COURT OF TAX APPEALS DECISIONS
ASSESSMENT IS VOID IF EXAMINER WHO RECOMMENDED THE ISSUANCE OF THE FLD/FAN IS NOT NAMED IN THE LOA. A Revenue Officer (RO) may examine a taxpayer’s books of accounts and recommend deficiency assessments only when duly authorized through a valid Letter of Authority (LOA) issued by the Commissioner of Internal Revenue (CIR) or his duly authorized representative; without such LOA, the conduct of audit or examination is void. In this case, records and testimony established that one of the ROs, who was not included in the electronic LOA (eLOA), actively participated in the audit process, including reviewing the docket, examining the memorandum report and supporting documents, and re-evaluating the case after the Preliminary Assessment Notice (PAN) stage to support the issuance of the Formal Letter of Demand/Final Assessment Notice (FLD/FAN). She admitted that the case was referred to her for “initial review” before the FLD was issued, and she worked on the audit report and recommendations despite lacking authority under any LOA. In addition, the Group Supervisor (GS), also not named in the eLOA, participated in preparing the memorandum recommending issuance of the PAN, thereby effectively engaging in audit functions reserved exclusively for authorized officers. The Court rejected the BIR’s characterization that these officers merely “reviewed” the case, finding instead that their actions constituted substantive audit participation, which is legally impermissible without a valid LOA. Accordingly, the entire assessment is void. (Pampanga III Electric Cooperative, Inc. v. CIR, CTA Case No. 10999, February 3, 2026)
SUBSTITUTION OF GS WITHOUT LOA AT THE REINVESTIGATION STAGE WHILE RETAINING THE ORIGINAL RO WILL NOT INVALIDATE THE ASSESSMENT. The issuance of a valid LOA prior to the conduct of a tax audit is a mandatory requirement of due process and has been consistently emphasized by the Supreme Court where it held that an assessment is void if conducted by revenue officers who are not properly authorized under a valid LOA, as memoranda of assignment or internal issuances cannot substitute for authority granted by the CIR or his duly authorized representative. In this case, the LOA expressly authorized certain examiners (RO and GS) to examine the taxpayer’s books of accounts and other records and while a subsequent Memorandum of Assignment (MOA) resulted in the substitution of a GS during the reinvestigation stage, while the RO who was originally and validly named in the LOA remained continuously authorized and participated in the audit. The Court further noted that the new GS participation was anchored on the reassignment for reinvestigation and did not involve a complete replacement of all originally authorized revenue officers. Thus, since at least one revenue officer duly named in the LOA continued to conduct and participate in the audit, the examination was not void. [Telstra International (AUS) Limited ROHQ, v. CIR, CTA Case No. 10655, February 12, 2026]
MULTIPLE SUCCESSIVE LOA ISSUED DUE TO BIR PERSONNEL CHANGES DOES NOT VIOLATE “ONE LOA PER TAXABLE YEAR” RULE. Only ROs specifically authorized under a valid LOA may examine a taxpayer’s books of accounts, and while the “one LOA per taxable year” rule generally limits the issuance of multiple LOAs for the same tax type and period, jurisprudence recognizes that the issuance of a new or replacement LOA for the same taxable period is valid when necessitated by reassignment, transfer, promotion, retirement, or inability of previously assigned ROs to continue the investigation, provided the taxpayer is properly informed of the officers authorized to conduct the audit. In this case, the Court found that each successive LOA was validly issued as a consequence of personnel changes within the BIR, specifically the promotion and reassignment of previously authorized GS and examiners, with the replacement LOAs issued precisely to reflect these changes and ensure compliance with due process requirements. The evidence further showed that the taxpayer was informed each time of the identities of the new authorized revenue officers, and the subsequent replacement LOAs were intended not to create unauthorized overlapping authority but to continue the audit process in accordance with BIR rules governing reassignment of cases. Since the successive LOAs were issued for legitimate administrative reasons and served the purpose of keeping the taxpayer informed of the officers legally authorized to conduct the audit, the Court held that there was no violation of due process and that the audit investigation and resulting assessment were undertaken pursuant to valid LOAs. (Set and Stage Resource Management, Inc. v. CIR, CTA Case No. 10703, February 13, 2026)
