Court of Tax Appeals Decisions

TAX ASSESSMENTS

 

PRIVATE EDUCATIONAL INSTITUTION’S INCOME IS SUBJECT TO LOCAL BUSINESS TAX. Educational institutions are exempt subject to the condition that income is actually, and exclusively used for the educational purpose. Such applies to non-stock non-profit educational institutions. Non-profit means that no part of the income inures directly or indirectly to any individual or member. Where the taxpayer is a stock and profit educational institution, its income is subject to local business tax (Malayan Education System v. City of Manila, CTA Case No. 260, Civil Case No. CV-14-131442, May 10, 2023)

 

LOCAL GOVERNMENT UNIT’S ASSESSMENT MUST STATE THE LEGAL BASIS; OTHERWISE, THE ASSESSMENT IS VOID. Taxpayers shall be informed in writing of the law and facts on which the assessment is made; otherwise, the assessment is void. This applies also to local business tax assessment. Where the City of Manila provided a computation sheet but it failed to indicate the particular provision of the Manila Revenue Code, such failure violates due process, impugning the validity of the assessment. (Malayan Education System v. City of Manila, CTA Case No. 260, Civil Case No. CV-14-131442, May 10, 2023)

 

FAN/FLD ISSUED WITHIN 15 DAYS AFTER THE ISSUANCE OF THE PAN RENDERS ASSESSMENT VOID. The taxpayer is granted fifteen (15) days from receipt of the Preliminary Assessment Notice (PAN) to submit its response. If the taxpayer fails to do so within the prescribed period, it will be considered in default and only then the BIR shall issue the FAN/FLD. Where the BIR issued the FAN/FLD five (5) days after the taxpayer received the PAN, without awaiting the reply within the 15-day period, the taxpayer’s right to due process was violated and thus, the assessment is void. (D.M. Wenceslao Associates, Inc. v. CIR, CTA Case No. 9746, May 9, 2023)

 

ASSESSMENT IS VOID FOR FAN/FLD’S FAILURE TO RULE ON THE PROTEST TO THE PAN. Administrative tribunal or body must consider the evidence presented in a manner that the parties may know the issues involved and the reasons for the decisions. Where the BIR’s FAN/FLD was issued merely reiterative the findings in the PAN, save for modifications in the amount of interest, and FAN/FLD failed to echo the reasons for the rejection of the taxpayer’s defenses exhaustively posed in the protest on the PAN, the assessment must be struck down for violation of its right to due process on assessment. (The Residences at Greenbelt Condominium Corporation v. CIR, CTA Case No. 9942, May 26, 2023)

 

TAXPAYER’S RIGHT TO DUE PROCESS IS VIOLATED IF BIR IGNORED TAXPAYER’S EXPLANATION IN THE PAN. The Supreme Court ruled that the BIR must consider the evidence presented by the taxpayer. Administrative due process requires judicious consideration of the matters raised, independent evaluation and due notification of the parties of the reasons for the judgment. Where the BIR’s findings in the FAN and PAN are identical, varying only in the computation of interest and penalties, and BIR did into mention of taxpayer’s arguments, much less give an intelligent discourse in resolving each matter raised, ignoring the taxpayer’s reply to the PAN, the taxpayer’s due process is violated. (Kabalikat Para sa Maunlad na Buhay, Inc. v. CIR, CTA EB No. 1238, CTA Case No. 8336; CIR v. Kabalikat Para sa Maunlad na Buhay, Inc., CTA EB No. 1239, CTA Case No. 8336)

 

REQUISITES OF JUDICIAL COMPROMISE. One, the authority of the parties’ themselves, or their representatives to enter into compromise agreement; two, the compromise must be based on doubtful validity of the government’s claim against the taxpayer (doubtful validity); or financial incapacity of the latter (financial incapacity); three, the subject matter being compromised is not prohibited by law, or by its implementing rules and regulations; four, payment of the compromise amount, i.e., at least 40% of the basic tax/ es for doubtful validity; or at least 10% of the basic taxes for financial incapacity; five, approval of the NEB if: a) the amount offered is less than the prescribed rates; or b) if the total basic tax/es exceeds P1M; and six, presentation of the pertinent Certificate of Availment. (Great Earth Marketing & Development Corporation v. CIR, CTA Case No. 10314, May 23, 2023)

 

SUBSEQUENT ASSIGNMENT BY PURCHASER-TRANSFEROR TO TRANSFEREE IS NO LONGER SUBJECT TO WITHHOLDING TAX IF TRANSFEROR PAID THE TAX ON THE ORIGINAL CONTRACT WITH THE SELLER.  By virtue of the deed of assignment, the assignee is deemed subrogated to the rights and obligations of the assignor and is bound by exactly the same conditions as those which bound the assignor. Where the original buyer assigned to another all his rights, interest and obligations under the Contract to Sell, including the payment of EWT to the BIR, the transferee has no further obligation to withhold and remit the EWT from the contract price because the said obligation was already complied with by the original buyer. (Great Earth Marketing & Development Corporation v. CIR, CTA Case No. 10314, May 23, 2023)

 

WARRANT OF GARNISHMENT (WOG) SHOULD BE APPEALED TO THE CTA, AND NOT THE BIR LETTER DENYING REQUEST TO LIFT THE WOG. The 30-day period to appeal before the CTA shall be counted from the receipt of the warrant of distraint and/or levy, or WOG. The WOG constitutes the implied denial of the BIR on taxpayer’s protest. The BIR letter denying the request to lift the garnishment cannot be appealed. Taxpayer should have appealed the WOG. (Country Bank, Rural Bank of Bongabong, Inc. v. CIR, CTA Case No. 108644, May 5, 2023)

 

ASSESSMENT IS VOID IF FAN/FLD AND FDDA HAVE SAME DETAILS OF FINDINGS AND BIR FAILED TO ADDRESS TAXPAYER’S ARGUMENTS. Due process requires that the tribunal must be rendered on the evidence presented and in a manner that parties know the various issues involved and the reason for the decision.  A taxpayer must be informed in writing of the law and the facts on which the assessment is made. Where the FAN did not address any of the arguments raised by the taxpayer, the FAN and PAN contain the same details and the FDDA failed to address the arguments raised by the taxpayer in the reply and protest, the BIR failed to observe due process requirements and thus, the assessment is void. (Ajanta Pharma Philippines, Inc. v. CIR, CTA Case No. 10057, May 4, 2023)

LOANS AND ADVANCES EXTENDED BY A DOMESTIC CORPORATION TO NON-RESIDENT FOREIGN CORPORATION (NRFC) AFFILIATES ARE SUBJECT TO DOCUMENTARY STAMP TAX. All loan agreements, whether made or signed in the Philippines or abroad, when the obligation or right arises from Philippine sources or the property or object of the contract is located in the Philippines, shall be subject to the payment of DST. In cases where no formal agreements or promissory notes have been executed to cover credit facilities, the documentary stamp tax shall be based on the amount of drawings or availment of the facilities. Moreover, all parties to the transaction (i.e., loan transaction) are primarily liable for the DST, not only the person making, signing, issuing, accepting, or transferring the document or facility evidencing the transaction. Any of the parties thereto shall be liable for the full amount of the tax due. However, when one party is exempted from paying tax, the other party who is not exempt would be liable. Therefore, loans and advances extended by a domestic corporation to non-resident foreign corporation (NRFC) affiliates are subject to documentary stamp tax. (Bloomberry Resorts Corporation v. CIR, CTA Case No. 10193, May 29, 2023; with Dissenting Opinion)

LOANS AND ADVANCES TO NRFC-AFFILIATES ARE SUBJECT TO DST EVEN IF THEY ARE NOT DEBT INSTRUMENTS. DST is, by nature, an excise tax since it is levied on the exercise by persons of privileges conferred by law. It is an excise tax because it is imposed on the transaction rather than the document. Hence, a DST may be imposed even in the absence of a debt instrument so long as the transaction is distinctly established. Given the admissions and disclosures in the AFS, the loans and advances with related parties need not be embodied in a document or debt instrument to be subjected to DST (Bloomberry Resorts Corporation v. CIR, CTA Case No. 10193, May 29, 2023; with Dissenting Opinion)

 

TAXPAYER IS NOT ESTOPPED FROM QUESTIONING THE AUTHORITY OF THE REVENUE OFFICERS EVEN IF IT INITIALLY PARTICIPATED IN THE AUDIT OF SUCH REVENUE OFFICERS. A Letter of Authority (LOA) is an important instrument of due process. It should specifically name the revenue officers who will pursue the tax audit. Even if the taxpayer did not raise the issue at the administrative level, it is not estopped from questioning the authority of the revenue officers. The taxpayer can still assail the lack of authority in the latter proceeding (Sunlife Grepa Financial, Inc. v. CIR, CTA Case No. 10080, May 9, 2023)

 

A MEMORANDUM CANNOT TAKE PLACE THE LOA; ASSUMING LOA IS VALID, CHIEF IS NOT DULY AUTHORIZED TO SIGN THE MEMORANDUM. A Memorandum cannot be sued as a substitute for an LOA as it simply notifies the taxpayer of the transfer of an audit/investigation to another set of revenue officers. Thus, assessments issued without the LOA is void. Moreover, even if it may be argued that Memorandum is the same as LOA, it can only be issued by the Commissioner or his duly authorized representatives: regional director, deputy commissioner, and other officials that may be authorized by the commissioner. A chief is not among those listed. Thus, the Memorandum cannot qualify as valid LOA. (Sunlife Grepa Financial, Inc. v. CIR, CTA Case No. 10080, May 9, 2023)

 

SETTLEMENT BELOW THE PRESCRIBED RATES OF OFFER OF COMPROMISE IS VALID SUBJECT TO REQUEST IN WRITING STATING THE REASONS, LEGAL AND/OR FACTUAL, WHY TAXPAYER WOULD BE ENTITLED TO A LOWER RATE AND SUBJECT TO APPROVAL BY THE NATIONAL EVALUATION BOARD. While compromise settlements are highly encouraged, the CTA is not a mere rubber stamp that mechanically approves agreements, without validating whether the same are contrary to law, public order, public policy, morals and good customs. Where settlement offered in the Compromise Agreement is less than the prescribed minimum rates (20%) of the basic tax), the compromise is valid as taxpayer established the reason for accepting a lower rate (premature issuance of FAN/FLD; despite total cancellation of the assessment, the taxpayer offered to end the costly litigation), and the subject compromise was approved by the NEB. (CIR v. Karina, Inc., CTA EB No. 2432, CTA Case No. 9204, May 12, 2023)

 

ISSUANCE OF LETTER NOTICE, WITHOUT THE LOA, RENDERS THE ASSESSMENT VOID. The Supreme Court, in Medicard case, ruled that Letter Notice (LN) shall serve as a discrepancy notice to the taxpayer similar to a Notice for Informal Conference [now Notice of Discrepancy]. It presupposes that the revenue officers at the start of the audit process has proper authority to audit. In this case, LN does not amount to an authority to conduct an investigation and does not amount as a valid replacement of the LOA. Where the BIR neither presented LOA prior to the issuance of the LN, the assessment is void.(CIR v. Chevron Services Philippines, Inc. CTA EB No. 2452, CTA Case No. 9571, May 10, 2023)

 

