BIR DEADLINES from JULY 25 to July 31.

A gentle reminder on the following deadlines, as may be applicable:

BIR CIRCULARIZES THE LIST OF EXPIRED TAX CREDIT CERTIFICATES. (RMC No. 70-2020, July 17, 2020). For your easy reference, the list of expired tax credit certificates may be accessed HERE.

 BIR CLARIFIES THE ISSUANCE OF THE  AUTHORITY TO RELEASE IMPORTED GOODS (“ATRIG”) FOR VAT EXEMPTION ON THE SALE AND IMPORTATION OF PRESCRIPTION DRUGS AND MEDICINES. It provides:

• The following drugs are exempted from VAT:
  • Diabetes, high cholesterol and hypertension – beginning January 27, 2020
  • Cancer, mental illness, tuberculosis and kidney diseases – beginning January 1, 2023
• For VAT purposes, the ATRIG shall be issued on all importations of articles exempt from VAT.
• Revenue District Office No. 33 – Intramuros-Ermita-Malate shall process application for ATRIG by the manufacturers, distributors, wholesalers and retailers of drugs and medicines included in the “list of approved drugs and medicines” issued by the Department of Health.
• The policies, guidelines and procedures set forth in RMO No. 35-2002 shall be strictly followed and observed (RMO No. 23-2020 dated July 15, 2020). For your easy reference, the issuance may be accessed 

BIR STREAMLINES HANDLING OF CITIZEN’S COMPLAINTS. The BIR prescribes the policies, guidelines and procedures in the handling/resolution of complaints received through the 8888 Citizens’ Complaints Center, Presidential Complaint Center, BIR eComplaint System, Contact Center ng Bayan, Anti-Red Tape Authority and other Feedback Mechanisms.

• It classifies the type of complaints, the concerned offices and the monitoring offices.
• The type of complaints includes system and non-system related problems, tax evasion, non-issuance of receipts/invoice, misdemeanor/discourtesy of BIR personnel, corruption and other personnel-rated issues, among others.
• The Public Information and Education Division (“PIED”) shall be the initial recipient of the BIR-related complaints and concerns transmitted to the BIR. It shall classify the complaint and endorse the same to the concerned office for further action (RMO No. 22-2020, June 25, 2020). For your easy reference, the guidelines may be accessed 

SUPREME COURT/Court of Tax Appeals Decisions

ACCUSED ACQUITTED OF TAX EVASION: THE CTA LACKS JURISDICTION OVER THE CRIMINAL CASE FOR FAILURE TO ALLEGE THAT THE PRINCIPAL AMOUNT OF UNPAID TAX IS AT LEAST PHP 1 MILLION; TO SUSTAIN CRIMINAL CONVICTION, FAILURE TO PAY TAX MUST BE ATTENDED WITH WILLFULNESS; LETTER OF AUTHORITY MUST BE PRESENTED TO THE TAXPAYER WITHIN 30 DAYS FROM THE DATE OF ISSUE.

• The accused was acquitted for lack of CTA’s jurisdiction.
  • The law provides that the CTA has jurisdiction over criminal offenses arising from violation of tax and customs law provided that the principal amount of taxes and fees, exclusive of charges and penalties, claimed is at least Php 1 Million; otherwise, if the amount of tax is less than Php 1 Million or no specified amount is claimed, the regular courts shall have jurisdiction over the case.
  • In this case, the information alleged that the accused failed to pay tax in the amount of Php3.8Million, however, the amount is too ambiguous to qualify it as referring to the “principal amount of taxes and fees, exclusive of charges and penalties.”
  • The information did not state that the amount refers to the basic or principal amount of tax liabilities, exclusive of charges and penalties.
  • The allegation is the basis in determining jurisdiction of the court and evidence could not cure the defect in the information. If the information fails to allege matters that specifically vest jurisdiction on the court, the court has no jurisdiction to hear and decide on the case.
• One of the elements of tax evasion is the willfulness character of the taxpayer’s failure to pay.
  • A willful act or omission is described as one done intentionally, knowingly and purposely, without justifiable excuse. It is also shown by circumstantial evidence. Willfulness was not proved as the taxpayer did not receive the BIR notices in the first place/
• Examination of the taxpayer is undertaken through a letter of authority (LOA). A LOA must be presented to the taxpayer within 30 days from the date of issue, otherwise, it is void.
  • In this case, the CTA ruled that it cannot be concluded that the accused received the LOA because it was not proved that the person who received the LOA  is an authorized representative of the Company.
  • Further, the CTA did not accept the prosecution’s evidence of constructive receipt when the staff refused to accept the LOA even though the BIR tried several times. It held that the constructed receipt must be attested to, witnessed and signed by at least 2 BIR officers other than the BIR officer who allegedly constructively served the LOA.
  • The prosecution must prove that the accused received the assessment notices. Failure to do so will render the assessment notices void, hence, the accused has no obligation to pay the tax liabilities. Also, when a taxpayer denies receipt of the BIR notices, the BIR has the burden to prove that the notices were received. In this case, the BIR notices were sent via registered mail as evidenced by the transmittal letters and registry receipts. However, these only prove the fact of mailing but not necessarily fact of actual receipt. Registry return cards must be offered in evidence to show that the accused actually received the notices. Lastly, the fact that lack of return to sender card does not necessarily prove actual receipt. (People of the Philippines, v Robigie Corporation Grace G. Sucksuphan, CTA Crim. Case No. O-639, June 17, 2020)