3-YEAR PRESCRIPTIVE PERIOD WAS EXTENDED BY 420 DAYS DURING COVID-19 PANDEMIC. The BIR generally has 3 years from the date prescribed by law for filing the return, or from the actual filing date if filed late, within which to assess internal revenue taxes; however, the running of this prescriptive period is suspended when the CIR is legally prohibited from making an assessment, including periods recognized by law during national emergencies. In this case, although the taxpayer argued that the deficiency tax assessments had prescribed because there was allegedly no valid waiver extending the assessment period, the Court rejected this contention and held that the assessments were timely issued. The Court found that while the original prescriptive periods for income tax and VAT for taxable year 2017 would have ordinarily lapsed in 2021, the running of the statute of limitations was automatically suspended by operation of law, which excluded periods when the National Capital Region was under ECQ and MECQ during the COVID-19 pandemic. After excluding a total of 420 days from the computation of prescription, the Court held that the issuance of the FLD/FAN remained well within the extended assessment period, rendering the taxpayer’s challenge based on the alleged invalidity of waivers immaterial since the extension arose by operation of law and not by contractual waiver. (Ford Group Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10728, November 20, 2025)
A TAXPAYER CANNOT INVOKE NON-RECEIPT OF THE PAN WHERE THE SAME REPRESENTATIVE CONSISTENTLY RECEIVED THE LOA AND FLD/FAN AND PARTICIPATED IN THE ASSESSMENT PROCEEDINGS BY SUBMITTING SUPPORTING DOCUMENTS AND FILING A PROTEST. Due process in tax assessments requires that the taxpayer be properly served with a PAN and where personal service is not practicable, substituted service is valid if the notice is left at the taxpayer’s registered or known address with a clerk or person in charge. When a taxpayer denies receipt of an assessment, the burden shifts to the BIR to prove valid service by competent evidence. Applying these principles, the Court found that the BIR sufficiently established valid substituted service of the PAN through Ngo, who regularly received the taxpayer’s tax notices. The records showed that the taxpayer had previously stipulated in the Joint Stipulation of Facts the issuance of the first LOA, FLD/FAN and second LOA, all of which were similarly received by Ngo as evidenced by handwritten acknowledgments and signatures appearing on the notices. The taxpayer likewise acted upon these notices by submitting documents requested under the first LOA, filing a protest against the FLD/FAN, and acknowledging the second LOA in the petition, thereby demonstrating actual receipt through the same representative. The Court also noted the taxpayer’s inconsistent position in challenging Ngo’s authority only with respect to the PAN despite not disputing Ngo’s receipt of all prior BIR notices, and a comparison of signatures on the PAN and other notices showed clear similarity, further confirming authenticity. Consequently, the Court held that the taxpayer duly received the PAN through valid substituted service, and the BIR sufficiently discharged its burden of proving proper service. (Judy Bautista Lee v. Commissioner of Internal Revenue, CTA Case No. 10973, November 18, 2025)
FAILURE TO PROTEST THE FLD/FAN WITHIN 30 DAYS RENDERS THE ASSESSMENT FINAL AND ENFORCEABLE. A taxpayer must file a valid administrative protest against an FLD/FAN within 30 days from receipt thereof; otherwise, the assessment becomes final, executory, and demandable, and the taxpayer is thereafter barred from disputing its validity or raising defenses against the assessment. In this case, the records clearly established, and the taxpayer expressly admitted, receipt of the FLD/FAN but failed to file any timely and valid protest within the mandatory 30-day period, thereby causing the assessments to attain finality and become legally enforceable, precluding the taxpayer from later contesting the validity of the underlying assessment or questioning subsequent collection measures. Although the taxpayer attempted to invalidate the assessment by claiming non-receipt of the PAN, the Court found this argument unavailing because the BIR presented competent evidence proving valid service, including the receiving copies of the PAN signed by the taxpayer’s bookkeeper. Significantly, the same bookkeeper had likewise received the LOA, Notice of Informal Conference (NIC), FLD, FAN, and Warrant of Distraint and/or Levy (WDL) on behalf of the taxpayer without prior objection as to her authority, thereby estopping the taxpayer from subsequently denying receipt of the PAN or questioning her authority to receive official BIR notices. Since the taxpayer failed to timely dispute the FLD/FAN and the Court found no merit in its denial of receipt of the PAN, the assessments were held final, executory, and demandable, validating the BIR’s collection actions (Xytrix Systems Corporation v. CIR, CTA Case No. 11021, February 13, 2026)
(1) DEMAND TO PAY “30 DAYS FROM RECEIPT” OF FLD/FAN AND (2) STATEMENT INTEREST WILL BE ADJUSTED IF PAYMENT IS MADE BEYOND THE SPECIFIC PERIOD DO NOT MAKE THE AMOUNT AND DUE DATE INDEFINITE. A valid tax assessment must constitute a written notice and demand for payment containing a definite amount of tax liability and a definite due date. In this case, the Court held that the assessments sufficiently complied with legal requirements because, while the FLD noted that interest may be adjusted if payment is made beyond the specified date, the Assessment Notices clearly indicated that payment was due “30 days from receipt,” which is a determinable and definite period, thereby constituting a valid and enforceable demand for payment. The Court further explained that the reference to interest adjustment does not render the assessment indefinite, as it merely reflects the statutory rule that interest continues to accrue until full payment of the tax. Accordingly, the FLD/FAN were upheld as valid assessments containing a definite amount and due date (Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, CTA Case No. 10344, February 6, 2026; see also Judy Bautista Lee v. Commissioner of Internal Revenue, CTA Case No. 10973, November 18, 2025)
