LETTER OF AUTHORITY
A LETTER OF AUTHORITY (LOA) MAY COVER MORE THAN ONE TAXABLE YEAR. RMO 43-1990 provides that if the audit of the taxpayer shall include more than one taxable period, the other periods or years shall be specifically included in the LOA. In Commissioner of Internal Revenue (CIR) v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010, the Supreme Court ruled that if the CIR intended to include another taxable year, this should have been done by “including it in the LOA or issuing another LOA”. Thus, where the BIR issued a LOA covering January 1, 2010 to December 31, 2013, the LOA is valid. (Commission on Elections v. CIR, CTA Case No. 10588, November 13, 2024)
A REASSIGNMENT OF REVENUE OFFICER (RO) REQUIRES A NEW LOA. The reassignment, transfer, or substitution of an RO requires the issuance of a new or amended LOA to authorize the new RO to continue the audit or investigation. A Memorandum of Assignment, Referral Memorandum, or any equivalent document cannot serve as a substitute for the required LOA. Where the LOA was issued authorizing a group of examiners; and the audit was later transferred to another group of examiners through a memorandum of assignment, the assessment is considered void. Moreover, the taxpayer can question the authority despite failure to raise the issue at the administrative level (CIR v. Sun Life Grepa Financial, Inc. CTA EB No. 2826, CTA Case No. 10080, December 12, 2024)
AN UNREVALIDATED LOA REMAINS VALID EVEN THOUGH THE PERIOD TO CONDUCT AUDIT HAS LAPSED. Under RMO No. 44-2010, an LOA need not be revalidated beginning June 1, 2010. The effect of failure to revalidate is merely to subject the examiners to applicable administrative sanctions but not to render null the LOA. Thus, where the LOA was not revalidated despite the lapse of period to audit, the same remains valid. (Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)
A FINAL ASSESSMENT NOTICE AND/OR FORMAL LETTER OF DEMAND (FAN/FLD) REMAINS VALID DESPITE THE LACK OF AUTHORITY OF ADDITIONAL EXAMINERS WHO RECOMMENDED THE ISSUANCE OF THE FAN/FLD. All audit/investigations should be accompanied by an LOA. Where additional examiners who prepared and signed the audit reports and memorandum recommending the issuance of the FLD/FAN were not authorized under a new or amended LOA, but the original examiner has valid authority to conduct the audit; and where the original examiner recommended the issuance of the Preliminary Assessment Notice (PAN) but the taxpayer did not reply to it, and the additional examiners who prepared the FAN/FLD merely adjusted the interest, the FLD/FAN remains valid. (Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)
PRESCRIPTION
THE 10-YEAR PRESCRIPTIVE PERIOD SHALL NOT APPLY DUE TO THE BIR’S INCONSISTENT APPLICATION OF 25% AND 50% SURCHARGE AND BIR’S FAILURE TO PROVE ALLEGED WILLFUL NEGLECT TO FILE RETURN. In Mcdonald’s Case, G.R. No. 247747, August 8, 2023, to apply the 10-year prescriptive period, the assessment notice must state the basis of allegations of falsity or fraud and BIR must have not acted in a manner that is inconsistent with the invocation of the extraordinary prescriptive period or have otherwise misled the taxpayer that the basic period will be applied. Thus, where the PAN and FLD/FAN reflected 50% surcharge but the actual amounts were equivalent to 25% of the basic tax due; the BIR's uncertainty and indecision regarding whether a 25% or 50% surcharge should apply misled the taxpayer and prejudiced its defense, as noted in McDonald's, the 10-year prescriptive period does not apply (United Graphic Printing Corporation v. CIR, CTA Case No. 10610, October 31, 2024)
AN UNVERIFIED THIRD-PARTY INFORMATION (TPI) AND EXECUTION OF WAIVER CANNOT BE A VALID BASIS OF A 10-YEAR PRESCRIPTIVE PERIOD BASED ON ALLEGED FILING OF A FALSE RETURN. In allegation of false return, the McDonald’s case ruled that the BIR must prove by clear and convincing evidence that the error or misstatement is deliberate or willful, unless there is prima facie evidence of falsity or fraud (30% threshold), in which case, the taxpayer has burden to prove otherwise. If the taxpayer failed to overcome the presumption, the 10-year period applies. If the taxpayer overturned the presumption (by demonstrating that the misstatement inadvertent or attributable to mistake or not deliberate), the BIR cannot rely on the presumption. In this regard, the BIR must observe the following due process: