MAY 2024 COURT OF TAX APPEALS DECISIONS

ASSESSMENT

THE REVENUE OFFICER (RO) TASKED TO AUDIT OR EXAMINE THE BOOKS OF ACCOUNTS OF TAXPAYER MUST BE CLOTHED WITH A PROPER LETTER OF AUTHORITY (LOA). An RO must be armed with authority, through an LOA, to conduct the audit or investigation of the taxpayer. Absent such grant of authority through an LOA, the RO cannot conduct the audit of taxpayer’s books of accounts and other accounting records because such right is statutorily conferred only upon the Commissioner of Internal Revenue (CIR). Here, the authority of RO Arriola and GS Balbi merely sprung from a Memorandum of Assignment (MOA) that Chief Escalada issued.  Thus, the deficiency tax assessments issued against the taxpayer are inescapably void (Central Luzon Drug Corporation v. CIR, CTA Case No. 10045, May 2, 2024; CIR v. Scicindustrial Corp., CTA EB No.  2503, CTA Case No. 9616, May 27, 2024).

 

A CHIEF OF THE REGULAR LARGE TAXPAYERS AUDIT DIVISION CANNOT ISSUE AN LOA. An LOA can only be issued either by the CIR or his duly authorized representative identified in Section 10 (C) of the NIRC of 1997, as amended, which is a Revenue Regional Director. The position equivalent to a Revenue Regional Director for the Large Taxpayers Service is the Assistant Commissioner/Head Revenue Executive Assistants under RMO No. 29-0757. Here, the MOA was signed and issued by Ms. Shirley A. Calapatia, Chief of the Regular L T Audit Division 1. She is neither the CIR, Revenue Regional Director, nor an Assistant Commissioner/Head Revenue Executive Assistant of the LTS. She had no authority to issue the MOA which could have authorized RO Cayabyab to continue the audit/investigation of petitioner.  The MOA cannot be regarded as a valid LOA within the context of the law as the MOA was not signed by the CIR or his duly authorized representative. Since the conduct of the audit of petitioner was legally flawed, the assessments issued against it are inescapably void (NCR Corporation Philippines vs. CIR, CTA Case No. 10498, May 10, 2024).

FAN/FLD ISSUED IN 2014 FROM VALUE-ADDED TAX (VAT) FILING DEADLINE IN 2010 RENDERS THE VAT ASSESSMENT PARTIALLY PRESCRIBED. The three-year prescriptive period for issuing a VAT assessment shall be counted from the last day of the 25-day period from the close of the taxable quarter within which to file the quarterly VAT return, or the date of actual filing of the quarterly VAT return, whichever comes later. Thus, if the deadlines for the three (3) quarters are April, July and October 2010, respectively, but the BIR issued the FLD/FAN in January 2014, the assessment is partially prescribed.  (Applied Food vs. CIR, CTA No. 9952, May 23, 2024).

10-YEAR PRESCPRITIVE PERIOD WILL NOT APPLY WHEN BIR DID NOT ALLEGE FAILURE TO FILE RETURN, BIR IMPOSED 25% SURCHARGE, AND TAXPAYER ATTACHED THE RETURN IN THE PETITION; BIR HAS 3 YEARS TO COLLECT FROM FORMAL LETTER OF DEMAND/FINAL ASSESSMENT NOTICE (FLD/FAN). The BIR has 3 years to assess, except when there is a failure to file a return among other grounds, in which case, 10-year prescriptive period shall apply. Where the BIR did not allege that taxpayer failed to file the return, the FLD/FAN imposed 25% surcharge instead of 50%, and the taxpayer attached the return in the petition, and the BIR failed to prove that taxpayer failed to file the return, the 3-year prescription applies. Moreover, the BIR has another 3 years to collect. Where the FLD/FAN was issued on March 2, 2015 but the preliminary collection letter was issued on April 17, 2018, the collection effort is prescribed. (Ma. Erlinda Ong v. CIR, CTA Case No. 10265, May 3, 2024)

 

10-YEAR PRESCRIPTION APPLIES ONLY TO SPECIFIC TAXES MENTIONED. In the case of McDonald’s Philippines realty Corp v. CIR,  G.R. No. 247737, August 8, 2023, the Supreme Court ruled that for a 10-year period prescription to apply, the BIR must state in the assessment notice that the extraordinary period is applied and the basis of allegation of omission, falsity, or fraud as the case may be. Thus, where the BIR failed to expressly referred the 10-year period to VAT only, excluding EWT, the 10-year prescriptive period does not apply to EWT. (Japan Airport Consultants, Inc. et. al. v. CIR, CTA Case No. 10592, May 23, 2024)

