TAX ASSESSMENTS
A LETTER OF AUTHORITY (LOA) IS NOT INVALIDATED BY A BUREAU OF INTERNAL REVENUE (BIR) LETTER ADDING ADDITIONAL EXAMINERS. It is presumed that the BIR regularly performed its official duty. The taxpayer must present proof to the contrary. Here, the BIR issued a letter without LOA adding additional examiners, but without replacing or transferring the original examiners. Since the taxpayer failed to prove that the new examiners recommended the issuance of the Preliminary Assessment Notice (PAN), the LOA is valid. (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue (CIR); CTA CASE NO. 9871; March 1, 2024)
AN ASSESSMENT BASED ON LETTER NOTICE (LN) WITHOUT LOA IS VOID. An LN is entirely different and serves a different purpose than a LOA. After the LN has served its purpose, the RO should have properly secured an LOA before proceeding with the further examination and assessment of the petitioner. An LOA addressed to an RO is specifically required under the National Internal Revenue Code (NIRC) before an examination of a taxpayer may be had while an LN is not found in the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR’s RELIEF System. In the case at bar, the PAN and FAN were based on the LN, which was not converted to LOA. The Court has consistently held that, in cases where the BIR conducts an audit without a valid LOA, or in excess of the authority duly provided therefor, the resulting assessment shall be void. (Commissioner of Internal Revenue v. Port Barton Development Corporation; CTA EB No. 2703; March 14, 2024)
UNLESS UNDERTAKEN BY THE CIR HIMSELF OR HIS DULY AUTHORIZED REPRESENTATIVES, OTHER TAX AGENTS MAY NOT VALIDLY CONDUCT ANY AUDIT EXAMINATIONS WITHOUT PRIOR AUTHORITY. The CIR’s duly authorized representatives are as follows: (1) Regional Directors; (2) Deputy Commissioners; (3) Assistant Commissioner/Head Revenue Executive Assistants (for Large Taxpayers); and, (4) other officials but only upon the CIR’s prior authorization. In the instant case, the BIR mobilized its Revenue Officers (RO) to conduct such verification procedures through the issuance of a Mission Order. Absent a LOA, the assessment or examination is a nullity; and, a void assessment bears no fruit. (Commissioner of Internal Revenue v. Formula Sports; CTA EB No. 2674; March 6, 2024)
LACK OF FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) DOES NOT VIOLATE TAXPAYER’S RIGHT TO DUE PROCESS; PENDING APPEAL, THE TAX LIABILITY IS NOT YET DELINQUENT AND THE WARRANT OF GARNISHMENT (WG) IS PREMATURE. Applying the CIR v. Liquigaz case where the BIR did not issue the FDDA, but it issued a Final Notice Before Seizure (FNBS), the assessment remains valid. The FNBS may be considered as the final decision of the Bureau of Internal Revenue (BIR). Moreover, the right to collect of the BIR requires that the tax liability is delinquent. While the NIRC did not define delinquent tax, regulations provided instances when tax is delinquent to include assessment notices that have become final and executory when no appeal to the CIR or CTA within the reglementary period. Further, The Supreme Court ruled in LRTA and Mannasoft Cases that the Warrant of Distraint and/or Levy (WDL) is void if the assessment is not yet demandable. Here, the taxpayer has a pending appeal with the CTA. Thus, the WG issued by the BIR is void. (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue; CTA CASE NO. 9871; March 1, 2024)
FINAL ASSESSMENT NOTICE/FORMAL LETTER OF DEMAND’s (FAN/FLD) FAILURE TO ADDRESS THE ARGUMENTS OF THE TAXPAYER IN THE PAN AND REITERATION IN VERBATIM THE PAN’S DETAILS OF DISCREPANCY RENDERS THE ASSESSMENT VOID. A taxpayer must be fully apprised of the factual and legal bases of the assessments, and must not be left unaware on how respondent or his authorized representatives appreciated the explanations or defenses raised by petitioner in connection with the assessments. Here, the subject FAN/FLD did not address any of the arguments posed by taxpayer in the protest letter in response to the PAN. The BIR only reiterated verbatim in the Details of Discrepancy of the said FLD, what it stated in the Details of Discrepancy of the undated PAN, save for the adjustments in one basic income tax due and basic deficiency VAT only. Thus, the inevitable conclusion is that petitioner’s right to due process, under Section 228 of the 1997 NIRC, as amended, and Section 3.1.3 of RR No. 12-99, as amended, was violated. As a consequence, the said deficiency 1ncome tax and VAT assessments are rendered void. (Beta Electromechanical Corp., v. Commissioner of Internal Revenue; CTA Case No. 10040, March 5, 2024) The Supreme Court, in the Avon case, held that the CIR must give the particular facts upon which the CIR’s conclusions are based, and those facts must appear in the record. Here, the BIR failed to address the arguments/explanations raised by TPI in its Reply to PAN when it rejected the same through the issuance of the FLD. Considering the violation of TPI’s right to due process provided under Section 228 of the NIRC of 1997, as amended, and RR No. 12-1999, the Court finds that the FLD as well as the subsequent issuances of the CIR to TPI, including the FDDA dated September 22, 2014, are all considered void. (Transnational Plans, Inc., v. Commissioner of Internal Revenue; CTA EB NO. 2549; March 26, 2024)