first, the assessment notice must state that the 10-year period is being applied with the basis of allegation of falsity and fraud; and second, the BIR must not act in a manner inconsistent with the invocation of the extraordinary period or have otherwise misled the taxpayer that the basic period will apply. As regards first requisite, the FLD/FAN and Final Decision on Disputed Assessments (FDDA) provide that the BIR is applying the 10-year period and a 50% surcharge was imposed due the alleged failure to report sales in an amount exceeding 30% of that declared in the return. In CIR v. MCC Transport Singapore PTE. LTD, G.R. No. 255382, June 27, 2021, the Supreme Court ruled that unverified TPI cannot serve as a proper factual basis of an assessment. An assessment must be based on actual facts and substantiated by evidence. Without the necessary confirmation or verification, the data obtained from third-party matching cannot serve as factual basis. As regards the second requisites, the prior execution of a waiver is meant to extend the basic three-year period, which is inconsistent with the invocation of the 10-year extraordinary prescriptive period. (Wellcargo Customs Brokerage, Inc. v. CIR, CTA Case No. 10817, October 2, 2024)
A WAIVER EXECUTED AFTER THE 3-YEAR PERIOD IS HAS NO EFFECT; ITEM OF ASSESSMENT BECOMES INVALID. The BIR has 3 years to assess the taxpayer counted from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later, except, among others, when BIR and taxpayer executed a waiver. Where the waiver was notarized and accepted on May 26, 2015 and May 29, 2015, but the assessment prescribed in April 2015, the assessment for withholding tax is void. (Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)
HONEST MISTAKE AND RELIANCE IN GOOD FAITH FROM BANGKO SENTRAL NG PILIPINAS ADVICE NEGATES FRAUD. In invoking a 10-year prescriptive period, a substantial under declaration of taxable sales, receipts or income or a substantial overstatement of deductions is prima facie evidence of a false or fraudulent return and can still be contradicted by other evidence. Moreover, the error or misstatement in the false return should be deliberate or willful. Where the accused did not include in his tax return the income from sale of gold with the BSP due to reliance in good faith from BSP Davao City Buying Station advice, the honest mistake and reliance with BSP does not make the annual ITR false. (People v. Rizaldy Goloran Chua, CTA Crim Case Nos. O-792 & O-793, October 29, 2024)
LGU MUST PROVE FRAUD FOR THE 10-YEAR PRESCRIPTIVE PERIOD TO APPLY. Local taxes shall be assessed within five (5) years from the date they become due, and no action for collection, whether administrative or judicial, shall be instituted after such period, except when, among others, there is fraud or intent to evade taxes, in which case the extraordinary period of 10 years shall apply. Fraud is not presumed. Thus, where the LGU did not offer any evidence to substantiate its claim of fraud the 5-year period applies. (City Government of Valenzuela et. al v. NLEX Corporation, CTA AC No. 296, November 15, 2024)
NOTICE OF DISCREPANCY (NOD)
ABSENCE OF NOD RENDERS THE ASSESSMENT VOID. In the case of CIR v. Pilipinas Shell Petroleum Corp, G.R. Nos. 197945 & 204119-20, July 9, 2018, the Supreme Court ruled, among others, that the taxpayer was deprived of due process when the Commissioner failed to issue a NIC (now NOD). In Avon Case, G.R. Nos. 201398-9, October 3, 2019, the Supreme Court ruled that Notice of Informal Conference is a part of due process. Thus, where BIR assessed taxpayer for deficiency income tax and VAT, and the PAN was issued on January 29, 2021, without the Notice of Information Conference/Notice of Discrepancy, the taxpayer’s right to due process was violated. (Wellcargo Customs Brokerage, Inc. v. CIR, CTA Case No. 10817, October 2, 2024)
PRELIMINARY ASSESSMENT NOTICE (PAN)