PHP 4 MILLION TAX ASSESSMENT CANCELLED:  REQUEST TO PAY TAX IS NOT CONSIDERED A DEMAND; A STATEMENT THAT TAX WILL BE ADJUSTED IF PAID AFTER A CERTAIN DATE RENDERS THE TAX LIABILITY INDEFINITE.

• The CTA cancelled the assessment due to lack of demand and definiteness of the tax liability.
  • An assessment must contain a demand for payment. To demand means “to require a person to do” and is also defined as “the assertion of a legal right”. A request is not considered a demand.
  • In this case, the assessment states that the taxpayer is “requested to pay for your deficiency value-added.” Such phrasenegates the imperative nature of the requirement to pay as it gives the taxpayer the option not to pay if it is not amenable to the assessment.
• The tax liability in the assessment must be definite. If it states that “the interest and the total amount due will have to be adjusted if paid beyond October 31, 2016,” the liability remains indefinite, as the assessment is still subject to modification or adjustment depending on the date of payment of the taxpayer.
• Hence the assessment is void (Clark Water Corporation v. CIR, CTA Case No. 9519, June 17, 2020).

PHP 58 MILLION INPUT VAT REFUND PARTIALLY GRANTED; SUBSTANTIATION REQUIREMENTS MUST BE STRICTLY COMPLIED WITH.

• The CTA granted PHP 10Million out of PHP 58 Million input VAT arising from zero-rated sales. Among others, it ruled:
  • Sale to PEZA-registered entities are subject to zero-rated VAT because PEZA-registered entities are VAT-exempt as they are considered foreign territory.
  • The official receipt must indicate that the sales were zero-rated. The term “zero-rated” shall be written or printed prominently on the official receipt. Otherwise, the sale shall not be treated as zero-rated sales and the claimed input VAT corresponding for the same quarter of the sales should be denied outright. Only the input VAT for the quarter attributable to valid zero-rated sales may be the proper subject of refund.
  • Certificate of Inward remittance is not required for zero-rated sales to ECOZONES.
  • Some Input VAT were also denied for failure to comply with substantiation requirements such as incomplete date, receipt does not bear the TIN of the taxpayer and the amount of input VAT is not separately indicated, among others. (S&WOO Construction Philippines, Inc. v. CIR, CTA Case No. 9533, June 24, 2020)

PHP 50 MILLION REFUND OF INTEREST AND SURCHARGE GRANTED FOR RELYING IN GOOD FAITH ON PREVIOUS RULES AND HONEST BELIEF THAT THE TAXPAYER IS NOT SUBJECT TO DOCUMENTARY STAMP TAX; COMPROMISE PENALTY CANNOT BE IMPOSED UNLESS MUTUALLY AGREED UPON BY THE BIR AND THE TAXPAYER.

The CTA En Banc affirmed the decision of the CTA Division to refund the taxpayer’s interest, surcharge and compromise penalty.

