rated sales must be disallowed. (AMMEX I-Support Corporation vs. Commissioner on Internal Revenue (CTA Case No. 10190; 5 September 2023))

Revenue Memorandum Circular (RMC) No. 42-0344 expressly provides that a taxpayer’s failure to comply with the invoicing requirements will result in the disallowance of the claim for input tax. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023))

WHEN VAT IS NOT AN “EXCESSIVELY” COLLECTED TAX UNDER SECTION 229. Under the VAT System, there is no claim or issue that the ‘excess’ input VAT is ‘excessively or in any manner wrongfully collected.’ In fact, if the ‘excess’ input VAT is an ‘excessively’ collected tax under Section 229, then the taxpayer claiming to apply such ‘excessively’ collected input VAT to offset his output VAT may have no legal basis to make such offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such ‘excessively’ collected tax, and thus there will no longer be any ‘excess’ input VAT. It is clear from the foregoing that input VAT is not ‘excessively’ collected as understood under Section 229 because at the time the input VAT is collected, the amount paid is correct and proper. Moreover, even if said input VAT is in fact ‘excessively’ collected as understood under Section 229, then it is the person legally liable to pay the input VAT, and not the person to whom the tax is passed on and who is applying the input VAT as credit for his or her own output VAT, who can file the judicial claim for refund or credit outside the VAT system. (Melco Resorts Leisure (PHP) Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10099 & 10176; 21 September 2023))

A TAXPAYER HAS NO RECOURSE AGAINST THE GOVERNMENT TO RECOVER INPUT VAT PAID ON DOMESTIC PURCHASES OF GOODS AND SERVICES FOR WHICH NO VAT SHOULD HAVE BEEN PAID. We should also take into consideration the nature of VAT as an indirect tax. Although the seller is statutorily liable for the payment of VAT, the amount of the tax is allowed to be shifted or passed on to the buyer. However, reporting and remittance of the VAT paid to the BIR remained to be the seller/supplier’s obligation. Hence, the proper party to seek the tax refund or credit should be the suppliers, not the petition [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2596; 25 September 2023)]

REMOVAL OF THE INPUT TAX ON “INVALID ZERO-RATED” SALES FROM THE REFUNDABLE AMOUNT. The method for computing the refundable amount. Insofar as the input tax on “invalid zero-rated” sales is concerned, the Supreme Court held that the substantiated or valid input VAT should be multiplied to the valid zero-rated sales over total sales. This is contrary to petitioner’s contention that there should be no allocation in case of 100% BOI-registered exporters. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2596; 25 September 2023)]

ACTIVITIES INCLUDED IN THE PHRASE “DOING BUSINESS IN THE PHILIPPINES”. Section 3(d) of Republic Act No. 7042 defined “doing business in the Philippines” as follows:

“d) The phrase ‘doing business’ shall include soliciting orders, service contracts, opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase ‘doing business’: shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.”

In affirming the decision rendered by the CTA in division, the CTA en banc affirmed in approval the following observations made by the CTA in division:

1. Amadeus Philippines is a wholly-owned subsidiary of Amadeus Spain.

2. Amadeus Philippines is tasked to promote, make available and facilitate access to the Amadeus System to the subscribers located in the Amadeus ACO Territory (Philippines) and to act as a neutral agent for all Amadeus Spain participants and subscribers under the agreement. More significantly, the ACO Agreement is replete with provisions that govern Amadeus Spain’s control and participation in running the marketing and distribution of the Amadeus System in the Philippines, a few of the significant provisions are as follows:

• Nothing in the agreement shall constitute a license to Amadeus Philippines to use or sub-license its own right to the software which runs the Amadeus System, other than in accordance with the terms of the agreement.
• Ownership of any and all intellectual property, including those generated by Amadeus Philippines in the performance of its obligations such as, without limitation, any developments, improvements, enhancements, modifications, or changes to the Amadeus Products or Amadeus System shall remain the exclusive property of Amadeus Spain.
• Amadeus Philippines, with respect to the performance of the services under the agreement, shall not solicit business, or open its own offices or facilities outside Philippine territory without the prior written consent of Amadeus Spain.
• Amadeus Spain reserves its right to negotiate and contract with multinational subscribers for the provision of services and products by Amadeus Philippines.
• Amadeus Spain is obliged to provide improvements and additions to Amadeus Products and Services, market information and promotional materials, basic and continuing training programs covering all Amadeus Products and Services, sales training, training programs for technical support staff and 24-hour central Customer Services/Help Desk.
• Amadeus Philippines is obliged to follow and comply with all the privacy policies and procedures established by Amadeus Spain.
• Amadeus Spain has the right to terminate the agreement if Amadeus Philippines violates the non-competition provisions, significantly deviates from the business plan or fails to meet the targets set by the parent and subsidiary by a significant margin.

