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COURT OF TAX APPEALS DECISIONS

December 2021

 

REFUND OF UNUTILIZED CREDITABLE WITHHOLDING TAX

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

 

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

 

 

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

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

 

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

 

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

 

TAX ASSESSMENTS

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

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

 

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

 

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

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

BIR RULINGS

• Sale of house and lot under economic and low-cost housing project of a company duly registered with the Board of Investments under Executive Order (EO) No. 226 is exempt from income tax and creditable withholding tax on its income received directly in connection with the mentioned project.
  • The tax treatment will be applied to socialized house and lot units sold to qualified beneficiaries.
  • In addition, sale of house and lot and other residential dwellings with selling price of not more than Php 3,199,200 is VAT exempted.
  • Units used for commercial purposes such as leasing, retail stores, offices and etc. shall be subject to the payment of appropriate taxes. (Certificate of Tax Exemption No.: BOI-LEH-100-2022, PSH-105-2022, PSH-106-2022, PSH-107-2022, PSH-108-2022, BOI-LEH-109-2022, BOI-LEH-110-2022, BOI-LEH-111-2022, BOI-LEH-112-2022)
• Transfer of shares under a global restructuring plan from one company to another in the form of additional paid-in capital, without the issuance of additional shares of stock is deemed as capital investment and not subject to capital gains tax, income tax and donor’s tax.
  • It is excluded in the computation of taxable income as they are not considered profits or earnings derived from normal business operations.
  • The transfer is not considered to be a sale, barter or exchange as the transfer was made pursuant to global restructuring plan.
  • Also, it is not subject to donor’s tax as there is no intention to donate. (BIR Ruling No: BOT-101-2022, March 25, 2022)
• Dacion en pago of real properties held for investment purposes will be:
  • Subject to 6% capital gains tax (CGT) – actual use of the property will determine whether it is an ordinary asset or capital asset.
  • Subject to documentary stamp tax (DST) for the conveyance of real property
  • Exempted from creditable withholding tax (CWT) and value-added tax (VAT) (BIR Ruling No: OT-102-2022, March 25, 2022)
• A non-stock and non-profit corporation with primary purpose of being an educational institution is exempted from income tax and VAT only on revenues or receipts generated from:
  • Tuition fee and other school fees: and
  • Income derived from the operation of cafeterias/canteen, dormitories, and bookstores located within its premises, owned and operated by the corporation to be actually, directly and exclusively used for educational purposes.
  • However, the corporation is liable to all other including those below:
    • Income derived from any of its properties, real or personal, or any activity conducted for profit, which income should be returned for taxation unless they are actually, directly and exclusively used for educational purposes;
    • If engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, its revenues derived therefrom shall be subject to the 12% VAT, in case the gross receipts from such sales exceed Three Million Pesos (Php3,000.000.00), or percentage tax, if the gross receipts do not exceed Php3,000.000.00;
  • Acts as an employer and its employees receive compensation income subject to the withholding tax (Certificate of Tax Exemption NO: SH30-103-2022, March 25, 2022)
• Declaration or distribution of property dividends to shareholders are exempt from income tax.
  • The company does not realize any gain on the declaration of shares and thus are not subject to capital gains tax.
  • Also, the declaration or distribution of shares of stocks as dividends is not a sale, barter or exchange and does not have a donative intent is likewise not subject to VAT or donor’s tax
  • Intercorporate dividends – dividends received by a resident foreign corporation from a domestic corporation shall not be also subject to income tax and consequently to withholding tax. (BIR Ruling No. OT-092-2022, March 10, 2022)

 