ENVIRONMENTAL TAX IS A FEE, NOT A TAX, IF THE PURPOSE IS TO REGULATE. If the revenue generation is the primary purpose of the fee and regulation is merely incidental, the imposition is a tax; but if the regulation is the primary purpose, the fact that that incidentally revenue is also obtained does not make the fee a tax. Where the “environmental tax” under the Watershed Code of Davao City is not a local tax as its purpose is not to raise revenue, but to implement the operational expenses of the Watershed Management Council and all its instrumentalities and for watershed protection, conservation and management programs and projects. (DOLE Philippines Inc. – Stanfilco Division v. The Sangguniang Panlunsod the City of Davao et. al., CTA EB No. 2461, CTA AC No. 215, May 12, 2023)

THE PERMIT FEE TO SLAUGHTER IS IN THE NATURE OF A LICENSE FEE AND NOT A TAX. A fee is for the service of a public officers while tax is for contribution of wealth. Where the purpose of the slaughter fee is to regulate or control the slaughter of the animals intended for sale to the public in order to promote the public health and safety, the permit fee is not considered a tax. This means that the CTA has no jurisdiction as the case does not primarily involve a tax issue. (San Miguel Foods, Inc. v. Office of the City Treasurer, City of Davao, CTA EB No. 2535, CTA AC No. 210, May 18, 2023)

INTEREST INCOME FROM MONEY MARKET PLACEMENT IS SUBJECT TO FINAL WITHHOLDING TAX AND NOT TO REGULAR CORPORATE INCOME TAX. The liability to withhold the final tax rests upon the banks as payors of the interest income. Where the interest income came from cash deposits and short-term cash investments with the bank, the interest thereat is considered a passive income subject to FWT, and the BIR committed mistake in subjecting the same to regular corporate income tax. (CIR v. First Philippine Utilities Corporation, CTA EB No. 2500, CTA Case No. 9431, May 24, 2023)

 

ASSESSMENT OF NOLCO IS ERRONEOUS IF THE TAXPAYER DID NOT BENEFIT THEREON ON THE SUBSEQUENT YEARS. Where the BIR adjusted the taxable income by removing the NOLCO as it was allegedly forwarded to the succeeding periods and the taxpayer showed that the NOLCO was not applied in the subsequent period, the assessment should be cancelled (CIR v. First Philippine Utilities Corporation, CTA EB No. 2500, CTA Case No. 9431, May 24, 2023)

 

ASSESSMENT OF MCIT IS ERRONEOUS IF THERE IS NO SUBSTANTIAL ADJUSTMENT ON THE ITEMS OF THE GROSS INCOME. Where the taxpayer incurred net loss from its operations, the MCIT still applies. Notably, the tax benefit from the MCIT will redound to the succeeding years. It is incorrect for a petitioner to disallow the MCIT when the taxpayer did not even benefit from it during the taxable year. (CIR v. First Philippine Utilities Corporation, CTA EB No. 2500, CTA Case No. 9431, May 24, 2023)

 

CTA HAS JURISDICTION TO RULE ON PRESCRIPTION DESPITE TAXPAYER’S FAILURE TO PROTEST; BIR HAS 5 YEARS TO COLLECT FROM ISSUANCE OF FAN/FLD. The Supreme Court ruled in Hambrecht and QLDI cases that even if the taxpayer failed to contest the FAN, the CTA may assume jurisdiction on the issues of prescription. Moreover, the BIR has 5 years to collect from the issuance of FAN/FLD, despite the 10-year period to assess. (CIR v. Anapi Multiple-Purpose Cooperative, CTA EB No. 2543, CTA Case No. 9787, May 11, 2023)

 

MOTION FOR RECONSIDERATION ON ACQUITTAL IS ALLOWED ONLY WHEN THERE IS GRAVE ABUSE OF DISCRETION AND MISTRIAL. The Supreme Court ruled that a motion for reconsideration after an acquittal is possible based on exceptional and narrow grounds – grave abuse of discretion or mistrial. Where a full-blown trial was conducted and both prosecution and accused were given opportunity to present evidence and the court, in its 81-page decision, comprehensively reviewed, analyzed and appreciated the evidence, motion for reconsideration was denied. (People of the Philippines v. Rappler Holdings Corporation, CTA Crim Case Nos. O-679 to O-682, May 18m 2023)

 

NO CIVIL LIABILITY SHOULD BE IMPOSED WHEN ACCUSED DID NOT COMMIT ACTS OR OMISSIONS CONSTITUTING THE OFFENSE. Extinction of the penal action does not carry with it the extinction of the civil liability in the following instances: 1) The acquittal is based on reasonable doubt as only preponderance of evidence is required; 2) The court declares that the liability of the accused is only civil; and, 3) The civil liability of the accused does not arise from or is not based upon the crime of which the accused is acquitted. However, the civil action based on delict may be deemed extinguished if there is a finding on the final judgment in the criminal action that the act or omission from which the civil liability may arise did not exist or where the accused did not commit the acts or omissions. Where the accused is not a dealer in securities and did not earn any trading income from foreign entities, and having found not liable for deficiency taxes, no civil liability should be imposed. (People of the Philippines v. Rappler Holdings Corporation, CTA Crim Case Nos. O-679 to O-682, May 18m 2023)

 

BUSINESS ACTIVITY ON WHICH EXEMPTION IS BASED MUST BE STATED IN THE PERMIT. To be entitled to exemption from local business tax, the business permit must state the business activities on which the taxpayer grounds its right to a preferential tax rate. Where the taxpayer under its business permit is identified as wholesaler in general and not manufacturer, warehouser and/or wholesaler of cement entitled to preferential rate, the appeal must fail. (Holcim Philippines, Inc. v The City of Manila et. al, CTA AC No. 251, May 11, 2023)

 

INCREASE IN LOCAL BUSINESS TAX RATE IS BASED ON PREVAILING/ADJUSTED RATE. Under the Local Government Code, LGUs may adjust tax rates to not more than ten percent (10%) of the rates fixed under the LGC and no more frequently than once every five (5) years. It requires that: (1) There is a tax ordinance that already imposes a tax in accordance with the provisions of the LGC; and 2. There is a second tax ordinance that made adjustment on the tax rate fixed by the first tax ordinance. Moreover, the basis for the adjustment or increase would be the prevailing or adjusted tax rate, and not the original rate. (San Roque Power Corporation v. Municipality of Manuel, Pangasinan et. al. CTA AC No. 256, Civil Case No. U-11272, May 10, 2023)

SIMULTANEOUS ACTION TO QUESTION VALIDITY OF THE ORDINANCE AND APPEAL REFUND CONSTITUTES FORUM SHOPPING. The following are the elements of litis pendencia and forum shopping: 1. The identity of parties, or at least such as representing the same interests in both actions; 2. The identity of rights asserted and relief prayed for, the relief being founded on the same facts (reliefs are founded on the same facts and arguments; same evidence will sustain the second action even if the reliefs are different); and  3. The identity of the two cases such that judgment in one, regardless of which party is successful, would amount to res judicata in the other (where both cases have same facts and evidence necessary to resolve both causes of action). Where the taxpayer assailed the validity of the ordinance with the DOJ and thereafter with the court; and it also paid, applied for refund and appeal to the court, there is litis pendencia and taxpayer is guilty of forum shopping.(San Roque Power Corporation v. Municipality of Manuel, Pangasinan et. al. CTA AC No. 256, Civil Case No. U-11272, May 10, 2023)

LGU BILLING STATEMENT IS NOT AN ASSESSMENT; GENERAL PROFESSIONAL PARTNERSHIP IS EXEMPT FROM LBT. The Supreme Court in Cosmos Bottling and ICTSI case ruled if a) taxpayer receives and assessment, the remedy is under Section 195 – written protest within 60 days from assessment and 30 days to appeal to court after receipt of decision or lapse of 60 days whichever is earlier; or 2) if taxpayer receives no assessment but claims that it erroneously paid the tax, the remedy is under Section 196 claim for refund. Billing statement is not assessment as the latter requires prior investigation/examination and letter of authority. Further, a general professional partnership is not subject to local business tax. (Casas+ Architects, The City of Makati, CTA AC No. 259, May 28, 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:

• The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
• 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. (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • The 90 + 30-day periods to appeal are both mandatory and jurisdictional. After the lapse of the 90-day period, petitioner had 30 days to elevate its claim to the CTA. The claimant need not wait for the decision of the BIR after the 90-day waiting period. It should file a judicial claim for refund with the CTA. A waiting period of only 90 days and respondent’s inaction within the said period is deemed a denial of the claim. (Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023)
  • The rule is that for administrative claims filed during the effectivity of the TRAIN Law, the taxpayer is still required to submit all supporting documents together with the administrative claim. Otherwise stated, the reckoning of the 90-day period still coincides with the date of filing of the administrative claim. (Mitsuba Philippines Technical Center Corporation v. CIR, CTA EB No. 2631, CTA Case No. 10025, May 26, 2023)

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

• The taxpayer is a VAT-registered person; (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)

In relation to the taxpayer’s output VAT:

• The taxpayer is engaged in zero-rated or effectively zero-rated sales; (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  •  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. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • For the sale of goods to an export- oriented enterprise whose export sales exceed 70% of total annual production to be qualified as a zero-rated sale, the following essential elements must be met: the sale was made by a VAT-registered person; the buyer must be considered as an export-oriented enterprise (export sales must exceed 70% of the total annual production of the preceding taxable year; supported by BOI Letter Endorsement; must establish the whole year); and, the goods sold must be used as raw materials or packaging materials for the goods exported by the export-oriented enterprise (requisites: the sales invoice as proof of the sale of goods; and, the goods sold must be used as raw materials or packaging materials for the goods ultimately exported by the export-oriented enterprise; sales invoice is issued providing description of the goods sold as various packaging materials are acceptable document). (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • Invoicing requirements for zero-rated sales:
    • Reasons for the disallowance: nature and description of goods not indicated; buyer’s TIN not indicated (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • Re. sales of goods to BOI-registered entities – Certifications to the effect that the taxpayer’s customers are BOI-registered manufacturers/producers are 100% exported are required. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • Sales made to a BOI-registered buyer are export sales subject to the zero percent rate if the following conditions are met: (a) The buyer is a BOI-registered manufacturer/producer (Certificate of Registration with the BOI); (b) The buyer’s products are 100% exported; and, (c) 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. For the sales made to the buyer during the period of claim for refund by the supplier to qualify as zero-rated sales, the BOI must still certify that the buyer exported its entire product [for the period subject of the claim for refund by the supplier]. Without the certification on actual export, the sales are not considered zero-rated (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • Sale to National Power Corporation of electricity generated through hydropower is subject to zero percent (0%) V A T under Section 108(8)(7) of the NIRC of 1997, as amended by RA No. 9337. (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023)
  • 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” (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • Sales of goods are disallowed in case of mixed sales. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • The service must be performed in the Philippines by a VAT-registered person.  (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • The document must indicate that the services were performed in the Philippines. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    •  The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in and business who is outside the Philippines when the services were performed (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • On Sale of Goods:
    • Documents to establish zero-rated sales of goods: 1. The sales invoice as proof of the sale of goods; 2. Export declaration and the bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; and 3. The bank credit advice, certificate of bank remittance, or any other document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services. (CIR v. Oceanagold (Philippines), Inc., CTA EB No. 2552, CTA Case Nos. 9207, 9277 & 9416, Oceanagold (Philippines, Inc. v. CIR, CTA EB o. 2571, CTA Case Nos. 9207, 9277
    • Zero-rated sales whose sales invoice is dated outside the period of claim should be disallowed. Export sales is defined as the sale and actual shipment of goods from the Philippines to a foreign country. Thus, sales invoice dated later outside the period, even though there is bill of lading issued within the period, warrants the denial of zero-rated sales. However, if provisional invoice is issued within the covered period, the zero-rated sales will be allowed. (With Dissenting Opinion) (CIR v. Oceanagold (Philippines), Inc., CTA EB No. 2552, CTA Case Nos. 9207, 9277 & 9416, Oceanagold (Philippines, Inc. v. CIR, CTA EB o. 2571, CTA Case Nos. 9207, 9277