WAIVER MUST STATE THE KIND AND AMOUNT OF TAX DUE. Assessment of internal revenue taxes must be made within three (3) years, counted from the actual date of filing of a tax return, or the last day prescribed by law for filing of a tax return, whichever is later, except when waiver is validly executed. The Supreme Court ruled that waiver must state the kind and amount of tax due (CIR v. First Philippine Industrial Corporation, G.R. No. 266404, August 23, 2023). Thus, where the waiver states “all internal revenue taxes” without express mention of particular taxes and the respective amounts, the waiver is invalid.(Applied Food vs. CIR, CTA No. 9952, May 23, 2024; Plastic Container Packaging Corporation, CTA Case No. 10095, May 23, 2024). Note: waiver was executed on June 21, 2013.

FLD/FAN WITHOUT RULING ON THE TAXPAYER’S ARGUMENTS IN THE REPLY TO THE PAN RENDERS THE ASSESSMENT VOID.  The BIR must consider the matters raised by the taxpayer. It cannot simply reproduce the PAN’s contents in the subsequent FLD/FAN without mentioning of the taxpayer’s arguments or any discussion on the merits (Ang Tibay Case and Avon Case). Where the FLD/FAN made no reference to the taxpayers reply to the PAN and the CIR did not mention any of the taxpayer’s arguments, much less give an intelligent discourse in resolving each matter raised, the assessment is void.  (Applied Food vs. CIR, CTA No. 9952, May 23, 2024; Plastic Container Packaging Corporation, CTA Case No. 10095, May 23, 2024; Neuftech Philippines v. CIR, CTA Case No. 10442, May 29, 2024)

 

 

BIR’S FAILURE TO PRESENT REGISTRY RECEIPT AND CERTIFICATION OF POSTMASTER WHEN RECEIPT OF PAN IS DENIED, RENDERS THE PAN INVALID; BIR MUST EXPLAIN WHY IT IS RESORTING TO SERVICE BY MAIL; FILING OF PROTEST WILL NOT CURE AN INVALID ASSESSMENT. The Supreme Court in the case of CIR v. Metro Star Suprema, Inc. (G.R. No. 185371, December 8, 2010) ruled that issuance and service of PAN is part of due process requirement. PAN is served through personal service, and if not practicable, by substituted service or by mail. The server shall make a written report under oath setting forth the manner, place and date of service, the name of the person who received the same and such other relevant information. The registry receipt shall constitute sufficient proof of mailing and shall be attached to the docket. Where the taxpayer denied receipt by mail, The BIR has burden to prove that the mailed matter was received. Where the BIR failed to present the registry receipt and the certification of the postmaster to prove od mailing an and receipt, nor present the testimony of the BIR server or personnel who delivered the mail to the post office, the PAN is void. Likewise, Service by FLD/FAN  shall be by personal delivery or when not practicable, by substituted service or by mail. Where the BIR did not present competent evidence proving that the personal service was not practicable, nor explained or discussed in the answer ot memorandum why the BIR resorted to service by mail, the FLD/FAN is void. Lastly, as held in the Supreme Court case of Mannasoft v. CIR,  (G.R. No. 244202, July 10, 2023), the defect due process will not be cured by the taxpayer’s protest to the FAN. (Ma. Erlinda Ong v. CIR, CTA Case No. 10265, May 3, 2024)

 

 

THE NON-SERVICE OF THE PAN AND THE IMPROPER SERVICE OF THE FLD/FAN VIOLATE PETITIONER’S RIGHT TO DUE PROCESS AND RENDER THE ASSESSMENT VOID. The taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN and that its issuance and service to the taxpayer is part of the due process requirement. As to the service of the FLD /FAN, Section 3.1.6 of RR No. 18-2013 expressly provides that the service shall be made by personal delivery, and it is only when personal service is not practicable that the notice shall be served by substituted service or by mail. Here, no PAN was received by the taxpayer and the FAN was improperly served because there was no competent evidence proving that personal service was not practicable. Thus, the deficiency tax assessments are void (Erlina T. Ong vs. CIR, CTA Case No. 10265, May 3, 2024).