BIR RULINGS

• Taxpayer is exempt from income tax and creditable withholding tax on its income received directly in connection with its economic and low-cost housing project, consisting of house and lot units solely for family home or dwelling purposes, a project duly registered with the Board of Investments (BOI).
  • Moreover, the sale by the Company of residential lot valued at P1,919,500.00 and below, or house and lot and other residential dwellings valued at P3,199,200.00 and below, is VAT-exempt under Section 109 (1)(P) of the Tax Code. Provided, however, that beginning January 01, 2021, the VAT exemption shall only apply to sale of house and lot and other residential dwellings with selling price of not more than P3,199,200.00.
  • However, the sale of house and lot units in excess of the house and lot units registered with the BOI, if any, including those units used for commercial purposes such as leasing, retails stores, offices, etc. shall be subject to the payment of appropriate taxes under the Tax Code. (BIR Ruling No. 011-2022, BIR Ruling No. 012-2022, BIR Ruling No. 018-2022, BIR Ruling No. 020-2022, BIR Ruling No. 023-2022, BIR Ruling No. 026-2022, BIR Ruling No. 027-2022, BIR Ruling No. 028-2022, BIR Ruling No. 029-2022, BIR Ruling No. 030-2022, BIR Ruling No. 037-2022)

• A non-stock corporation or association organized and operated exclusively for religious purposes, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person is exempt from income taxation. However, income of whatever kind and character of religious institutions from any of their properties, real or personal, regardless of the disposition made of such income, shall be subject to tax.
  • Hence, any income derived from the sale of real property, regardless of how income is used, whether for profit or non-profit purposes, is subject to the corresponding internal revenue taxes imposed under the Tax Code.
  • Therefore, the sale of the property by a religious institution is subject to capital gains tax based on the gross selling price or current fair market value, whichever is higher, of such land. Moreover, the Deed of Absolute Sale of said real property shall be subject to DST. (BIR Ruling No. 013-2022)

• Cancellation of shares and re-issuance thereof to the Republic of the Philippines pursuant to several Supreme Court decisions, is exempt from capital gains tax, donor’s tax and documentary stamp tax.
  • Capital Gains Tax - The transfer of shares in favor of the Republic of the Philippines without any monetary consideration, and made in order to give effect to the mentioned laws, is not subject to capital gains tax.
  • Donor’s Tax - There is no intention to donate as the transfer was made in compliance with the above-mentioned laws. The transfer of the legal title to the Republic of the Philippines is only a confirmation of its ownership over the said shares, and there is no donative intent or act of liberality involved.
  • Documentary Stamp Tax - There is no sale, agreement to sell, or memorandum of sale, or deliver or transfer contemplated under Sec. 175 of the Tax Code. However, the notarial acknowledgment on the Deed of Compliance is subject to the documentary stamp tax. (BIR Ruling No. 016-2022; (BIR Ruling No. 039-2022)

•  Merger of two companies, whereby the assets and liabilities are transferred in exchange of shares of stock is considered as tax-free merger, where no gain or loss shall be recognized from the transfer all assets and liabilities.
  • Moreover, no gain or loss shall be recognized by the transferee on its receipt of assets and liabilities of the transferor.
  • One of the requisites of a valid donation is the intent to do an act of liberality. Where the purpose of donation is purely for legitimate business purposes – there is no intention to donate and the transaction is bona fide effected solely for business reasons -  the merger will not be subject to gift tax. (BIR Ruling No. 017-2022; (BIR Ruling No. 019-2022)

• An entity engaged by National Housing Authority is exempt from project-related income taxes and creditable withholding taxes on it income received directly in connection with the construction/development of socialized housing units.
  • Moreover, the delivery of socialized housing units are exempt from VAT provided that selling price does not exceed the VAT threshold.
  • However, the purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. The seller must issue VAT exempt official receipts on its gross receipts from the said socialized housing project. (BIR Ruling No. 023-2022)

• Retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer are exempt from income tax, provided, that the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement  shall not be included in gross income and shall be exempt from taxation.
  • Where the Company has an approved reasonable retirement benefit plan, the retirement benefits that will be received by its retiring employee shall be exempt from income tax, provided that the employees meet two (2) conditions: (1) the employee had been in the service of the same private firm for at least ten (10) years; and (2) he is at least fifty (50) years old at the time of retirement.
  • Hence, if the retiring employee is at least sixty (60) years old but has not been in the service of the for at least ten (10) years at the time of his retirement, the retirement benefits that he will receive shall not be exempt from income tax.
  • Moreover, pursuant to Section 2.78.1 of Revenue Regulations (R) No. 2-98, as amended, the terminal pay, i.e., commutation and payment of monetized unused vacation leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently to the withholding tax. Conversely, the cash equivalent of vacation leave exceeding ten (10) days is subject to tax. However, this same principle cannot apply to sick leave credits since an employee must actually go on sick leave to be able to avail of said leave credits.
  • It is, however, understood that this exemption does not include the payment of the retiring employees' salaries, except if minimum wage earners, and the payment of the 13th month pay and other benefits in excess of the Php90,000.002 threshold which shall be subject to income tax, and consequently to withholding tax, under Section 2.78.1 (A)(3)(a) and (A)(7) of RR No. 2-98, as amended. (BIR Ruling No. 024-2022)