 

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, whether or not they previously paid taxes in the acquisitions of their beginning inventory of goods, materials and supplies. During the period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer; (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
• The input taxes are due or paid; (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023)
• The Supreme Court in Chevron case ruled that when the taxpayer-claimant is engaged in mixed transactions, the refundable input VAT attributable to zero- rated sales is determined by getting the percentage of valid zero- rated sales over toral reported sales (taxable, zero-rated, and exempt) multiplied by the properly substantiated input taxes not directly attributable to any of the transactions. (Tetra Pak Philippines, Inc. v CIR, CTA Case No. 10113, May 23, 2023)
• Input tax must comply with invoicing requirements.
  • Reasons for disallowance: overclaimed input tax due to foreign exchange rate used; OR or invoice not in the name of that taxpayer; input tax not separately indicated; no TIN and/or address; not supported by VAT OR; document not valid for claim of input VAT; not original copy; supported by billing statement; wrong TIN (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023
• The input taxes have not been applied against output taxes during and in the succeeding quarters. (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)

 

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:
  • The claim for refund must be filed within the two-year prescriptive period. (CIR v. Bethlehem Holdings, Inc., CTA EB No. 2584, CTA Case No. 10050, May 18, 2023)
  • 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. (CIR v. Bethlehem Holdings, Inc., CTA EB No. 2584, CTA Case No. 10050, May 18, 2023)
  • The income upon which the taxes were withheld must be included in the return of the recipient. (CIR v. Bethlehem Holdings, Inc., CTA EB No. 2584, CTA Case No. 10050, May 18, 2023)

 

REFUND OF ERRONEOUSLY OR ILLEGALLY ASSESSED OR COLLECTED TAX

• 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. Timeliness of the filing of the claim is mandatory and jurisdictional, and thus the Court cannot take cognizance of a judicial claim for refund filed either prematurely or out of time. It is worthy to stress that as for the judicial claim, tax law even explicitly provides that it be filed within two (2) years from payment of the tax “regardless of any supervening cause that may arise after payment. (Philippine Airlines, Inc. v CIR, CTA Case No. 10311, May 30, 2023)
  • PAL remains exempt from taxes, duties, royalties, registrations, licenses, and other fees and charges, provided it pays corporate income tax as granted in its franchise agreement. Accordingly, PAL is left with no other option but to pay its basic corporate income tax, the payment of which shall be in lieu of all other taxes, except VAT, and subject to certain conditions provided in its charter (to be exempt from excise tax on importation of tobacco and alcohol products, the said supplies are imported for the use of the franchisee in its transport/non-transport operations and other incidental activities and, they are not locally available in reasonable quantity, quality or price) (Philippine Airlines, Inc. v CIR, CTA Case No. 10311, May 30, 2023; PMFTC, Inv. v. CIR, CTA EB No. 2613, CTA Case No. 10110, May 18, 2023)

Other Matters:

TAXPAYER MUST PROVE THAT THE ERRONEOUS TAX WAS PAID; INPUT VAT MUST BE ESTABLISHED TO SUPPORT CLAIM OF ERRONEOUS OUTPUT VAT. To claim a refund of erroneously paid or illegally collected taxes, it must be proven that the taxpayer has paid the tax and that such payment was erroneous. Where the condominium dues are not subject to VAT, the input VAT must still be presented. In this case, the taxpayer failed to prove payment of the output VAT collected on association dues for the 3rct and 4th quarters of CY 2017 since it was not able to establish the input VAT from which it credited its output VAT. The Court must examine petitioner’s documentary evidence to ascertain that the output taxes on condominium dues have been paid. (Pacific Plaza Condominium Corporation v. CIR, CTA Case No. 10199, June 1, 2023)

April 2023

 

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; (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
• 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. Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
  • The 90 + 30-day periods to appeal are both mandatory and jurisdictional. After the lapse of the 90-day period, claimant has 30 days to elevate its claim to the CTA. The claimant need not wait for the decision of the BIR after the 90-day waiting period. It should file a judicial claim for refund with the CTA. A waiting period of only 90 days and the BIR’s inaction within the said period is deemed a denial of the claim. Even if the TRAIN law deleted the phrase “or the failure on the part of the Commissioner to act on the application within the period prescribed above,” the deemed-denial provision still applies. (Regus Service Centre Philippines B.V.-ROHQ, CTA Case No. 9907, April 19, 2023; CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; see also San Carlos Solar Energy, Inc. v. CIR, CTA EB No. 2562, CTA Case No. 9576, April 27, 2023; with Dissenting Opinion)

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

• The taxpayer is a VAT-registered person; (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)

In relation to the taxpayer’s output VAT:

• The taxpayer is engaged in zero-rated or effectively zero-rated sales; (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
•  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 (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)

• • Re. sales of goods abroad, in order for an export sale to qualify as zero-rated, the following essential elements must be present:
    • The sale was made by a VAT registered person (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023);
    • There was sale and actual shipment of goods from the Philippines to a foreign country, (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023) as evidenced by the following:
      • sales invoice as proof of sales of goods; the invoice must comply with the invoicing requirements (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
      • Export declaration and bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
    • Sale was paid for in acceptable foreign currency in accordance with BSP rules (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
      • Bank credit advice, certificate of bank remittance or any document proving payment of the goods in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP.
        • BSP rules on foreign currency exchange is not required for constructive export sales under EO 226 (i.e., BOI-registered enterprise), but is required for direct export sales. (Carmen Copper Corporation v. CIR, CTA EB No. 2428, CTA Case No. 9543, April 5, 2023)
  •  Renewable Energy (RE) Developers are entitled to VAT zero-rating treatment on its purchases of local goods, properties and services needed for the development, construction and installation of its plant facilities (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA EB No. 2476, CTA Case No. 9670, April 4, 2023)
    • For a sale transaction to an RE Developer to qualify for VAT zero-rating, the taxpayer must be able to present the following documents of the RE Developer:
      • Department of Energy Certificate of Registration (DOE COR);
      • Registration with the Board of investments (BOI COR);
        • DOE Certificate of Endorsement (DOE COE) is not required to claim the incentive in VAT zero-rating (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA EB No. 2476, CTA Case No. 9670, April 4, 2023)
        • DOE COE applies only when the incentive sought to be claimed is the duty-free importation of RE machinery, equipment, materials and parts thereof, as well as the tax- and duty-free exemption in the event that the same was subsequently sold, transferred or disposed. (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA EB No. 2476, CTA Case No. 9670, April 4, 2023)

 

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, whether or not they previously paid taxes in the acquisitions of their beginning inventory of goods, materials and supplies. During the period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
• The input taxes are due or paid (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
• 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. (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)

• Other matters:
  • NIRC is categorical in requiring that the nature of the service rendered be indicated in the VAT OR. (Maersk Global Services Centres (Philippines) Ltd. v. CIR, CTA EB No. 2541, CTA Case No. 9537)
  • It is not mandatory for a buyer to sign a sales invoice. Neither the NIRC nor BIR issuances require the buyer or its representative to sign a sales invoice.  Further, purpose of signature to acknowledge receipt of goods delivered by the seller. Maersk Global Services Centres (Philippines) Ltd. v. CIR, CTA EB No. 2541, CTA Case No. 9537)
  • In case of refund of input tax in case of cancellation of registration due to cessation of business, the taxpayer has 2 years from the cancellation of registration (via affidavit of no operation and board resolution), when the application for cancellation of registration was filed, to apply for issuance of tax credit certificate of any unused input tax which may be used to pay other internal revenue taxes; an in cases where the taxpayer has no internal revenue taxes, he shall be entitled to a refund.  (Mitsui & Co. Ltd (Manila Branch, v. CIR, CTA EB No. 2495, CTA Case No. 9536, April 18, 2023; with Dissenting Opinion)    

• • • Administrative refund: Where BIR Form 1905 (Application for Registration update) was filed on February 20, 2015, validly filed it BIR Form 1914 (Application for Tax Credits/Refund) on September 23, 2016; judicial refund: Taxpayer has until February 20, 2017 to file its petition for review. (Mitsui & Co. Ltd (Manila Branch, v. CIR, CTA EB No. 2495, CTA Case No. 9536, April 18, 2023)     
    • Delinquency Verification and Certificate of No outstanding Liability are the supporting documents to establish that taxpayer has no internal revenue tax liabilities against which the tax credit certificate may be utilized. (Mitsui & Co. Ltd (Manila Branch, v. CIR, CTA EB No. 2495, CTA Case No. 9536, April 18, 2023)
    • Applying the Chevron case decided by the Supreme Court, excess input tax carryover is not required to be substantiated in refund of unused or unutilized input VAT attributable to zero-rated sales (Mitsui & Co. Ltd (Manila Branch, v. CIR, CTA EB No. 2495, CTA Case No. 9536, April 18, 2023; with Dissenting Opinion)          

 

REFUND OF ERRONEOUSLY OR ILLEGALLY COLLECTED TAXES 

• There must be an erroneous or illegal collection of tax, or a penalty collected without authority, or sum excessively or wrongfully collected;
  • Section 148 (e) of the NIRC, imposed the excise tax on naphtha, regular gasoline and other similar products of distillation.  Alkylate is not a product of distillation but a product of alkylation. Alkylate is used as a blending component in motor or aviation gasoline in order to meet certain required characteristics such as octane number and volatility requirements. The raw materials to produce alkylate are light olefins and isobutane. While isobutane can be a product of crude oil distillation, alkylate should not be subject to excise tax because the law does not subject to excise tax the ingredients or raw materials but only the 3 finished products – naphtha, regular gasoline and other similar products.(CIR v. Petron Corporation, CTA EB No. 2527, CTA Case Nos. 9327 and 9460, April 20, 2023; Pilipinas Shell Petroleum Corporation v. CIR, CTA Case No. 8535, April 27, 2003)
• The claim for refund has been duly filed with the Commissioner, within two (2) years after the payment of tax or penalty;
• The suit or proceeding is instituted with this the CTAwithin two (2) years from the date of payment of the tax or penalty.