ASSESSMENT BASED ON UNVERIFIED TPI IS VOID. A deficiency tax assessment must be founded on actual, verified facts supported by credible evidence, and not merely on unconfirmed Third-Party Information (TPI). When the BIR relies on TPI generated through computerized matching of taxpayers’ declarations, the investigating revenue officer is required to verify the discrepancies by issuing confirmation requests to the third-party sources, securing sworn statements attesting to the veracity of the reported data, and, when the sources are outside the investigating office’s jurisdiction, proving service through registered return cards. In the present case, the BIR assessed the taxpayer for alleged undeclared sales after relying on computerized matching between the taxpayer’s VAT declarations and purchase declarations allegedly made by third parties. However, despite issuing several confirmation requests, the BIR failed to obtain the required sworn statements from the supposed third-party sources, produced only a single reply that did not contain the mandatory sworn attestation, failed to identify which source provided the response, and did not present registered return cards for multiple third-party sources located outside the jurisdiction of the investigating office. The records therefore failed to establish that the discrepancies reflected in the computerized matching data were ever independently verified in accordance with mandatory BIR procedures. The Court thus ruled that the assessment lacked factual and legal basis, that the BIR failed to comply with its own regulations governing TPI verification, and that the resulting deficiency income tax and VAT assessments, together with the corresponding WDL, were void and unenforceable for want of credible evidentiary support. (Judy Bautista Lee v. Commissioner of Internal Revenue, CTA Case No. 10973, November 18, 2025 see also Set and Stage Resource Management, Inc. v. CIR, CTA Case No. 10703, February 13, 2026)
BIR CANNOT LEGALLY ISSUE WDL WITHOUT FDDA; CTA CANNOT RULE ON THE MERITS OF THE ASSESSMENT. Taxpayers must be informed in writing of the facts and law on which an assessment is based, and they are afforded the right to protest and await a final decision by the CIR before resorting to judicial remedies; absent such final decision, issuances made in the course of collection do not constitute appealable determinations. The Court ruled that the WDL was issued prematurely because the taxpayer’s protest remained unresolved and no Final Decision on Disputed Assessment (FDDA) or final action had been issued, meaning there was no established tax delinquency that could justify summary collection remedies like WDL. The Court emphasized that collection mechanisms may only be enforced once a tax liability becomes final, executory, and demandable, and that issuing a WDL on the basis of a non-final assessment violates due process. Accordingly, the WDL was declared void for being prematurely issued and for lacking a valid basis, although the Court clarified that it had no jurisdiction to rule on the merits of the underlying assessment itself (Everwing Profem Corporation v. CIR, CTA Case No. 11082, February 10, 2026)
FDDA SERVED VIA SUBSTITUTED SERVICE WITHOUR PROVING PERSONAL SERVICE IS IMPRACTICABLE IS VOID; BUT VOID FDDA WILL NOT AFFECT VAILIDTY OF THE FLD/FAN. The BIR regulations require strict compliance with the modes and procedure for service of assessment notices, including personal service at the taxpayer’s registered or known address and, only when such is not practicable, valid substituted service supported by proof of non-presence, participation of a barangay official and two disinterested witnesses, and the submission of a sworn report of service; failure to comply with these requirements renders substituted service void for violation of due process. In this case, the taxpayer’s FDDA was served by substituted service allegedly after a failed attempt at its old registered address and left with the barangay official; however, the taxpayer had already duly updated its registered address as evidenced by BIR Form Nos. 1905 and 2303, and the BIR failed to prove that personal service was impracticable or that the taxpayer was not present at its updated address, as well as failed to present the serving revenue officer, barangay official, or disinterested witnesses, or the required sworn Report on Personal/Substituted Service, thereby rendering the substituted service improper and the FDDA void. Nonetheless, consistent with jurisprudence, a void FDDA does not automatically invalidate the underlying assessment, as the assessment and the decision on a disputed assessment are distinct, and the former may remain valid and enforceable despite defects in the latter (3D Networks Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10981, February 11, 2026)