A GOVERNMENT INSTRUMENTALITY IS EXEMPT FROM PAYING REAL PROPERTY TAX (RPT). Considering that Petitioner National Food Authority (NFA) is a government instrumentality and exempt from RPT, the act of the City Assessor in demanding payment of RPT from NFA has no basis. (National Food Authority v. City Government of Bogo; CTA AC No. 263; March 5, 2024)
IN APPEALING THE INACTION OF THE CIR ON THE APPEALED PROTEST, THE 180-DAY PERIOD SHALL BE COUNTED FROM THE DATE OF FILING OF THE PROTEST, NOT APPEAL TO THE CIR. In determining the timeliness of an appeal from the inaction of the CIR, there is only one “180-day period” of inaction to speak of which shall be counted from the date of filing of the protest (if the protest is a request for reconsideration) or from the submission of the relevant supporting documents (if the protest is a request for reinvestigation) and not from the date when the decision of the CIR’s duly authorized representative was appealed to the CIR. Here, the taxpayer filed the Petition for Review on May 22, 2018 allegedly due to the inaction of the CIR. The taxpayer erroneously applied the 180-day period counting from appeal to the CIR; consequently, the instant Petition for Review was prematurely filed. Petitioner’s only recourse would be to await respondent’s final decision on its administrative appeal and appeal the same before the CTA within 30 days from receipt thereof. (Bayugan Farmers Multi-purpose cooperative v. Commissioner of Internal Revenue; Case No. 9928; March 7, 2024)
REGISTRY RECEIPT IS NOT IN ITSELF PROOF OF SERVICE OF PAN WITHOUT BEING ACCOMPANIED BY THE AUTHENTICATING AFFIDAVIT UNDER OATH) OF THE PERSON WHO ACTUALLY MAILED THE PAN. A PAN may be served via registered mail when personal service is not practicable. If taxpayer denies receipt of the PAN, the BIR should dispute the denial. In proving receipt, the registry receipt is not sufficient proof of service without an affidavit under oath of the mailer. Moreover, the registry receipt must contain sufficiently identifiable details of the transaction (i.e. date, place of service and name of the professional courier service company who received the same). Thus, PAN is not considered validly served and LOA is void if BIR merely alleged that it served the notice via registered mail. (Bohol JSL Enterprises Incorporated v. Commissioner of Internal Revenue; CTA Case No. 1057; March 21, 2024; Konica Minolta Marketing Services v. Commissioner of Internal Revenue; CTA CASE No. 10255; March 01, 2024)
THIRD PARTY INFORMATION (TPI) MUST BE SUPPORTED BY AUTHENTICATED SWORN STATEMENT AND REGISTERED RETURN CARD [IF SOURCE IS IN ANOTHER REVENUE DISTRICT OFFICE (RDO)]. In determining discrepancies via TPI, the BIR must obtain sworn statements from TPI sources to attest the veracity of the data provided. To obtain sworn statements, the BIR must send confirmation required to the third-party sources. If the TPI source is from another RDO, the BIR confirmation request must be supported by registered return cards. Here, the allegation of underdeclared purchase based on TPI had no registered return card and authenticated sworn statement. Thus, the findings based on TPI is considered unverified information and finds no basis. (Bohol JSL Enterprises Incorporated v. Commissioner of Internal Revenue; CTA Case No. 1057; March 21, 2024 (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue; CTA CASE NO. 9871; March 1, 2024)
PRELIMINARY COLLECTION LETTER (PCL) ISSUED BY THE BIR PENDING ADMINISTRATIVE APPEAL WITH THE OFFICE OF THE CIR IS VOID. In Light Rail Transit Authority v. Bureau of Internal Revenue, the Supreme Court explained that to ground the collection measures on the premise of the existence of “delinquent taxes” is incorrect. A PCL, as well as a FNBS, WDL, or other means of summary administrative collection, remain tentative for as long as there is a pending administrative appeal before the Office of the CIR. The assessment is still non-demandable. As such, collection measures emanating from such assessment shall be void and of no force and effect. Here, the assessment against the taxpayer remained non-demandable as BIR Collection Division issued the assailed PCL prior to the CIR’ s final resolution of petitioner’s motion for reconsideration. (C.U.T. Commercial Corporation v. Bureau of Internal Revenue; CTA Case No. 9933; March 22, 2024)