MOTION FOR RECONSIDERATION ON THE AMENDED DECISION MAY BE DEEMED A SECOND MOTION AND THUS IS A PROHIBITED PLEADING. THE REMEDY IS TO FILE A PETITION FOR REVIEW WITH THE COURT EN BANC. However, the CTA En Banc assumed jurisdiction based on previous rulings to better serve the interest of justice (Maersk Global Services Centres (Philippines) Ltd. v. CIR, CTA EB No. 2541, CTA Case No. 9537)

 

IN INPUT VAT REFUND OR CREDIT, TAXPAYER IS FREE TO DEDUCT INPUT VAT LOWER THAN THE ACTUAL INPUT VAT PER INVOICE. It is a well-settled rule that 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 citing Supreme Court’s Phoenix case. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein rule, although pertaining to income tax, can be logically applied to input VAT refund or credit. By analogy, therefore, a taxpayer should likewise be free to deduct from output VAT an input VAT which is lower than the actual amount of input VAT stated in the VAT invoice or VAT OR. (Maersk Global Services Centres (Philippines) Ltd. v. CIR, CTA EB No. 2541, CTA Case No. 9537)

 

TAX ASSESSMENTS

 

SETTLEMENT BELOW THE PRESCRIBED RATES OF OFFER OF COMPROMISE IS VALID. While settlement offered in the Compromise Agreement is less than the prescribed minimum rates (12% of the basic tax), if it is approved by the National Evaluation Board, the issuance of the Certificate of Availment is sufficient. (Clinical Occupational Medicine & Treatment Centre, Inc. v. CIR, CTA Case No. 10670, April 14, 2023)

 

AMNESTY WITHOUT FINAL AND EXECUTORY ASSESSMENT IS INVALID. Tax Amnesty on Delinquencies may be availed of income delinquencies and assessments, which have been final and executory and withholding agents who withheld taxes but failed to remit the same to the BIR. In case of withholding taxes, the deficiency must arise from non-withholding (which must be covered by an assessment notice that has become final and executory) or failure to remit tax. Amnesty availed of by the taxpayer without assessment is not valid. (St. Gerrard Construction Gen Contractor and Development Corporation v. CIR, CTA Case No. 10427, April 5, 2023; Reitoh Cold Storage Inc. et. al. v. CIR, CTA Case No. 10420, April 19, 2023)

 

FAN MUST BE PROTESTED EVEN IF IT WAS RECEIVED AFTER A COLLECTION LETTER. The taxpayer must file an administrative protest within 30 days from the date of the FAN.  Citing the Supreme Court case of CIR v. V.Y Domingo Jewellers, Inc. (G.R. No. 221780, March 25, 2019), the CTA held that if a taxpayer, after receiving the BIR’s collection letter referring to a final assessment, subsequently receives such assessment, must file an administrative protest on the said FAN before the BIR, lest appeal to the CTA be considered premature, irrespective whether the receipt of the FAN was through valid service or taxpayer’s own request.(CIR v. Four Seas Trading Corporation, CTA EB No. 2507, CTA Case No. 9915, April 5, 2023) Dissenting Opinion: Appeal to the CTA is valid because there is no proper service of PAN and FAN; there is a violation of due process.

 

MERALCO IS A COMMON CARRIER EXEMPT FROM LOCAL BUSINESS TAX.

Common carriers are exempt from the taxing power of the local government units.  Common carrier is defined as one that holds itself out to the public as engaged in the business of transporting persons or property from place to place, offering its services to the public generally. As an electric distribution utility, MERALCO, is a common carrier under EPIRA Law which states that the distribution of electricity shall be a regulated common carrier business. Lastly, MERALCO’s consequent exemption from local business tax as a common carrier is not dependent on its actual payment of common carrier’s tax. (The City of Pasig v. Manila Electric Company, CTA AC No. 248, April 19, 2023)

COURT OF TAX APPEALS DECISIONS

January 2022

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

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

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

• The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;
• That in case of full or partial denial of the refund claim rendered within a period of ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be filed with the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision.
  • The 120 (now 90) + 30-day periods to appeal are both mandatory and jurisdictional. After the lapse of the 120 (now 90)-day period, claimant has 30 days to elevate its claim to the CTA. The claimant need not wait for the decision of the BIR after the 120-(now 90) day waiting period. It should file a judicial claim for refund with the CTA. A waiting period of only 120 (now 90) days and respondent’s inaction within the said period is deemed a denial of the claim. (Lepanto Consolidated Mining Company v. CIR, CTA EB No. 2329, CTA Case No. 10153, CTA Case No. 10153, January 5, 2022)

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

• The taxpayer is a VAT-registered person;

In relation to the taxpayer’s output VAT:

• The taxpayer is engaged in zero-rated or effectively zero-rated sales;
• Re. Sales of Goods: 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;
  • Re. sales of goods abroad, in order for an export sale to qualify as zero-rated, the following essential elements must be present:
    • the sale was made by a VAT registered person;
    • there was sale and actual shipment of goods from the Philippines to a foreign country, as evidenced by the following:
      • sales invoice as proof of sales of goods; the invoice must comply with the invoicing requirements. (Ametron Incorporated v. CIR, CTA Case No. 9893, January 4, 2022)
      • bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country
        • The sales invoice must indicate the related airway bill or details of items exported. Thus, there is a failure to ascertain whether goods covered by the invoice were actually shipped to the intended foreign customers. (Ametron Incorporated v. CIR, CTA Case No. 9893, January 4, 2022)
    • The sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP. Amounts shown in the summary of VAT zero-rated sales supported with sales invoices must be traced with certainty to the certificates of inward remittance (Ametron Incorporated v. CIR, CTA Case No. 9893, January 4, 2022)
• Re. zero-rated sales of goods to a BOI-registered entity whose products are 100% exported, the following must be complied with:
  • The supplier must be VAT-registered;
  • The BOI-registered buyer must likewise be VAT-registered
  • The buyer must be a BOI-registered manufacturer/producer whose products are 100% exported. For this purpose, a Certification to this effect muse be issued by the BOI and which certification shall be good for one year unless subsequently re-issued by the BOI
  • The BOI-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOI Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said BOI-registered buyers; and
  • The VAT-registered supplier shall issue for each sale to BOI-registered VAT invoice with the words “zero-rated” (Rema Tip Top Philippines, Inc. v. CIR, CTA Case No. 9794, January 24, 2022)
•  Re. sales of services, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), to wit:
  •  The services fall under any of the categories under Section 108(6)(2), or simply, the services rendered should be other than ”processing, manufacturing or repacking of goods” i.e. corporate finance advisory services, training and personnel management, etc. (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022)
  •  The service must be performed in the Philippines by a VAT-registered person.  The agreement must specify that the services shall be performed in the Philippines (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022)
  •  The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules. Payment must be supported by Certificate of Inward Remittance. (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022); New York Bay Philippines, Inc. v. CIR, CTA Case No. 9896, January 26, 2022)
  • The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in business who is outside the Philippines when the services were performed (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022); New York Bay Philippines, Inc. v. CIR, CTA Case No. 9896, January 26, 2022)
    • in order to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both a Certification of Non-Registration of Corporation/Partnership issued by the Philippine Securities and Exchange Commission (SEC), and proof of incorporation/registration in a foreign country (e.g., Articles/Certificate of Incorporation/Registration).  Failure to provide the documents warrants the denial of the claim (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022; New York Bay Philippines, Inc. v. CIR, CTA Case No. 9896, January 26, 2022; (Rema Tip Top Philippines, Inc. v. CIR, CTA Case No. 9794, January 24, 2022)

As regards the taxpayer’s input VAT being refunded:

• The input taxes are not transitional input taxes.
• The input taxes are due or paid;
• The input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume
• Input tax must comply with invoicing requirements.
• Other matters:

• • A counterclaim in a VAT refund case violates right to due process. In an action for refund of taxes, as the claim for refund is not based on the theory of erroneous payment but is filed to recover excess and unutilized input VAT under Section 112(A) and (C) of the NIRC of 1997, as amended. Excess input tax or creditable input tax is not an erroneously, excessively, or illegally collected tax. If there is a finding of VAT liability on the part of the taxpayer-claimant, the proper recourse would be to subject said taxpayer-claimant to an audit/investigation. The same will start with the issuance of a Letter of Authority (LOA) and thereafter, the issuance of an assessment notice. (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022)
  • Failure to submit supporting documents in the administrative level is not fatal to the claimant’s claim. The taxpayer may present additional documents before the CTA to substantiate its claim for refund, albeit the same were not presented at the administrative level. (CIR v. Plipinas Kyohritsu, Inc., CTA EB No. 2334 (CTA Case No. 9557), January 20, 2022)

 

REFUND OF EXCESS OR ERRONEOUSLY PAID TAX.

The withholding agent is considered the proper party to file a claim for refund of the withheld taxes. Where excess or erroneously paid tax arose from income payment made by the local taxpayer to a Japanese corporation not doing business in the Philippines, the payor becomes the withholding agent allowed to claim refund of tax. (CIR v. Toledo Power Corporation, CTA EB No. 2359 (CTA Case No. 9465), January 5, 2022)

 

TAX ASSESSMENTS

• The rules impose a 30-day expiration period for the service of the Letter of Authority (LOA). Upon its expiration, the LOA becomes wholly unenforceable. Thus, where the taxpayer received the LOA 62 days after its issuance, the LOA is void and without effect. (Vanguard Logistics Services, Phils., Inc. CTA Case No. 10155, January 27, 2022)
• Any re-assignment/transfer of cases to another revenue officer requires a new LOA, absence of which renders the assessment void. Thus, where the only basis for the authority of the new examiner to conduct audit was a Memorandum of Assignment (MOA) without LOA, the new examiner is considered not duly authorized to conduct the audit. Even if MOA is considered as LOA, it must be issued by the Assistant Commissioner/Head Revenue Executive Assistants for large taxpayers. Thus, where the MOA was signed only by the chief of the regular LT Audit Division, and not by the Assistant Commissioner/HREA, the assessment is void. (Metro Manila Star Asia Corp v. CIR, CTA Case No. 9302, January 26, 2022)
• The taxpayer must appeal the assessment to the CTA or Commissioner within 30 days from demand. In the absence of the Final Decision on Disputed Assessment, Preliminary Collection Letter (PCL) serves as demand of the BIR. Thus, where the taxpayer based the appeal on the BIR letter-response on the constructive service of the FDDA after the BIR has issued collection letters, and not on the PCL, the appeal is considered filed out of time. (Ten-four Readymix Concrete, inc. v.  CIR, 2311, CTA Case No. 10081, January 25, 2022)
• In tax evasion cases committed through willful refusal to pay taxes, the five-year prescription to file case would begin to run from the taxpayer’s receipt of the notice and demand for payment of the assessed tax deficiency. Thus, where the FAN was served on September 13, 2013, and it attains finality after 30 days or October 14, 2013, to toll the running of five-year prescriptive period, the BIR should have filed a criminal complaint with the DOJ on October 14, 2018. Since the criminal complaint was filed on April 11, 2019, the offense charged had already been prescribed (People of the Philippines v. Angelo R. Balili, CTA Crim Case No. A-8; Case Nos. R-mKT-20-01449-CR and R-MKT-20-01450-CR, January 25, 2022)
• One of the elements of violation of Section 255 is that the accused is a person required to file return, pay tax and supply correct and accurate information. The obligation to pay tax arises either by self-assessment or by BIR’s notice or demand via assessment. If the charge is based on BIR’s assessment, due process must be observed. Thus, where the BIR failed to establish that Notice of Informal Conference was issued to and that PAN and FAN/FLD were received by the accused, the failure to do so renders the assessment void and warrants the acquittal of the accused. (People of the Philippines v. Grand East Empire Corporation and Solania G. Ong, CTA Crim Case Nos. O-779, O-780 & O-781, January 24, 2022)

COURT OF TAX APPEALS DECISIONS

December 2021

 

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 administrative and judicial remedy of filing a claim for refund of erroneously or excessively paid tax must be done within two (2) years from the date of payment of the tax both in the administrative and judicial levels. For actions for refund of excess corporate income tax, the Supreme Court ruled that the two-year prescriptive period should be counted from the filing of the Final Adjustment Return, because it is only during that date that the exact tax liability or refundability of the tax can be determined.
       • The 2-year period is counted from the filing of original Final Adjusted Return, not on the amended. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021; Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
       • Taxpayer need not wait for the resolution on the administrative claim for refund before filing the judicial claim. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)
       • Although both the administrative claim and the judicial claim were filed within the two (2) year prescriptive period, the claimant must give BIR full opportunity to decide the administrative claim. If taxpayer files the judicial claim for refund a day after it filed administrative claim, with just one (1) day given to BIR to resolve a claim for refund that involves voluminous supporting documents, the BIR is said   to not “afforded a complete chance to pass upon the matter” nor “given an opportunity to act and correct the errors committed in the administrative forum.”  Thus, petition should be dismissed. (Aecom Philippines Consultants Corporation v. CIR, CTA Case No. 10008, December 7, 2021)
     • a corporation that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once chosen, the carry-over option shall be considered irrevocable for that taxable period, and no application for a tax refund or issuance of a tax credit certificate shall then be allowed. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021; Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
       • Taxpayer may originally opt for refund and shift to carry-over but can no longer revert to original choice due irrevocability rule. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)
       • Once the carry-over option has been chosen, such shall be irrevocable and the unutilized excess tax credits will remain in the taxpayer’s account and may be carried over and applied to succeeding taxable years until fully utilized. (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
       • Taxpayer may have in a taxable year excess CWT for current year subject of refund and non-refundable CWT carried over from previous year that is not utilized. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)