REGIONAL DIRECTORS ARE ALLOWED TO SIGN WDL; RDAO DOES NOT REQUIRE PUBLICATION. The BIR may enforce collection of delinquent taxes through summary administrative remedies, including distraint and levy, provided such collection action is exercised by revenue officials properly authorized by the CIR, whose authority may be delegated through valid internal issuances such as Revenue Delegation Authority Orders (RDAO), with internal delegations becoming immediately effective even without publication. In this case, the taxpayer challenged the validity of the WDL solely on the ground that it was signed by the Regional Director instead of the Revenue District Officer, allegedly contrary to prior delegation rules. The Court rejected this argument, finding that when the WDL was issued and received in 2022, a new RDAO had already taken effect and expressly delegated authority to Regional Directors to sign and approve WDL involving Regional Office cases. Since RDAO of 2022 constituted a valid internal delegation of authority by the CIR and did not require publication to become effective, the Regional Director was fully authorized to issue the WDL. (Xytrix Systems Corporation v. CIR, CTA Case No. 11021, February 13, 2026)
ELECTRIC COOPERATIVES REGISTERED WITH THE NEA ENJOY A PERMANENT INCOME TAX EXEMPTION DESPITE NON REGISTRATION WITH CDA. This exemption remains effective despite subsequent issuances withdrawing fiscal incentives, because later laws and interpretations are construed as maintaining or reinstating such tax privileges for National Electrification Administration (NEA)-registered electric cooperatives. In this case, the taxpayer, an electric cooperative duly registered with the NEA, is deemed to fall squarely within the scope of the permanent income tax exemption, regardless of its non-registration with the CDA, following established rulings that NEA registration alone suffices to retain tax-exempt status and that conflicting issuances cannot override the statutory exemption granted to electric cooperatives. Accordingly, the Court held that the taxpayer cannot be subjected to income tax liability, rendering the deficiency income tax assessment, including the NIC, PAN, FLD/FAN, and related issuances, void for lack of legal basis (Pampanga III Electric Cooperative, Inc. v. CIR, CTA Case No. 10999,February 3, 2026)
SOURCE OF INCOME IS DETERMINED BY PLACE WHERE ACTIVITY IS PERFORMED REGARDLESS OF PLACE OF PAYMENT OR CUSTOMERS’ RESIDENCY/LOCATION. Enterprises registered within the Subic Special Economic Zone (SSEZ) are entitled to the preferential gross income tax (PGIT) in lieu of all national and local internal revenue taxes, provided that income from “sources within the Customs Territory” (i.e. within the Philippines) does not exceed 30% of total income; jurisprudence clarifies that the “source” of income is determined not by the residence of the payor or place of payment, but by the place where the income-generating activity is actually performed. In this case, the BIR assessed the taxpayer for deficiency tax on the theory that sales to customers outside the SSEZ constituted income sourced within the Philippines, thereby pushing the taxpayer beyond the 30% threshold and disqualifying it from PGIT; however, the Court rejected this approach, holding that the proper test is where the sales and services were actually rendered, and the evidence, such as invoices, receipts, and related documentation issued and accomplished within the SSEZ, showed that the taxpayer’s income-generating activities were performed within the zone, regardless of the customers’ residency or location or whether withholding certificates were issued by payors within the Philippines. Thus, the taxpayer remained qualified for the PGIT regime and was not liable for RCIT and VAT, rendering the BIR’s assessments void for lack of legal basis as they were premised on an erroneous determination of income source and improper disqualification from the tax incentive. (West Automotive Corporation v. CIR, CTA Case No. 10561, February 10, 2026)
A TAXPAYER SEEKING TO SUBSTANTIATE THE CORRECT TAX TREATMENT BEARS THE BURDEN OF PROVIDING PROPER TRACING, RECONCILIATION, OR DECLARATION IN THE ITR; JOURNAL VOUCHERS, AND GENERAL LEDGERS ALONE DO NOT SUFFICE. Taxable income is determined based on gross income less allowable deductions, and taxpayers claiming adjustments or reconciling items that affect the computation of taxable income bear the burden of substantiating such claims with competent evidence sufficient to establish the correctness of the reported tax treatment. In this case, the taxpayer argued that the adjustment relating to training expenses with corresponding dealer share merely involved a reclassification, which had no effect on taxable income. While the Court recognized that, in principle, the accounting reclassification appeared to have a neutral effect on the taxpayer’s net taxable income since it only affected presentation and did not alter the overall tax base, it nevertheless rejected the taxpayer’s claim for failure to sufficiently substantiate the adjustment. The Court found that the taxpayer merely presented journal vouchers and general ledger extracts for the affected revenue and expense accounts but failed to provide tracing, reconciliation, or proof that the corresponding reduced selling or marketing expenses were actually declared in the Annual Income Tax Return. In the absence of competent evidence establishing that the adjustment indeed resulted in a nil tax effect, the Court ruled that the reconciling item could not be considered. (Ford Group Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10728, November 20, 2025)