• In 2011, the Supreme Court rendered a decision in FilinvestCase that instructional letter and journal and cash vouchers evidencing advances qualified as loan agreements on which DST may be imposed.
• The BIR also issued RMC No. 48-2011 in the same year to circularize the decision in Filinvest Case.
• In 2014, the BIR assessed the taxpayer for DST, among other taxes, for the taxable year of 2011.
• The taxpayer paid the DST to stop the running of interest and with a view of filing a claim of refund.
• The CTA ruled that the DST cannot be refunded for the DST for the following reasons:
  • The Filinvest Case and RMC 48-2011 may be retroactively applied because it merely interprets an existing rule. It may be applied prospectively if the old doctrine is overruled by a subsequent decision adopting a new doctrine. Thus the interpretation in Filinvest Case is deemed constituted as part of the law
  • The DST was properly imposed. The DST is actually an excise tax because it is imposed on the transaction rather than on the document. It may be imposed even no formal documents or formal promissory notes are executed. Thus, it may be imposed on advances on the basis of the taxpayer’s Notes to Financial Statements.
  • The DST assessment was not prescribed because the taxpayer did not file a return. In case of failure to file a return, the tax may be assessed at any time within 10 years after the discovery of the omission.
• But the taxpayer may be refunded for the interest and surcharge for relying on previous rulings and decisions which states that inter-company loans and advances covered by inter-office memoranda are not subject to  DST.
  • Good faith and honest belief that the taxpayer is not subject to tax on the basis of previous interpretations of the BIR are sufficient justification to delete the imposition of surcharge and interest. The taxpayer’s reliance on the previous rulings and decisions justifies the non-imposition of surcharges and interest.
• The taxpayer was also refunded the compromise penalty it paid. Compromise penalty must be mutual as well. If the payment was made under protest, it means that there was no agreement that had effectively been reachedbetween the parties. (San Miguel Holdings Corp. v. CIR, CTA EB No. 1935, CTA Case No. 9401; CIR v. San Miguel Holdings, CTA EB No. 1941, CTA Case No. 9401, June 25, 2020)

PHP 25 MILLION TAX ASSESSMENT CANCELLED: MEMORANDUM REFERRAL RE-ASSIGNING THE AUDIT TO ANOTHER  EXAMINER IS EQUIVALENT TO LETTER OF AUTHORITY BUT MUST BE SIGNED BY THE REVENUE REGIONAL DIRECTOR.

• The CTA cancelled the Php25 Million tax assessment for failure of the Revenue Regional Director (“RRD”) to sign the Memorandum Referral.
• Under the rules, the Commissioner of Internal Revenue (“CIR”) has the power to authorize the examination of the taxpayer. The CIR’spower may be delegated by him. The issuance of a LOA is one of the delegable powers.
• Issuing a LOA is a delegable power which the CIR may devolve to the Revenue Regional Director (RRD).
• A LOA is a contract of agency, where the CIR is the principal and the RRD is the agent.
• The RRD may appoint a sub-agent applying the Civil Code provision. The power to appoint a sub-agent includes the power to revoke and transfer or re-assign the authority. Memorandum Referrals which transfer the authority to audit the taxpayer’s books is equivalent to a Letter of Authority.
  • The law only requires that the grant of authority be in writing.
  • The document may not be entitled a LOA but it contains all the necessary elements to establish a contract of agency between the CIR and the new revenue officer. The intent of the parties should determine the contract.
• In this case, the LOA was issued by the HeadRevenue Executive Assistant. Later, the OIC-Chief of the LT Regular Audit Division 1 issued. Memorandum Referral referring the docket to another examiner to continue the audit. The subsequent examiners also recommended the audit.
  • The subsequent examiners may be deemed authorized to audit without the need of a new LOA but only if the Memorandum Referrals were signed by the RRD.
• Thus, the assessment was cancelled because the Memorandum Referrals were signed by OIC-Chief of the LT Regular Audit Division 1 and not by the RRD (Nyk-Filjapan Shipping Corp v. CIR, CTA Case No. 9120, June 25, 2020)

PHP 10.9 MILLION INPUT VAT REFUND DENIED FOR FAILURE TO SUBMIT PROOF THAT THE FOREIGN CLIENTS ARE NOT DOING BUSINESS IN THE PHILIPPINES, THAT THE SERVICES WERE PERFORMED IN THE PHILIPPINES AND THAT THE SERVICES WERE PAID IN ACCEPTABLE FOREIGN CURRENCY.