 

• 1. The fact of withholding must be established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom.
     • The Court disallows supporting BIR Form no. 2307s, with incorrect TIN of the taxpayer indicated in the certificate (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)
     • The Court disallowed supporting BIR Form No. 2307s with incorrect/no TIN; incorrect address, among others. The CTA ruled though that even without TIN, as long as the name and address may be cross-referenced to the BIR Certificate of Registration (COR; moreover, CWT bearing the incorrect address may be allowed as long as the TIN is correct and may be cross-referenced to the ITR (if no COR is adduced as evidence) (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
     • Proof of actual remittance of taxes withheld to the BIR is not required in a claim for refund of excess CWT. The claimant-taxpayer is only required to prove that the income payment formed part of the gross income and the fact of withholding. The proof of remittance of the withheld taxes remains the responsibility of the withholding agent. (Tullet Prebon (Philippines), Inc. v. CIR, CTA EB No. 2373, CTA Case No. 9804, Decemebr 16, 2021)
  2. The income upon which the taxes were withheld must be included in the return of the recipient. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)
     • The Court disallows CWT, which was not traced in the General Ledger (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
     • Presentation of CWT Certificates is not indispensable in proving the existence of prior year’s excess credits since the credits are not the actual subject of the claim for refund. BIR never refuted the truthfulness and existence of the taxpayer’s prior year’s excess credits. (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)

 

 

Variance between the date of verification and Petition is not fatal when the variance is satisfactorily explained and petitioner substantially complied with the objective of the verification requirement. If Petition is dated 2 days later than the Verification for the reason that petition was revised subsequent to the signing of the verification, petitioner substantially complied with the objective of the verification requirement. (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

 

1. • • The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in business who is outside the Philippines when the services were performed.
       • In order to be considered as a non- resident foreign corporation doing business outside the Philippines, each service-recipient must be supported, at the very least, by both a Certification of Non-Registration of Corporation/Partnership issued by the Philippine Securities and Exchange Commission (SEC), and certificate/articles of foreign incorporation/association. (Deutsche Knowledge Services Pte., Ltd. v. CIR, CTA EB No. 2249, CTA Case No. 9154, December 14, 2021)
       • The CTA cannot give credence or probative value to the business registration documents derived by the database provided by the group of companies to which the claimant belongs as they are self-serving, lack credibility, and which can be easily manipulated to favor the claimant in view of its affinity with the entity that maintains or keels the database. (Deutsche Knowledge Services Pte., Ltd. v. CIR, CTA EB No. 2249, CTA Case No. 9154, December 14, 2021)
       • If the claimant is neither a branch nor a subsidiary of the non-resident foreign corporation who is the service recipient, the service recipient is not considered an entity engaged in busines in the Philippines (CIR v. MSCI Hongkong Limited, CTA EB No. 2258, CTA Case No. 9661, December 15, 2021)
     • The services rendered should be other than ”processing, manufacturing or repacking goods.” This may be supported by a professional service agreement (Teleworks Philippines, Incorporated v. CIR, CTA Case No. 9380, December 11, 2020)
       • Testimony is not sufficient, if there is no indication that the services are rendered to the client-recipient. Dissenting Opinion: The testimony is sufficient if the services are supported by Certificate of Registration and License issued by the SEC, which enumerates the qualifying services that it may render as ROHQ. Deutsche Knowledge Services Pte., Ltd. v. CIR, CTA EB No. 2249, CTA Case No. 9154, December 14, 2021)
     • The services must be performed in the Philippines by a VAT-registered person. The claimant must show that the services were performed in the Philippines. Dissenting Opinion: the testimony is supported by the fact that petitioner purchased goods and services in the Philippines for purposes of performing its services in the Philippines. Deutsche Knowledge Services Pte., Ltd. v. CIR, CTA EB No. 2249, CTA Case No. 9154, December 14, 2021)

 

1. • For zero-rated sales of goods to non-resident foreign corporation:
     • Certificate of Inward Remittance is required in support of sale to attest the fact that fact of payment in acceptable foreign currency accounted for with the BSP, regulation, regardless when the date was remitted.  (Carmen Copper Corporation v. CIR, CTA Case No. 9954, December 16, 2021)
     • Bank certification of inward remittance is not abolished but merely relaxed. It may be dispensed with in case of offsetting arrangements for the payment of export sales. (Carmen Copper Corporation v. CIR, CTA Case No. 9954, December 16, 2021)
     • Invoice must be within the date of period of claim. (Carmen Copper Corporation v. CIR, CTA Case No. 9954, December 16, 2021)
   • Invoicing requirements must be complied with.
     • Sale of goods, properties or services made by a VAT-registered supplier to a BOI-registered entity whose products are 100% exported shall be VAT zero-rated, subject to requirements. In case where the taxpayer paid the input VAT, its recourse is not against the government but against the suppliers who shifted to it the output VAT. (Carmen Copper Corporation v. CIR, CTA Case No. 9954, December 16, 2021)

 

TAX ASSESSMENTS

Taxpayer has thirty (30) days from the receipt of the decision or ruling or after the expiration of the period fixed by law for action of the BIR within which to file an appeal to the CTA. Otherwise, the Court has no jurisdiction to review the appeal.

• Where no documentary evidence was presented by the taxpayer to show the date of receipt of the decision, and taxpayer admitted that he could no longer find the files showing the date of receipt of the decision, thereby taxpayer failing to prove the date of decision, the 30-day period to file an appeal is counted from the date of issuance of the decision. (Ermilo Tan Ng Hua v. CIR, CTA Case No. 9912, December 7, 2021)
• A new Letter of Authority (LOA) must be issued in case of reassignment of the audit investigation to other Revenue Officers (ROs).
  • Even if the CTA considers Memorandum of Assignment (MOA) as new LOA, it must be signed by the CIR or authorized representative, identified as Regional Director. The position equivalent to a Revenue Regional Director for the large taxpayer is the Assistant Commissioner/Head Revenue Executive Assistants. In this case, the MOA was signed and issued by Chief of Large Taxpayer Service (LTS). She is neither the CIR, Regional Director, nor an Assistant Commissioner/Head Revenue Executive Assistant of the LTS. She had no authority to issue the MOA, thus, the assessments resulting therefrom are void. Therefore, the RO and Group Supervisor (GS) who continued the audit of Star Songs, Inc. were not authorized by a valid LOA; hence, the assessments issued pursuant to said audit are void ab initio (ABS-CBN Film Productions, Inc. v. CIR, CTA Case No. 9982, December 3, 2021; Tann Philippines, Inc. v. CIR, December 16, 2021)
  • A mere MOA signed by Revenue District Officer (RDO) does not and cannot confer authority to RO and GS to continue the audit or investigation of taxpayer’s books of accounts. As both are not authorized through an LOA, their investigation and subsequent assessment of could not be sanctioned. (Hard Rock Café (Makati City) Inc., v CIR, CTA Case No. 9945, December 10, 2021; Republic of the Philippines v. Robiegie Corporation, CTA EB No. 2339, CTA oC No. 023, December 2, 2021)

 

• In case of change of address, the taxpayer is required to give a written notice thereof to the Revenue District Officer or the district having jurisdiction over his former legal residence and/or place of business. Where taxpayer filed a letter with the RDO informing the BIR of the change of address; submitted another letter submitting the memorandum of the RO recommending the approval of transfer of registration from Palawan to Bulacan; where taxpayer sent another letter requesting all letters to taxpayer be addressed and delivered to Bulacan, taxpayer’s transfer f has been validly made, insofar as the subject income tax assessment is concerned.
  • While a mailed letter is deemed received by the addressee in the course of the mail, this is merely a disputable presumption subject to rebuttal. Consequently, the direct denial thereof shifts the burden to the sender to prove that the said letter was actually received by the addressee. Where the taxpayer directly denies having received the subject PAN and FLD/FAN. the burden of proving the actual receipt of the same lies with the BIR. Registry Receipts only proves fact of mailing and not service to the taxpayer or to its authorized representative. Even so, the registry receipts shows no indication of the signature appearing thereon refer to taxpayer or tis authorized representative. Respondent’s failure to prove that the subject PAN and FLD/FAN were received by petitioner renders the subject income tax assessment void, for violation of petitioner’s right to due process.
  • Section 203 of the NIRC mandates the government to assess internal revenue taxes within three 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. Hence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective. Where taxpayer filed its ITR for taxable year 2014 on April 6, 2015, the period to assess the subject income tax assessment is until April 15, 2018. Thus, mailing of FLD/FAN on April 16, 2018 or a day after the lapse of 3-year prescriptive period, the assessment is void.
  • A compromise penalty may not be validly imposed if the assessment is void. Nevertheless, even granting that the said tax assessment may be considered as valid, the imposition of compromise penalty cannot be sustained. It must be stressed that a compromise is, by its nature, mutual in essence. It implies agreement. One party cannot impose it upon the other. 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. that there is no indication that petitioner consented to the subject compromise penalty, the same may not be validly imposed. (Megaconstruct Group, Inc. v CIR, CTA Case No. 9992, December 2, 2021)

 

• To question the Warrant of Distraint and Levy (WDL) necessitates looking into the validity of the assessment. This is so since the validity of petitioner’s collection efforts through the WDL is chiefly dependent on the propriety of the assessment issued against the taxpayer. This is consistent with the long-standing principle that a void assessment bears no valid proof. In short, the determination of the assessment’s validity is directly necessary and related to the determination of the correctness of the issuance of the WDL.
  • Receipt of the Formal Letter of Demand without the Formal Assessment Notice renders the assessment void
  • Presentation of a registry receipt, without properly identifying and authenticating the signatures appearing thereon, is insufficient in proving the taxpayer’s receipt of an assessment.
  • Although the subject registry return receipt indicates a name and a signature, the BIR was unable to prove that the name appearing on the said document is an authorized representative of respondent. (CIR v. Nationwide Health Systems Baguio, Inc. CTA EB No. 2264, CTA Case No. 9507, December 9, 2021)

Where the FLD does not state a due date for the payment of the assessed taxes as the space in the Assessment Notice where the due date is to be indicated remained unaccomplished, the assessment is considered void. (CIR v. Universal Robina Corporation, CTA EB No. 2280, CTA Case No. 9530, December 7, 2021)

COURT OF TAX APPEALS DECISIONS

November 2021

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

In order to be entitled to a refund or tax credit of input tax due or paid attributable to zero-rated or effectively zero-rated sales, the following requisites must be satisfied:

1. As to the timeliness of the filing of the administrative and judicial claims:
   • The claim is filed with the BIR within two years after the close of the taxable quarter when the sales were made;
   • That in case of full or partial denial of the refund claim, or the failure on the part of the BIR to act on the said claim within a period of 90 days from the date of submission of complete documents in support of the application, the judicial claim must be filed with the CTA within 30 days from receipt of the decision or after the expiration of the said period (Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 10094, November 17, 2021);
2. With reference to the taxpayer’s registration with the BIR
   • The taxpayer is a VAT-registered person.
3. In relation to the taxpayer’s output VAT:
   • The taxpayer is engaged in zero-rated or effectively zero-rated sales;
   • For zero-rated sales to non-resident foreign corporation (Section 108 (B) (2):
     • The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules – in the form of Certificate of Inward Remittance (Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 10094, November 17, 2021);
     • The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in business who is outside the Philippines when the services were performed. (Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 10094, November 17, 2021);
       • In order to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both a Certification of Non-Registration of Corporation/Partnership issued by the Philippine Securities and Exchange Commission (SEC), and proof of incorporation/registration in a foreign country (e.g., Articles/Certificate of Incorporation/Registration and/or Tax Residence Certificate). (Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 10094, November 17, 2021; Deutsche Knowledge Services, Pte. Ltd. v. CIR, CTA EB No.2248, CTA Case Nos. 8720, 8736, 8754 & 8767; CIR v. Deutsche Knowledge Services Pte. Ltd., CTA EB No. 2252, CTA Case Nos. 8720, 8736, 8754 & 8767);
         • Where the Philippine entity/service provider is a wholly owned subsidiary of the non-resident foreign corporation, and under the service agreement, the Philippine entity is tasked to promote, make available and facilitate access to foreign subscribers in the Philippines and to act as a neutral agent of the foreign company; and foreign company controls and participate in running the marketing and distribution of foreign system in the Philippines, the foreign client is considered doing business in the Philippines. (Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 10094, November 17, 2021);
       • The affidavits of the respective officers of the foreign affiliates and the service agreements, sans any proof of foreign incorporation, are insufficient to establish the NRFC status. For failure to submit articles of association and/or certificates of incorporation, the sales to foreign affiliates do not qualify as zero-rated for VAT purposes. (Procter & Gamble Asia Pte. Ltd., CTA EB No. 2301, CTA Case Nos. 7581 and 7639, November 24, 2021)
     • The services rendered should be other than ”processing, manufacturing or repacking goods.” This is supported by Certificate of Filing of Amended Articles of Incorporation and commercial organization agreement (Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 10094, November 17, 2021);
     • The services must be performed in the Philippines by a VAT-registered person. The claimant-taxpayer must show that the services were performed in the Philippines. The agreement must state that the services must be rendered in the Philippines (Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 10094, November 17, 2021);
       • If the Service Agreements provide list of service providers which include the claimant’s head office and two regional branches, and those services may be rendered not only in the Philippines but also in Singapore and in Japan, or outside the normal place of business of the service provider, the Service Agreements submitted by petitioner are not sufficient to prove that the services were rendered in the Philippines. Procter & Gamble Asia Pte. Ltd., CTA EB No. 2301, CTA Case Nos. 7581 and 7639, November 24, 2021)

1. • Invoicing requirements must be complied with.
     • Due diligence on the part of petitioner should have been observed in checking the completeness of the information in the said official receipts considering that it is the one who needs such documents to prove its claim for refund, as tax refunds are akin to tax exemptions; hence, any discrepancy should be construed against it. Therefore, the claimant cannot validly question the disallowance of the supplier’s ORs where input VAT was not separately indicated therein even if it has no control over such issuance. It cannot validly insist that the issuer should be penalized for such non-compliance and not the disallowance of claim. Deutsche Knowledge Services, Pte. Ltd. v. CIR, CTA EB No.2248, CTA Case Nos. 8720, 8736, 8754 & 8767; CIR v. Deutsche Knowledge Services Pte. Ltd., CTA EB No. 2252, CTA Case Nos. 8720, 8736, 8754 & 8767);
2. As regards the taxpayer’s input VAT being refunded
   • The input taxes are not transitional input taxes;
   • The input taxes are due or paid;
   • The input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume;
     • Any input tax may credited against output tax on the a) purchase or importation of goods for (i) sale (ii) conversion into or intended to form part of a finished product for sale including packaging materials; (iii) use as supplies in the course of business; (iv) use as materials supplied in the sale of service; (v) use in trade or business for which deduction for depreciation or amortization is allowed under the NIRC of 1997, as amended or (b) purchases of services on which a VAT has been actually paid.
       • The input VAT need not come solely from the purchase of goods that form part of the finished product of the taxpayer or must be directly used in the chain of production as there is nothing in the NIRC which requires such.
       • The NIRC merely states that the creditable input VAT should be “attributable” to the zero-rated or effectively zero-rated sales. There is nothing in the aforesaid Section which requires that the input VAT should be “directly” attributable to zero-rated or effectively zero-rated sales. (CIR v. Lepanto Consolidated Mining Company, CTA EB No. 2389 CTA Case No. 9426, November 9, 2021)
   • The input taxes have not been applied against output taxes

• The independent CPA’s (ICPA) findings are not conclusive upon the court as the same are subject to its verification, to determine its accuracy, veracity and merit. The Court may either adopt or reject the ICPA Report, wholly or partially, depending on the outcome of its own independent verification.

o   The claimant’s mere reliance on the ICPA Report does not constitute sufficient proof that would meet the requirement of the law. The ICPA Report did not even provide for any reference as to documents or evidence that would show this fact. the Court is not bound to accept the !CPA’s findings as it has a duty to independently verify such findings. This is especially true in this case where the ICPA’s findings are unsupported by evidence. (Procter & Gamble Asia Pte. Ltd., CTA EB No. 2301, CTA Case Nos. 7581 and 7639, November 24, 2021; Ginebra San Miguel, Inc. v. CIR, CTA EB No. 2308, CTA Case No. 9059, November 10, 2021)

 

SALARIES OF FILIPINO ADB EMPLOYEES ARE SUBJECT TO INCOME TAX.

• The income taxes paid in 2012 and 2013 as Filipino employees of the Asian Development Bank (ADB) were neither illegally collected nor erroneously paid thus, a refund thereof is unavailing.
  • Pursuant to the 1965 ADB Charter Agreement, salaries of ADB employees are not subject to tax. However, when the Philippine government ratified the Agreement, it provided for a reservation that it retains the right to tax salaries and emoluments paid by the bank to the Filipino citizens. The BIR issued RMC No. 31-2013 which implements the foregoing rule, which took effect on May 2, 2013.
  • RMC No. 31-13’s clarification on the status of Filipino ADB employees does not take away the fact that even prior to its issuance, the income of Filipino ADB employees was subject to income tax. Therefore, there is no legal basis to deny the Philippine government from collecting income tax on the Locsin Group’s income for taxable year 2012. (CIR v. Locsin et. al, CTA EB Nos. 2104 and 2110, CTA Case No. 9094 and 9094, November 5, 2021)

 

CONSTRUCTION IN PROGRESS (CIP) IS CONSIDERED A PURCHASE OF SERVICE FOR PURPOSES OF INPUT TAX. CIR is the cost of construction work which is not yet completed. CIP is not depreciated until the asset is placed in service. Normally, upon completion, a CIP item is reclassified and the reclassified asset is capitalized and depreciated. CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of which shall be determined based on the progress billings. Until such time the construction has been completed, it will not qualify as capital goods as herein defined, in which case, input tax credit on such transaction can be recognized in the month the payment was made; provided, that an official receipt of payment has been issued based on the progress billings. (Axelum Resources Corp. v. CIR, CTA Case No. 9969, November 8, 2021)

 

TAXPAYER MUST ADMINISTRATIVELY AND JUDICIALLY CLAIM REFUND OF ERRONEOUSLY PAID TAX WITHIN 2 YEARS FROM THE DATE OF PAYMENT OF TAX REGARDLESS OF ANY SUPERVENING EVENT. 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. Timeliness of the filing of the claim is mandatory and jurisdictional. The Court cannot take cognizance of a judicial claim for refund filed either prematurely or out of time. Under the present state of the law, the two (2)-year prescriptive period runs from the date of payment of the tax, regardless of any supervening cause that may arise thereafter.

• Where the erroneous tax was paid in 2014 until 2015, and the application for tax credits was filed in 2019 and petition was filed in 2019, the claim should be denied as claim was filed out of time. The two-year prescriptive period at the earliest should end on February 20, 2016 and at the latest should end on December 17, 2017. This disregards any other special circumstance (i.e. TRO issued by the Court); and the principle of unjust enrichment does not apply. (PMFTC, Inc. v. CIR, CTA Case No. 10110, November 25, 2021)

 

PETITION DISMISSED FOR LACK OF SPECIFIC MATERIAL DATES, STATEMENT OF THE MATTERS INVOLVED, ISSUES RAISED, SPECIFICATION OF ERRORS OF FACT OR LAW. Under the rules, an importer that does not agree to the valuation made by a Customs Officer may elevate the matter to the principal appraiser and thereafter to the Chief, Formal Entry Division or equivalent unit, then to the Deputy Collector for Assessment and finally to the District Collector.

• The aggrieved importer adversely affected may appeal by way of protest in writing to the Commissioner within fifteen (15) days from receipt of the adverse ruling of the District Collector or, when payment is made as a result of the adverse ruling, within fifteen (15) days from such payment. Otherwise, the action of the District Collector shall be final and conclusive.
• When a protest is filed in proper form, the Commissioner shall render a ruling within thirty (30) days from receipt of the protest. Otherwise, the ruling of the Collector shall be deemed affirmed if the Commissioner fails to act on the same. In case the ruling of the Commissioner is adverse to the importer, he may file a motion for reconsideration with the Commissioner within fifteen (15) calendar days, from receipt of the ruling or appeal the ruling to the CTA within thirty (30) days from receipt of the adverse decision or final order of the Commissioner.
•  In this case, the alleged ruling of respondent District Collector was deemed affirmed by respondent COC, considering the alleged failure of respondent COC to act on petitioner’s protest within thirty (30) days from September 23, 2020 or until October 23, 2020. Thus, petitioner should have filed a motion for reconsideration with respondent COC within fifteen (15) calendar days from October 23, 2020 or until November 7, 2020 or, assuming that the inaction is appealable to the CTA, appeal to the CTA the COC’s ruling affirming respondent District Collector’s ruling within 30 calendar days from October 23, 2020 or until November 22, 2020. Clearly, the same is already filed out of time considering it was filed only on May 26, 2021 or 185 days late.
• In filing a petition for review with the CTA, the petition shall contain allegations showing the jurisdiction of the Court, a concise statement of the complete facts and a summary statement of the issues involved in the case, as well as the reasons relied upon for the review of the challenged decision. Failure of petitioner to comply with any of the requirements regarding the contents of and the documents which should accompany the petition, among others, shall be sufficient ground for the dismissal of the petition, pursuant to Rule 42 of the Rules of Court, as amended.
• Where the petition reveals that the specific material dates were not indicated, a statement of the matters involved, the issues raised, the specification of errors of fact or law, or both, allegedly committed by respondents, and the reasons or arguments relied upon for the allowance of the appeal are not indicated, the petition should be dismissed (L.T.J.S. Store, represented by its Owner/Proprietor Mr. Antonio De Jesus Silva v. Hon District Collector of Customs, CTA Case No. 10539, November 12, 2021)

 