CLAIMS FOR SALES DISCOUNTS MUST BE SUPPORTED BY DOCUMENT INDENTIFYING THE NATURE OF THE TRANSACTION, ACTUAL DATE, SPECIFIC GOODS RETURNED; JOURNAL VOUCHERS AND GENERAL LEDGERS ARE NOT SUFFICIENT. Deductions or adjustments affecting gross income are allowable only when sufficiently substantiated by adequate records and competent evidence proving that the transactions were genuinely incurred in connection with the taxpayer’s business operations. In this case, the taxpayer claimed deductions consisting of sales returns of parts and sales discounts which were deducted from revenue for income tax purposes but allegedly not reflected in its VAT returns. The Court held that the claimed sales returns of parts could not be recognized because the taxpayer merely presented journal vouchers and general ledger extracts, which were insufficient to establish the validity of the returns since they did not identify the nature of the return transaction, the actual date of return, the specific goods or parts returned, or the identity of the customers involved. In contrast, the Court ruled favorably on the sales discounts after finding that the taxpayer adequately substantiated these transactions through journal vouchers, general ledger extracts, and credit notes issued to dealers, which sufficiently demonstrated that the discounts represented legitimate cash subsidies granted to dealers on vehicle sales in the ordinary course of business and properly identified the dealers who benefited therefrom. (Ford Group Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10728, November 20, 2025)
ADVERTISING EXPENSES PAID TO FOREIGN MEDIA AND AFFILIATES ARE NECESSARY AND ORDINARY TO THE TAXPAYER’S TRADE OR BUSINESS; EXPENSES MUST BE DEDUCTED IN THE YEAR WHERE LIABILITY BECOMES FIXED AND DETERMINABLE. Business expenses are deductible for income tax purposes only if they are ordinary and necessary, incurred in carrying on the taxpayer’s trade or business, properly substantiated by adequate records, and claimed in the correct taxable year consistent with the taxpayer’s accounting method. Jurisprudence provides that an expense is “necessary” when it is appropriate and helpful to the business, and “ordinary” when reasonably connected with the taxpayer’s operations, regardless of whether the supplier is local or foreign. Applying these principles, the Court found that the taxpayer sufficiently established that its foreign advertising expenses consisting of payments to foreign media companies such as Facebook, Google, and Twitter through Mindshare, as well as regional marketing charges paid to affiliates were directly related to promoting products in the Philippine and ASEAN markets and were therefore legitimate and deductible business expenses. However, the Court disallowed foreign advertising expenses incurred in CY 2016 but claimed in CY 2017, holding that under the accrual method of accounting and the “all-events test,” expenses must be deducted in the year when the liability becomes fixed and determinable, not in a subsequent taxable year. Accordingly, while the bulk of the foreign advertising expenses was allowed as deductible, the out-of-period expenseswere properly disallowed. (Ford Group Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10728)
SALE TO SBMA-REGISTERED ENTITY IS SUBJECT TO ZERO-RATED VAT; REQUISITES. Sales made by a VAT-registered supplier from the Philippine customs territory to enterprises duly registered within the Subic Bay Freeport Zone are treated as constructive export sales subject to 0% VAT, provided: (1) the seller is VAT-registered, (2) the buyer is an SBMA-registered entity entitled to special tax incentives, and (3) the goods sold are shown to have been delivered to and consumed within the freeport zone. Applying these principles, the Court found that the taxpayer successfully established that its zero-rated sales because the taxpayer proved that it was a VAT-registered entity, submitted customer’s Certificates of Registration and Tax Exemption (CRTEs) issued by SBMA covering the audit period, and presented sales invoices clearly reflecting the vehicles and parts sold, delivery dates, destinations within the SBFZ, and acknowledgment receipts showing actual delivery within the freeport zone. The Court rejected the BIR’s position that automobiles are automatically excluded from zero-rating because they are not production-related goods, ruling that the decisive factor is not the classification of the goods but whether the sale is legally treated as an export transaction under the separate customs territory principle. Nevertheless, the Court sustained partial disallowances for several transactions that were inadequately substantiated, particularly invoices with illegible signatures, unsupported sales, transactions outside the covered taxable period, and unsupported “other income” items allegedly treated as zero-rated sales. (Ford Group Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10728)
ALLEGATIONS OF ERROR MUST BE SUPPORTED BY EVIDENCE. Any expense otherwise deductible from gross income shall be allowed only if the corresponding required withholding tax has been properly withheld and remitted to the BIR. In this case, the BIR disallowed the taxpayer’s claimed expenses on the ground that the appropriate expanded withholding taxes were not shown to have been withheld on various income payments. The Court held that the taxpayer’s bare allegations of error, unsupported by competent evidence, could not overturn the assessment. Thus, a reduced amount was sustained for failure to comply with withholding requirements and failure to substantiate contrary claims. (3D Networks Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10981, February 11, 2026)