WATERWORKS SYSTEM FEES EARNED BY MUNICIPALITY IS EXCLUDED FROM INCOME TAX, BUT IS NOT AUTOMATICALLY EXEMPT FROM VAT. For income to be excluded from gross income and be excused from income taxation under section 32(b)(7)(b) of the NIRC, as amended, the following conditions must concur: (1) the income must be derived by the government or political subdivision thereof; (2) such income emanated from a public utility or exercise of essential governmental function; and (3) said income accrued to the government or political subdivision. Here, the Municipality of Pulilan is one of the political subdivisions of the State and proceeds from the municipal water system accrues to the general fund. Further, having demonstrated that the water system fees were derived by petitioner as a public utility, i.e., supply of water to constituents, it need not establish that said fees were earned in the exercise of essential governmental function; however the taxpayer must prove that the fees earned are exempt from VAT.(Municipality of Pulilan v. Commissioner of Internal Revenue; CTA Case No. 10259; March 22, 2024)
THE SERVICE OF ASSESSMENT TO AN ADMINISTRATIVE ASSISTANT NOT AUTHORIZED BY THE TAXPAYER TO RECEIVE THE FAN/FLD RENDERS THE ASSESSMENT VOID. While the board of directors generally exercise corporate powers, conduct all business, and control all properties of the corporation, the corporation, through its board of directors may validly delegate some of its functions and powers to corporate officers, committees or agents. In the present case, the FAN was served on petitioner at its registered address through an administrative assistant, who is not duly authorized to receive the FAN. Thus, the assessment issued against petitioner is null and void for violating procedural due process. (Royal Palm Residences v. Commissioner of Internal Revenue; CTA Case No. 10222; March 27, 2024
TAX REFUNDS
SINCE ALKYLATE DOES NOT BELONG TO THE SAME CATEGORY AS NAPHTHA AND REGULAR GASOLINE, THE SAME SHOULD NOT BE SUBJECTED TO EXCISE TAX. Alkylate is not among the excisable articles enumerated in Sec. 148(e) of the 1997 NIRC, as amended. Neither can it be categorized as “other similar products of distillation” precisely because it is not a direct product of distillation. Here, the pieces of evidence for the petitioner, including the testimonies of expert witnesses. which respondent failed or did not even attempt to rebut, clearly established that alkylate is produced through the process of alkylation and not distillation, and that alkylate does not belong to the same category as naphtha and regular gasoline: hence. not subject to excise tax. (Petron Corporation v. Commissioner of Internal Revenue CTA Case Nos. 10073,10120 and 1020; March 7, 2024)
IN CLAIMING TAX CREDIT FOR EXCISE TAXES ON PETROLEUM SOLD TO EXEMPT ENTITIES, THE CLAIMANT MUST PROVE THAT THE PETROLEUM SOLD MUST BE THE ONE IMPORTED. Under the NIRC, petroleum products sold to entities which are by law exempt from direct and indirect taxes are exempt from excise tax. To justify a grant of tax credit for excise taxes paid on importation, taxpayer claimant must establish the following: first, the entity to which the petitioner sold the petroleum products is an entity exempt by law from direct and indirect taxes; and, second, petitioner paid the excise taxes on its importation of bunker oil fuel and special oil fuel subsequently sold to the tax-exempt entities under Section 135(c) of the NIRC, as amended. Here, petitioner failed to submit the Official Registry Books that proves that the same petroleum products on which the petitioner paid excise taxes was the same petroleum products sold to an entity exempt by law from direct and indirect taxes. Thus, tax refund or credit shall be denied. (SL Harbor Bulk Terminal v. Commissioner of Internal Revenue; CTA Case No. 10320; March 13, 2024)
APPEAL TO THE CTA OF THE RDO’S DENIAL OF INPUT VAT REFUND IS DISMISSIBLE AS RDO’S DECISION IS MERELY RECOMMENDATORY. Only the CIR is empowered to decide refunds of internal revenue taxes. By exception, such authority vested in the CIR may be delegated “to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed. The RDO officials are not authorized to give the final decision. Thus, where the claimant filed its administrative claim before RDO No. 44; received a letter from RDO denying the administrative claim, such denial cannot be appealed to the CTA. The RDO’s denial is at best merely recommendatory, subject to the approval of the CIR or Regional Director. Thus, the appeal is dismissed for lack of jurisdiction. (Firmenich Inc., v. Commissioner of Internal Revenue; CTA Case No.10209; March 13, 2024)