Clearly, the ACO Agreement paved the way for Amadeus Spain through and together with Amadeus Philippines to further advance its purpose to continually promote, market, and distribute the Amadeus System in the Philippines. These and its powers above, fall squarely under the definition of “doing business in the Philippines” under Section 3 (d) of Republic Act No. 7042 quoted above. In view of the foregoing, petitioner failed to show that it is engaged in zero-rated sales pursuant to Section 108 (B)(2) of the Tax Code. (Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2598; 13 September 2023)

APPOINTING A LOCAL AGENT CONSTITUTES DOING BUSINESS IN THE PHILIPPINES. Simply put, so that a foreign corporation may be considered engaged in trade or business, its business transaction must be continuous. And such continuity may be shown by “the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization” and is exemplified by “the appointment of a local agent.” In this case, petitioner acts as the representative of AGSA in that while the latter retains all title, copyright, and other proprietary rights in and to the subject Product, petitioner has been authorized to grant to the Subscribers non-exclusive, nontransferable licenses to use the same. In other words, instead of AGSA itself granting licenses to Subscribers, as the owner of the said Product, it is being done by petitioner on behalf of the former in the Philippines. Thus, there can be no doubt that petitioner is constituted as the local agent of AGSA in the Philippines. (Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2496; 15 September 2023)

A TAXPAYER’S SITE REGISTERED ONLY AS A FACILITY IS NOT AUTHORIZED TO CONDUCT SALES TRANSACTIONS. A cursory look of the appealed administrative decision show that respondent denied petitioner’s claim for refund, finding that petitioner’s Puerto Princesa, Palawan Site was registered only as a “Facility” instead of a “Branch” – as such it was not authorized to conduct sales transactions. Moreover, considering that the registration of the said Site as a “Facility” was effected only on August 9, 2017, which is beyond the said period of claim, the declared sales transactions for the Site has no force and effect and could not be considered as VAT zero-rated as contemplated under Section 108 (B) (2) in relation to Section 112(A) of the National Internal Revenue Code (NIRC) of 1997, as amended. From the foregoing, petitioner should have shown to this Court that respondent committed a patent error in arriving at his decision in the administrative claim. Unfortunately, same as in the administrative proceeding, petitioner did not present evidence that it was properly registered with the BIR during the period of the claim, i.e., January to March 2017. Evidently, by not being able to show that respondent erred in finding that the declared sales transactions in petitioner’s Palawan Site could not be considered as VAT zero-rated under Section 108(B)(2) in relation to Section 112(A) of the NIRC of 1997, as amended, petitioner’s appeal should be denied. (Sitel Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10136; 4 September 2023)

SECTION 108(B)(2) MUST BE READ IN CONJUNCTION WITH SECTION 108(B)(1) OF THE TAX CODE. In the Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (G.R. No. 153205; 22 January 2007) case, the Supreme Court harmonized both Sections 102(b)(1) and 102(b)(2) of the 1977 Tax Code, as amended, pertaining to zero-rated transactions. A parallel approach should be accorded to the renumbered provisions of Sections 108(B)(2) and 108(B)(1) of the 1997 NIRC. This means that Section 108(B)(2) must be read in conjunction with Section 108(B)(1). Section 108(B)(2) requires as follows: a) services other than processing, manufacturing or repacking rendered by VAT registered persons in the Philippines; and b) the transaction paid for in acceptable foreign currency duly accounted for in accordance with BSP rules and regulations. The same provision made reference to Section 108(B)(1) further imposing the requisite c) that the recipient of services must be performing business outside of Philippines. Otherwise, if both the provider and recipient of service are doing business in the Philippines, the sale transaction is subject to regular VAT. (Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2598; 13 September 2023)

CONDITIONS TO QUALIFY FOR VAT ZERO-RATING UNDER SECTION 108(B)(2) OF THE TAX CODE. To qualify for VAT zero-rating under Section 108(B)(2) of the Tax Code requires the concurrence of four (4) conditions: first, the services rendered should be other than “processing, manufacturing or repacking of goods”; second, the services are performed in the Philippines; third, the service-recipient is (a) a person engaged in business conducted outside the Philippines; or (b) a non-resident person not engaged in a business which is outside the Philippines when the services are performed; and, fourth, the services are paid for in acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations. (Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2598; 13 September 2023)