GOOD FAITH AND HONEST BELIEF THAT ONE IS NOT SUBJECT TO TAX ON THE BASIS OF PREVIOUS INTERPRETATION OF GOVERNMENT AGENCIES TASKED TO IMPLEMENT THE TAX LAW, ARE SUFFICIENT JUSTIFICATION TO DELETE THE IMPOSITION OF SURCHARGES AND INTEREST. In this case, at the time the advances were made from 2008 to 2011, the taxpayer relied on prevailing court decisions to the effect that inter-company loans and advances covered by inter-office memoranda were not loan agreements subject to DST. Although only the decisions of the Supreme Court establish jurisprudence or doctrines in this jurisdiction, nonetheless the decisions of subordinate courts have a persuasive effect and may serve as judicial guides. Accordingly, the taxpayer’s reliance on the said cases justifies the non-imposition of surcharge and interest. Thus, refund is proper (CIR v.  Eagle II Holdco, Inc., CTA EB No. 2286, CTA Case No. 9637, November 10, 2021)

 

IMPOSITION OF EXCISE TAX ON THE FINISHED LIQUOR PRODUCTS PRODUCED FROM TAX-PAID ETHYL ALCOHOL IS CONTRARY TO THE MANDATE OF SECTION 170 OF THE NIRC, AS AMENDED. However, the court must ascertain that the proof liters attributable to the refund were part of the actual amount of the raw materials that went into production and converted into finished goods. Thus, for failure to sufficiently prove that the finished goods removed were produced from the very same raw materials that were already excise tax-paid, the claim for refund should be denied (Ginebra San Miguel, Inc. v. CIR, CTA EB No. 2308, CTA Case No. 9059, November 10, 2021)

 

GENERALLY, ANY GAIN FROM THE SALE OF SHARES IN A DOMESTIC CORPORATION SHOULD BE SUBJECT TO CAPITAL GAINS TAX (CGT). HOWEVER, CONSIDERING THAT THE PHILIPPINES HAS A TREATY WITH THE UNITED STATES OF AMERICA (USA), THE SAID INCOME FROM THE SALE OF SHARES MAY BE EXEMPTED FROM CGT IF THE CONDITIONS SET FORTH UNDER THE RP-US TAX TREATY ARE SATISFIED. Thus, under the RP-US Tax Treaty, capital gains from the sale of shares of stock shall be taxable in the state where the alienator is a resident. However, the Reservation Clause provides that such sale may be taxed both by the Philippines and the US if the interest being disposed is in a corporation whose assets consist principally of a real property interest located in that country. On the reverse side, under the RP-US Tax Treaty, the subject capital gains may be exempt from Philippine tax the interest being disposed is in a corporation whose assets do not consist principally of a real property interest located in the Philippines. The claimant was able to prove that it is entitled to refund when it was able to establish that it is an entity incorporated and residing abroad; that it is not registered either as a corporation or partnership in the Philippines nor has been issued a license do business in the Philippines; that the real properties of the company that were sold do not consist of more than 50% of all its assets in the Philippines (CIR v. DOLE Fresh Fruit Company, CTA EB No. 2341, CTA Case No. 9012, November 11, 2021)

 

TAX ASSESSMENTS

 

ON LETTER OF AUTHORITY (LOA)

• Under the prevailing rules (Section 6(A) of the NIRC) and jurisprudence (CIR v. McDonald’s Philippines Realty Corp.), an examination of the taxpayer cannot ordinarily be undertaken unless authorized by the CIR himself or by his duly authorized representative through a letter of authority.
  • The revenue officer (RO) must show that he has been granted authority through an LOA to conduct the examination or assessment. Otherwise, the said examination or assessment is void. In one case, the original LOA issued to the taxpayer did not reflect or carry the names of the ROs who conducted the audit and assessment. Even as the audit of the taxpayer was properly reassigned to other ROs, regrettably, no new LOA was issued upon reassignment to such new ROs who were merely identified in the Memorandum of Assignment. Hence the assessment is void (CIR v. FPIP Property Developers and Management Corporation, CTA Eb No. 2235, CTA Case No. 8980, November 17, 2021)
  • A letter of authority must be issued to the revenue officer to continue the tax audit or examination, absence of which renders the tax assessment void. Any re-assignment/transfer of cases to another revenue officer shall require the issuance of a new letter of authority. A Memorandum of Assignment (MOA) is not sufficient to grant the revenue officers the authority to conduct the audit investigation.
    • Even assuming that MOA may be considered as LOA, the Regional Director, not Revenue District Officer, is authorized to sign it; for large taxpayers, assistance commissioner/head of revenue executive assistants are authorized to sign the LOA. (CIR v. Sunnyphil Incorporated, CTA EB No. 2278, CTA Case No. 9710, November 3, 2021; CIR v. Loyola Plans Consolidated, Inc., CTA EB No. 2324, CTA Case No. 9216, November 11, 2021; CIR v. Philplans first, Inc., CTA EB No. 2351, CTA Case No. 9494, November 9, 2021)

 

LACK OF LETTER OF AUTHORITY RENDERS THE ASSESSMENT VOID; CIVIL ASPECT OF THE CASE MAY NOT BE RAISED ON APPEAL.

•  The Supreme Court emphasized the importance of a LOA to authorize specific revenue officers to perform assessment functions as a due process requirement and admonished the practice of reassigning revenue officers through equivalent documents issued by subordinate officials. If BIR fails to prove that the revenue officer was authorized to conduct the audit, the assessment is void.
  • BIR cannot enforce civil liability arising from deficiency assessment in the present criminal case.
  •  Civil liability deemed instituted with the criminal action is only the civil liability ex delicto. It does not include civil liability arising from a different source of obligation such as those arising from law.
  •  The acquittal in the said criminal cases cannot operate to discharge defendant appellee from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged.
  • Thus, the present criminal proceeding may not be converted into a deficiency assessment proceeding in the guise of elevating the civil aspect of the criminal action. (People of the Philippines v. Vivetech Corporation, CTA EB Crim No. 082, CTA Crim Case Nos. O-666 & O-667, November 5, 2021)

THE ISSUE OF INVALID MEMORANDUM OF ASSIGNMENT CANNOT BE VALIDLY RAISED IN THE APPEAL IN CTA EN BANC. The CTA finds the issue of lack of authority of the revenue examiners due to an alleged defective Memorandum of Assignment (MOA), to be belatedly raised as the taxpayer did not mention this in the Petition for Review and in its subsequent Amended Petition for Review filed with the Court in Division. To raise it only in the Comment/Opposition to the Petition for Review (filed with the Court En Banc) deprives the petitioner of the opportunity to rebut said allegation. Further, not having raised this issue during trial in the Court in Division, respondent did not offer the Letter of Authority (LOA) nor the MOA as evidence during trial. (CIR v. Fort 1 Global City Center, Inc., CTA EB No. 2233, CTA Nos. 9490 & 9503, November 10, 2021) 

 

ISSUANCE OF FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) PRIOR TO 60-DAY PERIOD TO SUBMIT DOCUMENTS IN REQUEST FOR REINVESTIGATION IS A VIOLATION OF DUE PROCESS. A taxpayer, after filing a protest embodying a request for reinvestigation, is given 60 days within which to submit all relevant supporting documents. If BIR issues FDDA before the lapse of 60-day period or mere 30 days after the filing the protest, the taxpayer is precluded from its right to submit supporting documents, a violation of due process. (CIR v. Maxicare Healthcare Corporation, CTA EB No. 2325, CTA Case No. 9246 November 25, 2021)

 

• Under the rules, when the taxpayer denies receipt of the mail containing the assessment, it shifts the burden on the BIR to prove that the mail was actually received. Where the BIR failed to prove that the FAN/FLD was received by the taxpayer, that the document sent was indeed a FAN/FLD, and that the person who received the FAN/FLD is authorized representative of the taxpayer, the BIR failed to observe due process in the tax assessment. Therefore, the resulting assessment issued against the taxpayer is cancelled (10k South Concrete Mix Specialists, Inc. v. CIR, CTA Case No. 9730, November 18, 2021)

 

ASSESSMENT IS INVALID FOR FAILURE TO INDICATE THE DUE DATE. A Formal Letter of Demand and an assessment notice are indispensable in the assessment of a taxpayer. If the spaces for the due date in the assessment notices are left blank, the assessment is invalidated. The requirement to indicate a fixed and definite period or a date certain within which a taxpayer must pay the assessed deficiency tax liabilities is indispensable to the validity of the assessment. (CIR v. Philplans first, Inc., CTA EB No. 2351, CTA Case No. 9494, November 9, 2021)

 

BIR HAS THREE-YEAR PERIOD TO ASSESS; EXCEPTIONS (10-YEARS)

• BIR is given a period of three (3) years to assess internal revenue taxes, which is reckoned from the last day prescribed by law for the filing of the tax return or the actual date of filing thereof, whichever comes later. The assessment contemplated in the aforementioned provisions is the service of the FAN upon the taxpayer.
• In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten years.
•  If other than the respondent’s bare assertion that there were falsities in petitioner’s returns, there is no showing that there was intentional falsity on the part of petitioner when it filed its returns, the three (3)-year prescriptive period is applicable in this case.
•  Moreover, if there is no showing that BIR was prohibited from making an assessment; that taxpayer could not be located; or that taxpayer is out of the Philippines, and taxpayer could not have requested for a reinvestigation considering that taxpayer never received the FAN, the three (3)-year prescriptive period to assess petitioner was not suspended. (10k South Concrete Mix Specialists, Inc. v. CIR, CTA Case No. 9730, November 18, 2021)

 

Letter Notice is not a valid substitute in lieu of a Letter of Authority, even when it is issued by the CIR himself. In the absence of LOA, the assessment is deemed void. (CIR v. Ermilo Tan Ng Hua, CTA EB No. 2138, CTA Case No. 9292, November 11, 2021)

 

WAIVERS SHOWING THE EXECUTION AND EXPIRY DATE IS VALID AND EFFECTIVELY SUSPENDS THE PRESCRIPTIVE PERIOD.

• To extend the CIR’s right to assess and collect internal revenue taxes, waivers executed from April 4, 2016 onwards must strictly comply with RMO No. 14-2016.
• Under RMO No. 14-2016, there are two (2) material dates that need to be indicated on the Waiver, viz.: (i) the date of execution of the waiver by the taxpayer or its authorized representative; and, (ii) the expiry date of the period the taxpayer waives the statute of limitations. The aforesaid RMO further provides that the waiver need not specify the particular taxes to be assessed or the amount thereof, and may simply state “all internal revenue taxes”. In addition, the taxpayer is charged with the burden of ensuring that the waivers of statute of limitation are validly executed by its authorized representative.
• Thus, if the waiver is compliant with RMO No. 14- 2016, the suspension of the prescriptive period within which to issue the subject assessment legally took effect. (BAC-MAN Geothermal, Inc. v. CIR, CTA Case No. 9278, November 18, 2021)

 

DEFECTIVE WAIVER WILL NOT EXTEND THE PRESCRIPTIVE PERIOD UNLESS BOTH THE BIR AND TAXPAYER ARE AT FAULT. Internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, unless both the Commissioner and the taxpayer agree in writing to its assessment after such time. The general rule is that when a waiver does not comply with the requisites for its validity specified under RMO No. 20-90 and RDAO 05-01, it is invalid and ineffective to extend the prescriptive period to assess taxes extend the prescriptive period to assess taxes, unless it falls under pari delicto and estoppel. Where the taxpayer signed the seven (7) consecutive waivers, without presenting any notarized written authority to do so for each of the waivers, and BIR on the other hand, failed to demand the submission of such notarized written authority for the seven waivers that were executed, there is mutual failure on the part of both parties to fulfill their obligations renders them in pari delicto. Thus, the parties cannot be allowed to raise the defects in the waivers to their own benefit. Instead, the validity of the waivers shall be upheld consistent with the public policy embodied in the principle that taxes are the lifeblood of the government. (Medicard Philippines, Inc. v. CIR, CTA EB No. 2158, November 17, 2021)

 

FLD IN VERBATIM REPRODUCTION OF THE PAN RENDERS THE ASSESSMENT VOID.