 

180-DAY PERIOD OF INACTION RUNS FROM FILING OF THE PROTEST; CIR IS NOT GIVEN A FRESH OR SEPARATE 180-DAY PERIOD WITHIN WHICH TO DECIDE THE ADMINISTRATIVE APPEAL. The Supreme Court ruled that there is no new or separate 180-day period granted to the CIR to act on the administrative appeal. There is a singular 180-day period counted from the protest or the submission of the required documents. Thus, where the taxpayer’s 180-day period from receipt of the protest ended on May 20, 2018; taxpayer appealed the FDDA received on November 29, 2018 to the CIR on December 21, 2018 and filed the petition with the CTA on July 19, 2018, the CTA has no jurisdiction considering that 180-day period of inaction runs from May 20, 2018. (Friendlycare Foundation, Inc. v. CIR, CTA Case No. 10123, May 30, 2024)

 

CONSULTANCY SERVICES IS EXEMPT FROM VAT PURSURANT TO A TAX ASSUMPTION AGREEMENT BETWEEN THE PHILIPPINES AND JAPAN. In the case of Mitsubishi Corp. – Manila Branch v. CIR (G.R. No. 175772, June 5, 2017), the Supreme Court ruled that  the Philippines may assume all fiscal levies and taxes. This assumption is a form of concession [given to Japanese suppliers, contractors or consultants in consideration of a loan to be used for an implementation of a project], and collection of taxes from entities enjoying benefits of a tax assumption arrangement is erroneous. Thus, where in an Exchange of Notes between Philippines and Japan, the Philippines assumes taxes, the consultancy services supplied to Government is exempt from VAT (Japan Airport Consultants, Inc. et. al. v. CIR, CTA Case No. 10592, May 23, 2024).

 

NO SURCHARGE AND INTEREST SHOULD BE IMPOSED IF ASSESSMENT IS INCORRECT.

Surcharge and interest are computed on the basis of tax. Where the assessment is incorrect, surcharge and interest should be cancelled. (Japan Airport Consultants, Inc. et. al. v. CIR, CTA Case No. 10592, May 23, 2024)

 

COURT MAY RULE ON ASSESSMENT IF APPLICATION FOR COMPROMISE IS BASED ON DOUBTFUL VALIDITY. The CIR’s decision on a taxpayer’s applications for compromise may be reviewed by the court touching on validity of the assessment, if the ground cited to support the application for compromise is doubtful validity of the assessment. Where the basis for compromise is financial incapacity, the court cannot rule on the validity of the assessment. (Dante R. Gutierrez v. CIR, CTA Case No. 10477, May 10, 2024; CIR v. Oro Dare Logistics; CTA EB No. 2699, CTA Case No. 9846, May 10, 2024) Dissenting Opinion: Court may review validity of the assessment.

 

THIRD PARTY INFORMATION (TPI) INFORMATION REQUIRES CERTIFICATIONS. Sources of TPI and confirmation requests and/or certifications/sworn statements from third parties must be presented in evidence, otherwise, the discrepancies based on third-party information is void. (Japan Airport Consultants, Inc. et. al. v. CIR, CTA Case No. 10592, May 23, 2024)

 

IMPORTATION OF RICE REQUIRES IMPORT PERMIT. NFA MC No. AO-2015-06-12, which has the force and effect of law requires importers of rice to secure an Import Permit per Bill of Lading. Without the import permit, the shipment is illegal. (Calumpit Multi-Purpose Cooperative v. Bureau of Customs et. al. CTA Case No. 10023, UDK SP 028, May 30, 2024)

 

SURVEILLANCE REQIURES THE BIR EXAMINER TO BE IN THE OFFICE OF THE TAXPAYER. In issuing  48-Hour Notice, 5-Day VCN and Closure Order, RMO No. 3-2009 requires that a taxpayer must be noncompliant. The taxpayer, to be considered non-compliant, must have resulted from surveillance/stocktaking activities of the BIR. The BIR must have initially conducted a surveillance or stocktaking against the taxpayer. Otherwise, the taxpayer may not be categorized as a non-compliant taxpayer. Where the BIR did not conduct a surveillance for 10 days and the BIR examiner only visited only once for four hours and rather proceeded to the post-evaluation, the taxpayer cannot be considered non-compliant (Rebecca Duka v. CIR, CTA Case No. 10393, May 29, 2024)

 

WARRANT OF GARNISHMENT (WG) SHOULD BE QUESTIONED IN THE CTA WITHIN 30 DAYS FROM RECEIPT. The CTA has jurisdiction to review the warrant of garnishment under “other matters” within 30 days. Where the WG was received in 2016, but the petition was filed only in 2021, the period to question WG has lapsed. (Dante R. Gutierrez v. CIR, CTA Case No. 10477, May 10, 2024)

 