PAGCOR IS EXEMPTED FROM VAT UNDER RA 9337. In the cases of The Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation (G.R. No.147295; 16 February 2007) and Philippine Amusement and Gaming Corporation (PAGCOR) v. The Bureau of Internal Revenue (BIR), et al. (G.R. No. 172087; 15 March 2011), the Supreme Court ruled categorically that PAGCOR is exempted from VAT under RA 9337. Consequently, petitioner’s sales of services to PAGCOR are subject to zero percent (0%) VAT. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023))

PAGCOR’S VAT EXEMPTION DOES NOT EXTEND TO PRIVATE ENTITIES THAT WERE LICENSED TO OPERATE THEIR OWN CASINOS. The tax exemption of PAGCOR extends only to those individuals or entities that have contracted with PAGCOR in connection with PAGCOR’s casino operations. The exemption does not include private entities that were licensed to operate their own casinos. This was further clarified in Revenue Memorandum Circular (RMC) No. 32-2022, which provides (in part): “x x x The tax exemption of PAGCOR extends only to those individuals or entities that have contracted with PAGCOR (PAGCOR Contractees and not Licensees) in connection with PAGCOR’s gaming operations. This is to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR. x x x Thus, pursuant to Acesite and Thunderbird rulings, for PAGCOR Licensees, their revenues from gaming operations, involving sale of goods and/or services in the course of trade or business, are generally subject to VAT.” In the instant case, petitioner is a licensee of PAGCOR, thus, PAGCOR’s exemption does not inure to its benefit. (Melco Resorts Leisure (PHP) Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10099 & 10176; 21 September 2023))

VIOLATION OF ADMINISTRATIVE DUE PROCESS; CONSEQUENCE. The Denial Letter alone fails to state the legal basis of respondent’s denial. The Denial Letter merely states that respondent evaluated the documents which “disclosed adjustments and disallowances.” While the Denial Letter refers to certain memo reports which purportedly explain respondent’s findings, said memo reports are mere summaries without any explanation or citation of the legal basis. Administrative due process imposes upon the agency the “duty to give reason” and for the decision to state the facts and law upon which the decision is based. At most, while the Denial Letter states the factual basis for the partial denial, it fails to state the legal basis for the decision. The CTA, however, disagreed with petitioner’s contention that “to the extent that it improperly denies a portion of petitioner’s claim, must be rendered invalid, and the claim for refund be deemed fully granted as a necessary consequence.” The effect of an invalid decision does not automatically result in the deemed granting of the refund claim. (Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2596; 25 September 2023))

THE SUPREME COURT CASE OF CHEVRON HOLDINGS, INC. VS COMMISSIONER OF INTERNAL REVENUE (G.R. No. 215159; 5 July 2022) IS APPLICABLE TO NOT JUST TO SECTION 112(A) BUT ALSO SECTION 112(B) OF THE NIRC. While the CTA En Banc agreed with respondent’s observation that Chevron is not on all fours with the instant case. However, notwithstanding these differences, the ratio decidendi and the principles laid down in Chevron are applicable in the instant case and warrant consideration by the CTA for the following reasons:

1. The input tax refunds or credits under Sections 112(A) and 112(B) pertain to unutilized or unused input tax. Section 112(A) allows a refund or credit of input tax attributable to zero-rated or effectively zero-rated sales to the extent that such input tax has not been applied against output tax, while Section 112(B) allows a refund or credit of any unused input tax due to retirement from or cessation of business.
2. Even assuming arguendothat Chevron is inapplicable, the CTA En Banc noted that respondent sought to have petitioner substantiate its input tax credit as far back as before FY 2004. This runs even beyond BIR’s recordkeeping requirements for taxpayers and counters the well-settled pronouncements of the Supreme Court regarding prescription and other mandatory periods in the NIRC. Clearly, for the CTA En Banc to compel petitioner to substantiate such input tax credit is for it to require petitioner to do the absurd and impossible. These periods exist to safeguard taxpayers from any unreasonable examination or investigation.
3. Applying the CTA En Banc’s discussion in the immediately preceding paragraph, respondent’s contention that the period covered in Section 112(B) is not just a specific quarter but the entire operations of the business, i.e., from its inception until its retirement or cessation, has no merit as well. By way of example, indeed, Section 112(B) did not envision that an entity operating for a hundred years that has been accumulating input VAT since inception would be likewise required to substantiate its input VAT for a hundred years as well. To provide such a requirement which the law does not require, would be to place an undue burden on the taxpayer’s refund claim.
4. Again assuming arguendothat Chevron is inapplicable, respondent’s fears that taxpayers may accumulate its input tax carryover and subsequently have it refunded is exaggerated and may be eliminated, or at best, mitigated, by its statutorily granted power to examine returns of taxpayers,  which includes VAT returns reflecting input tax carryovers. However, respondent fails to point out any instance in which it had previously disallowed petitioner’s input tax carryover. In fact, petitioner has even secured a Delinquency Verification from the BIR RR No. 8A and a Certificate of No Outstanding Tax Liability. (Mitsui & Co., Ltd. (Manila Branch) vs. Commissioner of Internal Revenue (CTA EB No. 2495; 14 September 2023))