• An invention is exempt from all kinds of taxes for the first 10 years from the date of first sale provided that tax exemption privilege pertaining to invention shall be extended to the legal heirs or assignee upon the death of the investor. The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports.
  • The invention must be new and original and the technology is newly developed by local researchers or adopted locally from foreign sources.
  • In other words, the tax exemption for the inventor only and not for any other entity that commercially produces and distributes the invented product.BIR Ruling No. 025-2022)

• A non-stock, no-profit educational institution is  exempt from income tax only on the following revenues or receipts:
  • Tuition and Miscellaneous Fees; and
  • Income derived from the operations of cafeterias/canteens, dormitories and bookstores located within its premises, owned and operated by institutions to be actually, directly and exclusively used for educational purposes.
• It is also exempt from VAT on educational services (BIR Ruling No. 031-2022, BIR Ruling No. 034-2022)

• The Deed of Absolute Donation being a gift in favor of a political subdivision of the Government, is exempt from the payment of the donor’s tax pursuant to Section 101 (A) (1) of the Tax Code.
  • The Deed of Donation is likewise not subject to the Documentary Stamp Tax (DST) under Sec. 196 but only to the DST of P15.00 imposed under Sec. 188.  (BIR Ruling No. 035-2022)

• That the Deed of Absolute Donation being a gift in favor of a religious corporation is exempt from the payment of the donor’s tax pursuant to Section 101 (A) (1) of the Tax Code, subject to the condition that not more than thirty percent (30%) of said gift shall be used by the done for administration purposes.
  • The Deed of Donation is likewise not subject to the Documentary Stamp Tax (DST) under Sec. 196 but only to the DST of P15.00 imposed under Sec. 188.  (BIR Ruling No. 036-2022, BIR Ruling No. 038-2022)

• The transfer of the legal title of the company shares from its former trustees to new sets of officers over the company shares, is exempt from the following taxes:
  • Capital gains tax  considering that the transfer involves neither monetary consideration nor change in beneficial ownership as the transfer for the new set of officers will be limited only to the transfer of the legal title.
  • Donors tax considering that there is no intention on the part of any of the parties to donate the shares since the transaction is purely for a legitimate business purpose
  • Documentary stamp tax as the transfer is without change in beneficial ownership (BIR Ruling No. 042-2022)

CLARIFICATION ON THE INCOME TAX TREATMENT OF DIFFERENT CLASSIFICATIONS OF EDUCATIONAL INSTITUTIONS (Revenue Memorandum Circular No. 78-2022, June 8, 2022)