ALLEGATION OF TIMING DIFFERENCE BETWEEN SALES PER ITR AND SAWT REQUIRES PROOF THAT DISCREPANCY WAS REPORTED IN ANOTHER PERIOD. All income derived from whatever source, including gross sales or receipts, forms part of taxable income and must be fully declared in the income tax return, with the burden resting on the taxpayer to properly report and substantiate all income earned within the taxable year. In this case, the BIR found a discrepancy arising from the comparison of the taxpayer’s Sales per Summary Alphalist of Withholding Tax at Source (SAWT) and its declared Sales per ITR, which the BIR treated as undeclared income subject to income tax. The taxpayer argued that the variance was merely due to timing differences in the recognition of income and the issuance or utilization of BIR Form No. 2307 by customers, asserting that sales are recorded upon delivery or actual sale while withholding certificates may be issued later upon payment. However, the Court held that the taxpayer failed to present sufficient evidence to prove that the discrepancy was already reported in another taxable year or that it was otherwise properly subjected to income tax, and mere allegations of timing differences cannot overcome the presumption of correctness of the assessment. (3D Networks Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10981, February 11, 2026)
INTEREST MUST BE SUPPORTED BY RECEIPTS/INVOICE TO PROVE IT IS PAID OR INCURRED; LOAN AGREEMENT AND AFS MERELY PROVE EXISTENCE AND THUS INSUFFICIENT. Interest paid or incurred within a taxable year on indebtedness connected with the taxpayer’s trade, business, or profession may be claimed as a deductible expense, provided that the taxpayer is able to substantiate both the existence of the obligation and the actual payment or incurrence of the expense with sufficient supporting documents. In this case, although the taxpayer presented a loan agreement showing a loan obligation with a principal amount and annual interest rate, as well as disclosure in the AFS, the Court held that these documents merely established the existence of the loan but did not sufficiently prove the actual interest expense claimed as deduction since no vouchers, receipts, ledgers, or other documentary evidence were submitted to verify the expense; thus, the assessment disallowing the deduction for unsupported interest expense was sustained. (3D Networks Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10981, February 11, 2026)
RETIREMENT BENEFIT EXPENSE MAY BE SUPPORTED BY ACTUARIAL VALUATION REPORT. An employer who establishes or maintains a pension trust or retirement plan for its employees may deduct from gross income the reasonable retirement benefit expenses or pension liabilities accrued during the taxable year, provided that such amounts are properly substantiated and recognized in accordance with applicable accounting standards. In this case, the Court found that the assessment disallowing the taxpayer’s retirement benefit expense was improper because the taxpayer was able to sufficiently establish the validity of the deduction through documentary and accounting evidence. The amount pertained to accrued retirement benefit cost recognized in the taxpayer’s AFS, specifically disclosed in the notes, showing that the taxpayer maintained a defined benefit retirement plan covering permanent employees. The Court noted that the retirement benefit obligation was computed through actuarial studies, and was further supported by the actuarial valuation report. Since the expense was properly accrued, adequately disclosed, and sufficiently substantiated by competent evidence, the Court ruled that the retirement benefit expense was a valid deductible expense and ordered the cancellation of the assessment. (3D Networks Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10981, February 11, 2026)
MEDICAL EXPENSES MUST BE SUPPORTED BY RECEIPTS/INVOICE TO PROVE PAYMENT; AGREEMENTS AND LEDGERS ARE NOT SUFFICIENT. Ordinary and necessary business expenses may be deducted from gross income only if the taxpayer is able to substantiate the amount of the expense with sufficient evidence, such as official receipts, sales invoices, or other adequate records, and establish that the expense is directly connected with the conduct, development, or operation of its trade or business. In this case, the Court sustained the assessment disallowing the taxpayer’s claimed staff medical because, although the taxpayer argued that the expenses pertained to medical assistance extended to employees, purchases from drugstore, and employee medicine, which the taxpayer characterized partly as de minimis benefits, the Court found that the taxpayer failed to sufficiently substantiate the deduction. While the taxpayer submitted the Supplement to the Group Corporate Agreement with Avega Managed Care, Inc. and a general ledger snapshot, it failed to present the underlying official receipts, sales invoices, or other documentary proof necessary to verify the nature and actual payment of the claimed expenses. Absent competent supporting evidence, the Court held that the taxpayer failed to overcome the presumption of correctness accorded to tax assessments, thereby sustaining the disallowance of the deduction. (3D Networks Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10981, February 11, 2026)