VIOLATION OF THE TAX CODE

PRESCRIPTIVE PERIOD TO FILE A CRIMINAL CASE FOR WILLFUL NON-PAYMENT OF DEFICIENCY TAXES. In willful non-payment of deficiency taxes, the five (5) year prescriptive period should commence to run after the finality of the assessment coupled with the taxpayer’s willful refusal to pay taxes within the allotted period. (People of the Philippines vs. FAREAL Builders, Inc., and its responsible officers, Ferdinand I. Santos and Lilibeth M. Santos, CTA Crim Case No. O-958; 29 September 2023; People of the Philippines vs. U-NID-ME Manpower Incorporated and its responsible corporate offices Elaine T. Sunga (President) and Ricardo L. Benitez (Treasurer), CTA Crim. Case No. O-1012; 26 September 2023; People of the Philippines vs. Star Asset Management NPL Inc., Mark S. Frondoso and Joseph Ryan R. Sycip, CTA Crim. Case No. O-994; 26 September 2023; People of the Philippines vs. Marc Anthony B. Geronimo, in his capacity as Partner/General Manager of DENHAR International Company, CTA Crim. Case No. O-1031, 11 September 2023; People of the Philippines vs. Angelito O. Dela Pena, CTA Crim. Case No. O-1078; 5 September 2023; People of the Philippines vs. Angelito O. Dela Pena, CTA Crim. Case No. O-1077; 5 September 2023; People of the Philippines vs. Angelito O. Dela Pena, CTA Crim. Case No. O-1076; 5 September 2023)

PRESCRIPTIVE PERIOD TO FILE A CRIMINAL CASE FOR WILLFUL NON-PAYMENT OF DEFICIENCY TAXES; WHEN RECKONED. The crime of failure to pay tax was committed only after receipt of the final notice and demand for payment was coupled with the willful refusal to pay the taxes due within the allotted period. Absent any proof that the final notice and demand for payment was received by the taxpayer, it cannot be said that an offense has been committed because prior to the receipt of the letter-assessment, no violation has yet been committed. Absent proof or receipt, these assessments could not have attained finality, there is no willful failure to pay tax and there is insufficiency to show that the accused sought to be arrested probably committed the crime charged. (People of the Philippines vs. Energitech Industrial Corporation/Ronald Perez (CTA Crim. Case No. O-1052; 7 September 2023)

OTHER MATTERS

WDL CANNOT BE ISSUED BY THE ACIR-LTS WHILE THERE IS A PENDING APPPEAL BEFORE THE CIR. Owing to the fact that there is a pending appeal before the CIR, the ACIR-LTS’ action of issuing the assailed the warrant of distraint and/or levy was clearly beyond his or her authority to do. In a way, by issuing the assailed WDL, the ACIR-LTS preempted the CIR’s decision by considering his or her decision on the protest to the FLD/FAN final and executory. Verily, in this situation, the taxpayer has the right to await the CIR’s action on its Request for Reconsideration. The issuance of the assailed warrants not only deprives petitioner of this right but, it also denies the CIR the opportunity to make his or her own decision or to correct any errors of his or her subordinates. Obviously, the ACIR-LTS’ issuance of the assailed warrants was not only done in excess of his or her jurisdiction but whatever semblance of authority the former had was arbitrarily wielded when it sought to supplant his or her decision in place of a superior officer in the person of the CIR. In effect, to sustain the ACIR-LTS’ action will be a direct abrogation of the settled administrative processes ordained in the laws; the NIRC of 1997, as amended, in particular, and the constitutional precepts of due process, in general. With the foregoing disquisitions, the issuance of the assailed warrants could not only be deemed as premature but also that ACIRLTS had no authority to issue the same absent the CIR’s decision on petitioner’s Request for Reconsideration. (Opal Portfolio Investments [FISTC-AMC Asset Management Company)], Inc. formerly Opal Portfolio Investments (SPV-AMC),Inc. vs. Commissioner of Internal Revenue (CTA Case No. 11187; 28 September 2023)