NRFC IS CONSIDERED DOING BUSINESS IN THE PHILIPPINES IF IT APPOINTS AGENT IN THE PHILIPPINES. One of the zero-rating requirements is that the NRFC is not engaged in trade or business in the Philippines. The SEC Certificate of Non-Registration does not conclusively demonstrate that the NRFC is not doing business in the Philippines. Moreover, agency agreement allowing the NRFC to transact or engage in local trade or business through the claimant, without establishing that the agent/claimant solicits orders on its own or independently without the instruction of the NRFC, the NRFC is considered doing business in the Philippines. (Firmenich Inc., v. Commissioner of Internal Revenue; CTA Case No.10209; March 13, 2024)
FOR A SALE OR SUPPLY OF SERVICES TO BE SUBJECT TO THE VAT RATE OF ZERO PERCENT (0%) UNDER SECTION 108(B)(2) OF THE NIRC, AS AMENDED, THE SERVICES MUST BE PERFORMED IN THE PHILIPPINES BY A VAT-REGISTERED PERSON. Here, The Services Agreement between petitioner and non-resident foreign corporation does not bear any indication that the subject services were to be performed by petitioner in the Philippines. A scrutiny of the articles/clauses of the Services Agreement reveals that it does not categorically state that the contracted services thereof shall be performed by the petitioner in the Philippines. Furthermore, no other evidence was offered to show that the subject services were indeed performed in the Philippines. Considering petitioner’s failure to establish its zero-rated or effectively zero-rated sales for the subject period, the subject refund cannot be granted. (Williams-Sonoma Phil., v. Commissioner of Internal Revenue; CTA CASE N0.10325; March 14, 2024)
REIMBURSED CHARGES CANNOT BE A SOURCE OF INPUT VAT. Reimbursed charges could not be considered paid for the by the taxpayer. Moreover, the taxpayer does not recognize the reimbursement as income or receipt. Consequently, claimant cannot simultaneously receive reimbursement for the amount it advanced (on the premise that these were not really its expenses) and applied for refund of the related input VAT as if these were really incurred by the taxpayer. (Pilipinas Kyohritsu, inc. V. Commissioner of Internal Revenue, CTA Case No. 10463; March 22, 2024)
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT (ICPA) CERTIFICATION, WITHOUT SUFFICIENT SUPPORTING DOCUMENTS, IS INSUFFICIENT TO REINFORCE REFUND CLAIMS. Mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof unless offered and actually verified by the Court. In the case before us, only the following clients of petitioner shall be considered in the determination of its refund claim: (1) Marketing Convergence Inc.; and (2) Land Bank of the Philippines. The reason-only these two (2) clients have their corresponding invoices, official receipts, billing statements, and contracts, which would tend to show the terms/ periods covered of the license contract, along with the amounts, necessary for the Court to verify the accurate deferred subscription amount for CY 2017, which it paid. (SAS Institute Inc v. Commissioner of Internal Revenue; CTA Case No.10537, March 22, 2024)
THE COURT CANNOT ACCEPT MERE RECOMPUTATIONS WITHOUT ITS SUPPORTING SOURCE DOCUMENTS IN JUSTIFYING DISCREPANCIES. The correct amount of tax base or income payment is the determinative factor in computing the correct withholding tax. Here, Petitioner’s explanation that the discrepancy was due to mere inadvertence in entering the amounts in the tax base section of the online returns for its remittances is self-serving, considering that it failed to present the source documents (i. e., approved disbursement voucher, collection list, invoices or official receipts, or other adequate records) showing the purported correct tax base. Thus, the Court cannot simply accept the recomputation made by the petitioner without its supporting source documents. (Provincial Government of Bohol v. Commissioner of Internal Revenue; CTA Case No. 10394, March 24, 2024)
VIOLATION OF THE TAX CODE