CTA HAS JURISDICTION TO REVIEW THE CIR’S DISAPPROVAL OF AN OFFER TO COMPROMISE. The CTA has authority to take cognizance of “other matters,” arising from the National Internal Revenue Code of 1997, as amended (Tax Code), and other laws administered by the BIR, which necessarily includes rules, regulations, and measures on the collection of tax. Here, the filing of the present petition was prompted by the CIR’ s Notice of Denial and the simultaneous attempt to collect alleged deficiency taxes from Oro Dare; matters that fall within the Court’s jurisdiction over “other matters,”.  The scope of CTA’s review includes the correctness of the CIR’ s ruling relative to the compromise, in which an attempt to collect had been incorporated, and the attendance of any grave abuse of discretion (CIR vs. Oro Dare Logistics Corporation, CTA EB No. 2699, May 10, 2024).

 

REFUND / ISSUANCE OF TAX CREDIT

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

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

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

• The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;
• 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.
  • 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. (Orica Philippines, Inc. v. CIR, CTA Case No. 10152, May 8, 2024)

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;
• 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
• 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” (Maxima Machineries, Inc. CTA Case No. 9453, June 30, 2021)

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. In this case, the exempt sales must be considered in the allocation as well.
  • The law does not require that the input tax be directly attributable to zero-rated sales. CIR v. Oceanagold (Philippines), Inc. v. CTA EB No. 2721, CTA Case No. 9957, May 10, 2024)
• Input tax must comply with invoicing requirements.
• the input taxes have not been applied against output taxes during and in the succeeding quarters.

REFUND OF UNUTILIZED CREDITABLE WITHHOLDING TAX

• In filing a claim for refund or credit of creditable withholding tax, compliance with the following must be met:

 

1. The claim for refund must be filed within the two-year prescriptive period. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024; Global Energy Supply Corporation v. CIR, CTA Case No. 10501, May 3, 2024)

 

• 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. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024; Global Energy Supply Corporation v. CIR, CTA Case No. 10501, May 3, 2024)

 

• The law prescribes two options to a taxable corporation whose total quarterly income tax payment in a given taxable year exceeds its total income tax due. The taxpayer may either file a tax refund (either in the form of cash or tax credit certificate) or carry over the excess credit. However, once the carry-over option is taken actually or constructively it becomes irrevocable for that taxable period. The phrase “for that taxable period” refers to the taxable year when the excess income tax, subject of the option, was acquired by the taxpayer.
  • In exercising its option, the corporation must signify in its final adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024)

 

2. The fact of withholding must be established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024; Global Energy Supply Corporation v. CIR, CTA Case No. 10501, May 3, 2024)

 

• Proof of actual remittance is not a condition to claim for a refund of unutilized tax credits.(Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024)
• The lack of taxpayer’s address is not fatal to the petitioner’s claim as the taxpayer’s name and TIN were clearly stated in the forms, showing that the forms were indeed issued to the taxpayers (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024)

 

3. The income upon which the taxes were withheld must be included in the return of the recipient.  (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024; Global Energy Supply Corporation v. CIR, CTA Case No. 10501, May 3, 2024)

 

• A general ledger without the detailed transactions comprising the revenue/sales wherein the court cannot trace or verify whether the income payments formed part of the sales in the ITR is not sufficient to prove the claim. (Ford Group Philippines., v. CIR, CTA Case No. 10067, May 8, 2024)

 

REFUND OF ERRONEOUSLY OR ILLEGALLY COLLECTED TAXES

CLAIM FOR REFUND OF ERRONEOUSLY PAID TAX FILED AFTER TWO YEARS PRESCRIBES; 6-YEAR PRESCRIPTIVE PERIOD UNDER CIVIL CODE IS NOT APPLICABLE.

The taxpayer has 2 years from date of payment of tax to file an administrative claim before filing a judicial claim with the court. Both claims must be filed within 2 years, regardless of any supervening cause that may arise after the payment. Thus, where the DST and withholding tax were paid on July 3, 2014 and July 9, 2014, respectively, the taxpayer until July 3, 2016 and July 9, 2016 to file its administrative and judicial claim. Considering that the admin and judicial claim were filed only on December 12, 2016 and February 7, 2022, respectively, the CTA has no jurisdiction. Moreover, the 6-year prescriptive period for actions under the Civil Code will not apply considering that the Tax Code is a special law that explicitly provides for mandatory period for claiming a refund for taxes erroneously paid. (Lyk Property Holdings, Inc. v. CIR, CTA Case No. 10754, May 8, 2024).