• Section 228 of the NIRC of 1997, as amended, and RR No. 12-99, as amended, explicitly require that the taxpayer be informed in writing of the law and of the facts on which the assessment is made; otherwise, the assessment shall be void. The law mandates that the bases be reflected in the preliminary assessment notice, formal letter of demand, final assessment notice and final decision on the disputed assessment
• Where the FLD is a verbatim reproduction of the wordings of the PAN, differing only in the computation of the interest; neither did it also refer to the taxpayer’s Reply nor addressed its arguments therein; nor was it even accompanied with a computation sheet, for failure to inform the taxpayer of the reasons for apparent rejection of its arguments in the Reply, the BIR failed to observe the standards of due process, as hereafter discussed.
• Indeed, issuing the FLD which is an exact replica of the PAN, sans any indication in the FLD that due consideration was accorded on petitioner’s explanations or arguments as stated in its Reply to the PAN, is fatal to the BIR’s cause. The issuance of a PAN is an important part of due process. It gives both the taxpayer and the BIR the opportunity to settle the case at the earliest possible time without the need for the issuance of a final assessment notice. To be sure, procedural due process is not satisfied with the mere issuance of a PAN, sans any intention on the part of the BIR to actually consider the taxpayer’s reply thereon. (BAC-MAN Geothermal, Inc. v. CIR, CTA Case No. 9278, November 18, 2021)

 

NATURE OF PROTEST MUST BE INDICATED; OTHERWISE, ASSESSMENT BECOMES FINAL, EXECUTORY AND DEMANDABLE

• A tax assessment issued by the BIR may be protested administratively, within thirty (30) days from receipt thereof, by filing either a request for reconsideration or reinvestigation. The protest mut state the nature thereof (reconsideration or reinvestigation)
• Particularly, a distinction has been made between the two (2) types of protest, i.e., a request for reconsideration and a request for reinvestigation. Thus, the two types of protest can no longer be used interchangeably and their differences so lightly brushed aside.
  •  In Request for reconsideration, the plea for re-evaluation of the assessment is on the basis of existing records without need of additional evidence,
  •  In a Request for reinvestigation, such plea for re-evaluation is on the basis of newly discovered or additional evidence that the taxpayer intends to present in the reinvestigation.  The said sixty (60)-day period applies only to requests for reinvestigation.
• Where the taxpayer did not state the nature of the protest, the said letter cannot be considered a valid protest, hence, without force and effect. Thus, the tax assessment has become final, executory and demandable. (HR Mall, Inc. v. CIR, CTA Case No. 9981, November 12, 2021)

 

MISSION ORDER, WITHOUT A LETTER OF AUTHORITY, INVALIDATES THE TAX ASSESSMENT.

• Before an assessment can be made, the revenue officer conducting the examination of a taxpayer’s books of accounts and other accounting records must first be duly authorized to do so. The need for an LOA before revenue officers can pursue an audit of a taxpayer to assess and collect deficiency taxes therefore cannot be over-emphasized. For without such, deficiency tax assessments are instantly nullified.
•  A Mission Order which is issued for the purposes of validation, verification, and reconciliation of taxpayer’s importation documents, cannot replace a LOA. The revenue officers must be property authorized with a LOA. MO does not give authority to audit and examine taxpayer’s books for the purpose of issuing a deficiency tax assessment. (Diago Philippines, Inc. v CIR, CTA Case No. 9522, November 4, 2021)

 

THIRD-PARTY INFORMATION REQUIRES SWORN STATEMENT. Taxpayers with under-declaration of sales and/or purchases (domestic or imported) shall be notified of such findings of discrepancy through the issuance of LNs. The concerned Revenue Officer (RO) shall then evaluate the protest and require the same taxpayer to execute a Sworn Statement attesting to the alleged inaccuracies or errors in the Third-Party Information (TPI). The TPI provider shall also be required to execute a Sworn Statement attesting to the data provided. Failure to observe this, the assessment must be cancelled. (CIR v. Fort 1 Global City Center, Inc., CTA EB No. 2233, CTA Nos. 9490 & 9503, November 10, 2021)

 

AN “UNACCOUNTED EXPENSE” SHOULD NOT BE AUTOMATICALLY TREATED AS INCOME, TO WHICH INCOME TAX SHOULD BE IMPOSED. Income in tax law is an amount of money coming to a person within a specified time, whether as payment for services, interest, or profit from investment. It means cash or its equivalent. It is gain derived and severed from capital, from labor or from both combined. Income is profit or gain or the flow of wealth. The determining factor for the imposition of income tax is whether any gain or profit was derived from a transaction. It is apparent that in incurring expenses, no amount of money come to a taxpayer; instead, money is spent out by the latter. In other words, the said taxpayer does not derive any gain or profit from the transaction.

•  More importantly, it must be emphasized that 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. Thus, even when a taxpayer has not claimed expenses or declared a lesser amount thereof, in the Income Tax Return, such action is allowed, and shall not necessarily result in the imposition of income tax on the undeclared deduction or unaccounted expenses.  (CIR v. Fort 1 Global City Center, Inc., CTA EB No. 2233, CTA Nos. 9490 & 9503, November 10, 2021)

 

JURISDICTION OF THE DEPARTMENT OF JUSTICE AND CTA ON GOVERNMENT AGENCIES. Controversies between government agencies and offices are under the jurisdiction of the DOJ on issues arising from interpretation and application of statutes, contracts and agreement. The CTA has jurisdiction over inaction and decisions of the Commissioner of internal revenue in cases involving disputed assessment. (Department of Energy v. CIR, CTA EB No. 2241, CTA Case No. 10198, November 4, 2021)

 

EXCISE TAX IS COVERED BY TAX AMNESTY ON DELINQUENCIES. Once the accused has fully complied with the conditions under the law on tax amnesty and upon payment of the amnesty tax, the tax delinquency shall be considered settled and the criminal case and its corresponding civil or administrative cases shall be terminated. (People of the Philippines v. Jeric Maninang y Usua, CTA Crim Case N. O-785, November 12, 2021)

 

CONVICTION OF THE CORPORATION IS NECESSARY IN TAX EVASION CASES BEFORE CORPORATE OFFICERS SHALL BE CRIMINALLY LIABLE

The crime of tax evasion may be committed by any person (natural or juridical). In case of corporations, the penalty shall be imposed on the officers responsible for the violation.

•  In case of corporations, the taxes were due not from the officers but from the corporation itself. It is the corporation that has the obligation to declare and pay the tax but the officers have the physical duty of filing the return. Stated otherwise, the obligation of the officers is derivative of the corporation’s obligation.
•  The conviction of the corporation is necessary and indispensable before penalty is imposable upon the corporate officers. Relatedly, before the corporation can be convicted, it should be charged first in the information, as one can only be considered an accused after it has been formally charged with a crime.
•  If the prosecution failed to indict the corporation, the corporate officers cannot be convicted. (Enviroaire, Inv. v. People of the Philippines, CTA EB Crim No.  073, CTA Crim Case No. O-408, November 25, 2021)

 

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CLARIFYING THE TAXABILITY OF ELECTRONIC SABONG (e-SABONG) OPERATIONS AS REGULATED BY THE PHILIPPINES AMUSEMENT AND GAMING CORPORATION (PAGCOR) (Revenue Memorandum Circular No. 25-2022, March 11, 2022)

• Electronic Sabong or  e-Sabong is the online and/or remote or offsite wagering/betting  on live cockfighting matches, events and/or activities streamed or broadcasted live from cockpit arena/s licensed or authorized by the LGU.
• The Supreme Court held that like PAGCOR, its contractors and licensees remain exempted from payment of corporate income tax and other taxes except from 5% franchise tax on their income from gaming operations. However, the ruling is in CIR v. Acesite (Philippines) Hotel Corporation and CIR v. Thunderbird Pilipinas Hotel & Resorts Inc., which held that PAGCOR is also exempted from indirect tax like VAT. However, the tax exemption on VAT only extends to those individuals or entities who have contracted with PAGCOR (PAGCOR contractees not licensees)

Taxability of e-Sabong Operations

• E-Sabong Operator’s lncome
  • lncome from e-Sabong Operation refers to the Gaming income and/or Service income generated from activities authorized under the e-sabong license issued by PAGCOR, including but not limited to those derived from the plasada.
    • Gaming Income from e-Sabong Operation by the e-Sabong Operator shall be subject to 5% franchise tax in lieu of all internal revenue taxes except for VAT and Percentage Tax, depending on the threshold, and shall be directly remitted to BIR. Also, the franchise tax is separate and distinct from the licensing and regulatory fees payable to PAGCOR.
    • In the event that the e-Sabong Operator has contracted PAGCOR for the provisions of goods and services in connection with PAGCOR’s gaming operation, then such shall be subject to VAT at zero rate.
    • Service Income from e-Sabong by an e-Sabong Operator shall be subject to regular income tax, VAT or percentage tax, withholding tax and other taxes, as may be deemed appropriate. The 5% franchise tax in lieu of all internal revenue taxes shall not apply.
  • Other Income from e-Sabong Operation refers to all income or earnings realized by the e-Sabong Operator from all other activities (i.e., advertisements, promotions, etc.) whose authorization does not derive from the e-Sabong license issued by PAGCOR.
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate. The 5% franchise tax in lieu of all internal revenue taxes shall not apply.
  • Agent’s Commission – the Commission income received by an authorized Third-Party Master Agent/Agent, which is usually computed as a percentage of the bets from e-sabong players registered under his/her account.
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit the corresponding creditable withholding taxes due (5%/10% for Individual, 5%/10% for non-individual) for the account of Agent/Master Agent
  • Promoter/Coordinator’s Commission – the Commission income received by a Third-Party e-sabong Promoter/Coordinator for services rendered to the e-Sabong Operator.
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit the corresponding creditable withholding taxes due (5%/10% for Individual, 5%/10% for non-individual) for the account of the Promoter/Coordinator
  • Cockpit Owner/Operator’s income from e-sabong Operation – the revenue accruing to the Third-Party Cockpit Owner/Operator for the use of the cockpit arenas/venues in holding cockfights for e-sabong duly licensed by the Local Government Units (LGUs) and registered with PAGCOR.
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit the corresponding creditable withholding taxes due (5%/10% for Individual, 5%/10% for non-individual)
  • GameCock Owner’s income from e-Sabong Operation the revenue accruing to a Third-Party Gamefowl breeder who supplies the gamecocks utilized in the cockfights under the e-Sabong platform/system
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit the corresponding creditable withholding taxes due (5%/10% for Individual, 5%/10% for non-individual)
  • Duly Licensed Third-Party Betting Station Host income from e-sabong Operation the revenue accruing to the Third-Party OCBS Host duly licensed by PAGCOR for setting up a betting station who shall source live stream of cockfights from an e-sabong Operator
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit 2% creditable withholding taxes for the account of the Third Party OCBS Host.
  • lncomereceived by a Third-Party Gamecock Owner from the e-sabong Operator in relation to the e-Sabong operation shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit 2% creditable withholding taxes for the account of the Third Party Game Cock Owner
  • Other income derived or received by any person/s or entity/ies in relation to the operation/s of e-sabong not included in the above-mentioned enumeration shall be subject to appropriate taxes, including but not limited to final withholding taxes and the like.