PENALTIES MUST BE SUPPORTED BY PROOF OF ACTUAL PAYMENT; SCHEDULE IS NOT SUFFICIENT. Deductible business expenses must be properly substantiated by sufficient evidence, such as official receipts, invoices, or other adequate records proving both the existence and actual payment of the expense during the taxable period. In this case, the Court sustained the assessment disallowing the taxpayer’s claimed penalties, which the taxpayer asserted represented interest penalties arising from the late filing of BIR tax returns, because the taxpayer failed to satisfy the statutory substantiation requirement. The Court found that the taxpayer merely submitted a schedule summarizing the transactions but did not present the corresponding filed tax returns, proof of payment, official receipts, or other documentary evidence necessary to verify the nature and actual payment of the claimed expense. In the absence of competent supporting documents, the taxpayer failed to establish the validity of the deduction, and thus the Court upheld the assessment made by the Bureau of Internal Revenue. (3D Networks Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10981)
RENTAL EXPENSES MUST BE SUPPORTED BY INVOICE/RECEIPTS TO PROVE ACTUAL PAYMENT; LEASE AGREEMENT IS NOT SUFFICIENT. A taxpayer may deduct from gross income reasonable rental payments and other charges required as a condition for the continued use or possession of property used in the conduct of trade or business, provided that such expenses are properly substantiated in accordance with the documentary requirements of tax law. In this case, although the taxpayer argued that the dues and subscriptions expense represented association dues pursuant to its lease agreement, which required monthly payments for maintenance, security, and other building services necessary for its business operations, the Court held that the deduction was properly disallowed for lack of sufficient substantiation. The Court found that while the lease agreement established the taxpayer’s obligation to pay the association dues, it did not, by itself, prove that the expenses were actually incurred and paid during the taxable period. The taxpayer failed to present supporting invoices, official receipts, or other documentary evidence from the lessor or condominium corporation that could verify the actual payment of the claimed expense. (3D Networks Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10981)
BRANCH PROFIT REMITTANCE TAX (BPRT) IS IMPOSED ON PROFITS ACTUALLY REMITTED BY A BRANCH TO ITS HEAD OFFICE, OR ON PROFITS APPLIED OR EARMARKED FOR SUCH REMITTANCE. In this case, the BIR assessed the taxpayer for deficiency BPRT on the theory that unaccounted branch profits were not reflected in the taxpayer’s account and were therefore either actually or constructively remitted to its head office; however, the Court found that this conclusion was unsupported by evidence, as the BIR failed to establish any actual remittance or any act showing earmarking or appropriation of profits for remittance, and instead relied solely on a presumption derived from alleged discrepancies. On the contrary, the taxpayer successfully demonstrated through its audited financial statements and Statement of Changes in Home Office Account that no remittance occurred, as its Home Office account and accumulated earnings consistently increased and even in succeeding years, which is inconsistent with any inference of remittance, whether actual or constructive, and was further corroborated by the testimony of its finance manager confirming that no branch profits were ever remitted or offset against any payable to the head office. Accordingly, the Court held that the deficiency BPRT assessment had no factual or legal basis and must be cancelled for lack of actual or constructive remittance. [Telstra International (AUS) Limited ROHQ, v. CIR, CTA Case No. 10655, February 12, 2026]
INPUT VAT ARISING FROM PAYMENTS FOR SERVICES RENDERED BY NON-RESIDENTS MAY ONLY BE CLAIMED AS INPUT TAX IF PROPERLY SUBSTANTIATED BY A DULY FILED BIR FORM NO. 1600 AND PROOF OF REMITTANCE OF THE FINAL WITHHOLDING VAT. Applying this, the Court found that a comparison between the taxpayer’s VAT returns and its BIR Form No. 1600 disclosed a discrepancy in the amount of services rendered by non-residents, showing that the taxpayer overclaimed input tax corresponding to unsubstantiated transactions. (National Reinsurance Corporation of the Philippines v. CIR, CTA Case No. 11156, February 13, 2026)
INPUT VAT ATTRIBUTABLE TO VAT-EXEMPT SALES MUST BE DISALLOWED; EXCESS INPUT VAT CARRIED OVER TO SUBSEQUENT PERIOD CANNOT ABSORB THE ASSESSMENT DUE TO DOUBLE RECOVERY. A VAT-registered taxpayer engaged in both VATable and VAT-exempt transactions is required to proportionately allocate input VAT when such input taxes cannot be directly attributed to a specific transaction, and only the portion attributable to VATable transactions may be recognized as input tax credit, while input VAT allocable to exempt sales must be excluded. Applying these provisions, the Court found that the taxpayer had substantial mixed transactions but failed to properly deduct from its available input VAT the portion attributable to exempt sales, despite reporting significant exempt revenues. After recomputing the proper allocation of the taxpayer’s input VAT based on the proportion of VATable and exempt sales, the Court determined that the taxpayer overclaimed input VAT. The Court rejected the taxpayer’s argument that its large excess input VAT carryover from prior periods should absorb the assessment, ruling that the overstated input tax credits had already been carried forward and remained available for utilization in succeeding taxable periods; thus, allowing an offset against the present assessment would effectively permit double recovery to the prejudice of the government. Since the taxpayer failed to establish that these disallowed input tax credits were not subsequently utilized, the Court sustained the assessment. (National Reinsurance Corporation of the Philippines v. CIR, CTA Case No. 11156, February 13, 2026)