• The CTA denied the taxpayer’s refund of input VAT in the amount of P10.9M for the following reasons:
  • The taxpayer failed to submit the SEC Certificate of Non-registration of the foreign clients to prove that they are not doing business in the Philippines.
  • The Service Agreement submitted indicates that the taxpayer is not one of the parties.
  • There was no evidence to prove that the services are performed in the Philippines.
  • The taxpayer did not submit proof that the services were paid in acceptable foreign currency in the form of Certificate of Inward Remittance (SC Johnson Philippines, ROHQ v. CIR, CTA Case No. 9602, June 25, 2020).

PHP 9 MILLION TAX ASSESSMENT CANCELLED FOR BIR’S FAILURE TO REVALIDATE THE LETTER OF AUTHORITY AFTER 120 DAYS FROM ITS ISSUANCE.

• Under the rules, an examiner has 120 days from the date of the issuance of the LOA to conduct his audit and submit the result of his investigation. If the report is not completed before the lapse of the 120-day period, the revenue officer shall return the LOA for revalidation. The revalidation is done by issuinga new LOA.
• In this case, the examiner submitted the memorandum report a month after the 120-day Instead of continuing the audit beyond the 120-day, the examiner should have just submitted a progress report and surrendered the LOA for revalidation, that is, for the issuance of a new LOA, which is lacking in this case. Since there is no revalidated LOA before the expiration of the 120-day period, the existing LOA is invalid and the resulting assessment is void (Tektite Insurance Brokers, Inc. v. CIR, 9184, June 25, 2020)

PHP 32 MILLION INPUT VAT REFUND DENIED FOR FAILURE TO SUBMIT PROOF OF PAYMENT OF GOODS.

• The court denied the taxpayer’s refund of input VAT from its zero-rated sales.
• To prove VAT zero-rated direct export sales, the following documents must be presented, among other requirements:
  • Sales invoice as proof of sale of goods;
  • Export declaration and bill of lading or airway bill as proof of  actual shipment of goods from the Philippines to a foreign country;
  • Bank credit advice, certificate of inward remittance or any other document proving payment of goods in acceptable foreign currency or its equivalent in goods and services.
• The refund was denied because the taxpayer failed to submit proof of payment of the goods (Carmen Copper Corporation v. CIR, CTA Case No. 9543, June 25, 2020).

PHP 3 MILLION ENVIRONMENTAL TAX UPHELD; THE CTA HAS JURISDICTION OVER CASES INVOLVING LOCAL TAXES; ENVIRONMENTAL TAX IS NOT A LOCAL TAX BUT A MERE REGULATORY FEE.

• The Court denied the taxpayer’s petition to cancel the Php3 Million environmental tax imposed by the Davao City Treasurer for lack of jurisdiction.
• The Court ruled that it has jurisdiction to rule on local tax cases on appeal, but the environmental tax is not a local tax but a mere regulatory fee. The said fee is used to implement the Watershed Code, particularly for the watershed protection, conservation and management programs and projects. If regulation is a primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax.(DOLE Philippines, Inc. – Stanfilco Division v. City of Davao, CTA AC No. 215, June 25, 2020)

ACCUSED ACQUITTED OF TAX EVASION; INCREASE IN ASSET IS NOT NECESSARILY CONSIDERED INCOME; AMENDMENT OF THE TAX RETURN BEFORE THE ISSUANCE OF LOA NEGATES THE WILLFULNESS ELEMENT OF THE TAX EVASION.

• The court acquitted the accused of tax evasion case for lack of evidence that he committed the crime and for reasonable doubt.
• In this case, there was a significant increase in assetsfrom P3.6M to P87M and liability from P1.9M to P84M. The taxpayer later amended its tax return to omit such declaration. The taxpayer argued that the increase in the asset was not sourced from the business revenues but through bank loans. While the taxpayer failed to prove the loans, the BIR, upon cross-examination during the trial, admitted that the increase is a loan.
• Further, the court ruled that in tax evasion cases, willfulness is one of the elements. The fact of amendment of the return prior to the LOA (audit) or filing of the criminal charges belies the element of willfulness. The accused filed the amended ITR a few months before the BIR issues the LOA.

Since the accused is not criminally liable, he is also not civilly liable from the tax evasion case. However, he is not relieved of his tax obligations pursuant to any pending tax assessment (People of the Philippines v.  Joselito Yap, CTA Crim Case No. O-668 and O-669, June 29, 2020).