FOR CRIMINAL CASES HEARD BEFORE THE CTA, IT IS THE FILING OF AN INFORMATION THE CTA, NOT THE FILING OF A COMPLAINT BEFORE THE DOJ, THAT INTERRUPTS THE PRESCRIPTIVE PERIOD. Sec. 2, Rule 9 of the RRCTA provides that all criminal actions before the Court in Division in the exercise of its original jurisdiction shall be instituted by the filing of an information in the name of the People of the Philippines. The institution of the criminal action shall interrupt the running of the period of prescription. In the case at bar, the information was filed before the CTA in Division on 6 September 2022 for the alleged fraudulent income tax return filed in 2013. Considering that the prescription for a tax investigation based on fraud is ten years, the right of the State to prosecute had already been prescribed. (People of the Philippines v. Antonio Valeriano M. Bernardo; CTA EB CRIM. NO. 124; March 8, 2024)
EXPENDITURE METHOD AS BASIS TO ESTABLISH FAILURE TO PAY TAX IN CRIMINAL CASES REQUIRES PROOF OF LIKELY SOURCE OF INCOME. To establish failure to pay tax as one of the element of violation of Tax Code (Section 255 – willful failure to pay tax, make return or supply correct information and Section 254 – tax evasion), expenditure method may be resorted to, which is based on the theory that where the amount of money which a taxpayer spends during a given year exceeds his reported income, and the source of such money is otherwise unexplained, it may be inferred that such expenditures represent unreported income. In a criminal case is filed against the taxpayer, the need for evidence of a likely source of income is a prerequisite (i.e. omissions of income in the return, nature of business is such that it has capacity to generate substantial income, proof of under declaration, keeping of separate set of books, use of false invoices or documents etc.). Here, the BIR only provided certifications, TCTs, GIS, Deeds of Absolute Sale, and LTO car registration which are hardly evidence of a likely source of income. Thus, the accused is acquitted. (People of the Philippines v. Janet Lim Napoles; CTA CRIM. CASE NOS. 0-485, 0-486, 0-487′ 0-488, 0-490, 0- 491, 0-492, 0-493, 0-494, 0-495, 0-496 & 0-498; March 21, 2024)
FAILURE ON THE PART OF THE PROSECUTION TO PROVE THAT THE PAN AND THE FAN WERE DULY SERVED AND RECEIVED BY THE ACCUSED CORPORATION OR ANY OF ITS RESPONSIBLE OFFICERS CREATES REASONABLE DOUBT FOR A CONVICTION OF THE CRIME OF VIOLATION OF SECTION 255, IN RELATION TO SECTIONS 253 AND 256 OF THE NIRC OF 1997; CIVIL LIABILITY IS EXTINGUISHED WITHOUT CRIMINAL LIABILITY; CRIMINAL LIABILITY PRESCRIBES AFTER 5 YEARS FROM RECEIPT OF FAN UNTIL FILING OF INFORMATION WITH COURT. To sustain a conviction of the crime of violation of Section 255 (tax evasion), in relation to Sections 253 and 256 of the NIRC of 1997, it must be established that the failure to taxes is willful despite receipt of PAN, FAN, PCL and FNBS. In the present case, prosecution did not present evidence to prove that the PAN and the FAN were duly served and received by the accused corporation or any of its responsible officers. Therefore, a conviction for tax evasion could not be sustained. Moreover, civil action is deemed instituted in a criminal action. While civil aspect may survive an acquittal based on reasonable doubt, no civil liability should be imposed as the assessment notices were not duly served. Lastly, violations for Tax Code prescribe after five years, from the discovery thereof (after receipt of the final notice and demand with taxpayer’s refusal to pay) and shall be interrupted by filing of information in court. Assuming FAN was duly served and received, where FAN attains finality on January 9, 2012 but the information was filed on June 19, 2019, the criminal action is prescribed. (People of the Philippines v. Robust Security Inc.; CTA EB Crim No. 098; March 26, 2024.) It is the filing of a complaint before the CTA, not DOJ, that interrupts the prescriptive period (People of the Philippines v.Bernardo, CTA EB Crim No. 124, CTA Crim )
FAN/FLD’S INCORRECT DATE OF PAYMENT, EXTENSION OF FOUR DAYS TO PAY THE INTEREST, AND STATEMENT THAT INTEREST WILL HAVE TO BE ADJUSTED RENDERS THE ASSESSMENT VOID. The FAN/FLD must include the computation of tax liability and must demand for payment within a period prescribed. Where the FAN’s due date of payment was erroneously stamped January 7, 2018, but the FAN was issued on December 7, 2018; interest was computed four days beyond the deadline, giving impression that taxpayer need not pay the interest within the prescribed deadline; and FAN contains a statement that “the interest and the total amount due will have to be adjusted if paid after the date specified therein”, the FAN is considered not to contain a definite and actual demand to pay and is considered void. (IBMS Technology Phils. Corporation v. Commissioner of Internal Revenue; CTA Case 10177; March 15, 2024), Failure to indicate the due date negates demand for payment (Commissioner of Internal Revenue v. Ritegroup Inc., CTA EB No. 2729; March 12, 2024)