• Proprietary Educational Institution refers to any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education (DepEd), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations.
• Income from proprietary educational institutions which are domestic corporations is subject to ten percent (10%) preferential income tax. Provided that beginning July 1, 2020 until June 30, 2023, the tax rate shall be one percent (1%)
• Moreover, the same tax rate shall be applicable to a domestic educational institution which is also a non-stock, non-profit (NSNP) whose net income or assets accrue/inure to or benefit any member or specific person.
• If the revenue or income not used actually, directly and exclusively for education purposes exceeds fifty percent (50%) of the total gross income derived from all sources, the regular corporate income tax shall be imposed on the entire taxable income of the institution.
• Applicable tax on other proprietary educational institutions:
  • Individual - income of an individual, trust, or estate that owns the proprietary educational institution as a sole proprietor, is taxable under Sections 24 and 25 of the Tax Code, and the applicable tax rates shall depend on the citizenship and residence of such individual, trust, or estate.
  • Other Corporations - The income of a corporation, as defined under Section 22(B) of the Tax Code, that is not organized as domestic corporation but is classified as resident foreign corporation, is taxable under Section 28(A) of the Tax Code.
• Contributions or Gifts/Donations to Educational Institutions
  • Individuals – an amount not in excess of 5% of their taxable income.
  • Corporation – an amount not in excess of 10% of their taxable income
  • Contributions or gifts actually paid or made within the taxable year to domestic corporations organized and operated exclusively for educational purposes may be allowed as deduction from the gross income in an amount provided that no part of the net income or asset of the done corporations inures to the benefit of any individual or private stockholder.
  • The amount may be deductible in full if the conditions under Section 34(H)(2)(c) of the Tax Code are complied with.
  • Certain gifts or donations in favor of an NSNP educational institution may be exempt from donor's tax, subject to the condition that not more than thirty percent (30%) of said gifts shall be used by the donee institution for administration purposes
• Withholding Tax:
  • An educational institution shall be constituted as withholding agent if he acts as an employer or makes payments to individual or corporations subject to withholding tax pursuant to Section 57 of the Tax Code.
  •  NSNP educational institutions are not subject to creditable final withholding taxes on their revenues and assets used actually, directly and exclusively for educational purposes.
  • Income payments to proprietary educational institutions, including NSNP education institutions, which are subject to preferential income tax are subject to creditable and final withholding tax.
  • Educational institutions organized as sole proprietorships under Sec. 24 (A)(2) (a or b) are also subject to creditable and final withholding taxes.
• NSNP educational institutions are required to secure a one-time certificate of income tax exemption or exemption ruling from the BIR. Otherwise, the income of the NSNP educational institution shall be subject to applicable taxes under the Tax Code.

ALL FIELD AUDITS ARE SUSPENDED UNTIL FURTHER NOTICE; NO NEW LETTER OF AUTHORITY/MISSION ORDER WILL BE ISSUED (Revenue Memorandum Circular No. 77-2022, May 30, 2022)

• All field audits and other field operations of the Bureau of Internal Revenue covered by Letters of Authority/Mission Orders relative to examinations and verifications of taxpayers’ books of accounts, records, and other transactions are suspended until further notice.
• No new Letters of Authority/Mission Orders will be further issued.
• No written orders to audit and/or investigate taxpayers’ internal revenue tax liabilities shall be issued and/or served, except in the following cases:
  • Investigation of cases prescribing on or before October 31,2022;
  • Processing and verification of estate tax returns, donor's tax returns, capital gains tax returns and withholding tax returns on the sale of real properties or shares of stocks together with the documentary stamp tax returns related thereto;
  • Examination and/or verification of internal revenue tax liabilities of taxpayers retiring from business; or Audit of National Government Agencies (NGAs), Local Government Units (LGUs) and Government Owned and Controlled Corporations (GOCCs) including subsidiaries and affiliates; and
  • Other matters/concerns where deadlines have been imposed or under the orders of the Commissioner of Internal Revenue.
• Service of Assessment Notices, Warrants, and Seizures Notices should still be effected.
• Taxpayers may voluntarily pay their known deficiency taxes without the need to secure authority  from concerned Revenue Officials.

COURT OF TAX APPEALS DECISIONS

November 2021

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

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

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

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

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

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

 

SALARIES OF FILIPINO ADB EMPLOYEES ARE SUBJECT TO INCOME TAX.

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

 

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

 

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

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

 

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

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

 

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

 

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

 

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

 

TAX ASSESSMENTS

 

ON LETTER OF AUTHORITY (LOA)

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

 

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

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

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

 

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

 

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

 

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

 

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

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

 

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

 

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

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

 

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

 

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

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

 

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

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

 

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

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

 

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

 

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

•  More importantly, it must be emphasized that for income tax purposes, a taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein. Thus, even when a taxpayer has not claimed expenses or declared a lesser amount thereof, in the Income Tax Return, such action is allowed, and shall not necessarily result in the imposition of income tax on the undeclared deduction or unaccounted expenses.  (CIR v. Fort 1 Global City Center, Inc., CTA EB No. 2233, CTA Nos. 9490 & 9503, November 10, 2021)

 

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

 

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

 

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

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

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

 

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