CANCELLED OFFICIAL RECEIPTS CANNOT SERVE AS A VALID BASIS FOR DEFICIENCY VAT ASSESSMENT; OFFICIAL RECEIPTS PERTAINING TO A DIFFERENT TAXABLE YEAR MUST BE SUPPORTED BY SUFFICIENT EVIDENCE ESTABLISHING THAT THE TRANSACTION WAS PROPERLY REPORTED AND THAT THE CORRESPONDING VAT WAS DULY DECLARED AND REMITTED IN THAT YEAR. Value-added tax is imposed on gross receipts derived from the sale of services, and the BIR is authorized to assess deficiency VAT when a taxpayer fails to declare taxable receipts. In this case, the BIR assessed the taxpayer for deficiency VAT arising from alleged undeclared receipts based on purportedly missing Official Receipts (ORs), computed by deriving the average sales per issued OR and multiplying it by the number of allegedly missing receipts. The taxpayer argued that the receipts were not missing, asserting that several ORs had been cancelled while others pertained to transactions in another year. Upon examination of the documentary evidence, the Court found that some ORs were validly cancelled, while several receipts indeed bore 2018 dates. However, the taxpayer failed to present sufficient proof that the receipts dated in 2018 had actually been reported and remitted during that year, and the Court noted that the issuance of the receipts was not chronological, thereby casting doubt on the taxpayer’s claim that such transactions properly belonged to 2018. As a result, while the Court rejected the assessment insofar as cancelled receipts were concerned, it sustained the deficiency VAT assessment attributable to receipts dated in 2018 for which the taxpayer failed to substantiate prior reporting. (Set and Stage Resource Management, Inc. v. CIR, CTA Case No. 10703, February 13, 2026)
FAILURE TO COMPLY WITH INVOICING REQUIREMENTS RESULTS IN DISALLOWANCE OF INPUT VAT. A taxpayer may claim input value-added tax only when such input tax is supported by valid VAT invoices issued in strict compliance with the invoicing requirements, and failure to satisfy these documentary requirements warrants the disallowance of the corresponding input tax credits. In this case, the BIR disallowed the taxpayer’s claimed input VAT after finding that several supporting invoices and official receipts failed to comply with mandatory invoicing requirements prescribed by law. Upon examination of the documentary evidence submitted by the taxpayer, the Court found that input VAT was properly disallowable due to multiple invoicing defects, including unsupported transactions, incorrect VAT amounts, failure to indicate the nature of services rendered, absence of VAT amount, missing authorized signatures, absence of the taxpayer’s address, incomplete the taxpayer details, and failure to state the taxpayer’s TIN. These deficiencies rendered the supporting documents legally insufficient to substantiate entitlement to input VAT credits under the Tax Code. (Set and Stage Resource Management, Inc. v. CIR, CTA Case No. 10703, February 13, 2026)
REVENUE ISSUANCES
BIR DEADLINES FROM JUNE 29, 2026 TO JULY 5, 2026. A gentle reminder on the following deadlines, as may be applicable:
| DATE | FILING/SUBMISSION |
| June 29, 2026 | e-FILING & PAYMENT (Online/Manual) – BIR Form 1702Q (Quarterly Income Tax Return For Corporations, Partnerships and Other Non-Individual Taxpayers) and Summary Alphalist of Withholding Taxes (SAWT) – Fiscal Quarter ending April 30, 2026 |
| June 30, 2026 | SUBMISSION – Soft copies of Inventory List and Schedules stored and saved in DVD-R/USB properly labeled together with Notarized Sworn Declaration – Fiscal Year ending May 31, 2026 |
| SUBMISSION – Manufacturers’/Assemblers’/Importers’ Sworn Statement of each Particular Brand/Model of Automobile, Alcohol Products, Tobacco Products and Sweetened Beverage Products. 1st Semester of 2026 | |
| SUBMISSION – Proof of eFiled BIR Form 1702– RT/1702-EX/1702-MX with Audited Financial Statements (AFS), 1709 (if applicable), and Other Attachments through Electronic Audited Financial Statements (eAFS)– Fiscal Year ending February 28, 2026 | |
| e-SUBMISSION – Quarterly Summary List of Sales/Purchases/Importations by a VAT Registered Taxpayers. eFPS Filers – Fiscal Quarter ending May 31, 2026 | |
| ONLINE REGISTRATION (thru ORUS) – Computerized Books of Accounts and Other Accounting Records – Fiscal Year ending May 31, 2026 | |
| July 1, 2026 | SUBMISSION – Consolidated Return of All Transactions based on the Reconciled Data of Stockbrokers. June 16-30, 2026 |
| SUBMISSION – Engagement Letters and Renewals or Subsequent Agreements for Financial Audit by Independent CPAs. Fiscal Year beginning September 1, 2026 | |
| July 5, 2026 | SUBMISSION – Summary Report of Certification issued by the President of the National Home Mortgage Finance Corporation (NHMFC). Month of June 2026 |
| e-FILING/FILING & e-PAYMENT/PAYMENT – BIR Form 2000 (Monthly Documentary Stamp Tax Declaration/Return). Month of June 2026 | |
| e-FILING/FILING & e-PAYMENT/PAYMENT – BIR Form 2000-OT (Documentary Stamp Tax Declaration/Return One-Time Transactions). Month of June 2026 |