REGISTRY RECEIPT, AFFIDAVIT OF SERVICE AND REPORT ON SERVICE ARE NOT SUFFICIENT TO ESTABLISH RECEIPT OF PRELIMINARY ASSESSMENT NOTICE. Under the NIRC, the taxpayer must be notified via PAN of the BIR’s findings as part of due process. One of the recognized modes of service of PAN is via registered mail. If the taxpayer denies receipt of the PAN, the BIR must prove that the notice was received. In the cases of CIR v. Villanueva (G.R. No. 249540, 28 February 2024) and CIR v. T Shuttle Services, Inc. (G.R. No. 249540, 28 February 2024), the Supreme Court ruled that BIR must prove that authorized representatives received the PAN. Mere presentation of the registry receipts, without authentication or identification that the signature appearing on the receipt is taxpayer’s or his or her authorized representative’s, is not sufficient to prove actual receipt by the taxpayer. Thus, where the affidavit of service does not verify the taxpayer’s actual receipt, and the Report on Service by Mail/Courier for the PAN does not demonstrate actual receipt by the taxpayer; and the BIR failed to show that authorized representative received the PAN, the assessment is cancelled (Broadcast Enterprises & Affiliated Media (BEAM), Inc. v. CIR, CTA Case NO. 10712, November 19, 2024)
SERVICE OF PAN VIA PRIVATE COURIER REQUIRES PROOF OF RECEIPT; SERVICE OF FLD/FAN WITHIN THE 15-DAY PERIOD TO REPLY TO PAN VIOLATES THE TAXPAYER’S DUE PROCESS. One of the recognized modes of service of a PAN is through a reputable professional courier service. In such a case, the server accomplishes the bottom portion of the same notice and makes a written report under oath before a Notary Public or any person authorized to administer an oath. Additionally, the official receipt issued by the professional courier company containing sufficiently identifiable details of the transaction, must be attached to the case docket. An official receipt for courier services alone is not sufficient proof that the subject parcel was received as it is a mere written acknowledgment of the fact of payment in money or other settlement. It does not prove delivery. Moreover, in the case of Prime Steel Mill, Incorporated v. Commissioner of Internal Revenue (G.R. No. 249153, September 12, 2022), citing Commissioner of Internal Revenue v. Yumex Philippines Corporation (G.R No. 222476, May 5, 2021, the Supreme Court has held that the 15-day period provided under RR No. 12-99 for a taxpayer to reply to a PAN forms part and parcel of the due process requirement in the issuance of a deficiency tax assessment and the same must be strictly complied with; otherwise, the assessment becomes null and void. Where the PAN was received on 07 January 2016; but the BIR issued the FAN on 14 January 2016 within the mandatory 15-day period, the BIR violated the taxpayer's right to due process by issuing a FAN without even awaiting its reply to the PAN, or at least, the lapse of the period provided for the filing thereof. (United Graphic Printing Corporation v. CIR, CTA Case Ni. 10610, October 31, 2024; CIR v. HI-Stakes Gaming Incorporated, CTA EB No. 2841m CTA Case No. 10172, October 3, 2024; Health Plan Philippines, Inc. v. CIR, CTA Case No. 10262, December 4, 2024; John V. Olegarion v. CIR, CTA Case No. 10967, December 10, 2024)
FAILURE TO DENY AUTHORITY OF ACCOUNTING STAFF/PERSONNEL TO RECEIVE THE PAN AND FDDA RENDERS THE SUBSTITUTED SERVICE VALID. The service of the PAN and FDDA may be made through a substituted service, which can be resorted to among others when the party is not present at the registered or known address, in which case, the notice may be left at the party's registered or known address, with his/her/its clerk or with a person having charged thereof. Where the PAN and the FDDA were respectively received by a certain Ms. Celia M. Mxxx, an accounting staff and Ms. Cris Marie Cordero, an accounting personnel, without the taxpayer denying that these persons are not its employees or that they are not clerks or persons having charge of petitioner's place of business; an where the taxpayer’s witness testified he received the PAN and FDDA as his services was engaged by the taxpayer, the taxpayer is considered to have validly received the PAN and FDDA (Goodyear Steel Pipe Corporation v. CIE, CTA Case No. 10555, December 10, 2024)
FINAL ASSESSMENT NOTICE AND/OR FORMAL LETTER OF DEMAND
WRONG VENUE OF FILING OF PROTEST RENDERS THE ASSESSMENT FINAL AND EXECUTORY; WARRANT OF DISTRAINT AND/OR LEVY (WDL) REMAINS VOID DUE TO PRESCRIPTION. RMC 39-13 provided the list of the offices in which taxpayers may file their protest. These are: (1) The Office of the concerned Regional Director; (2) The office of the ACIR-LTS; (3) The office of the Assistant Commissioner-Enforcement Service ("ACIR-ES"); and (4) The office of whoever signed the PANs, FANs, and FLD. Even though the PAN was signed by the Deputy Commissioner, who is an officer of an Regular Large Taxpayer Audit Division, an office under ACIR-LTS, the taxpayer should have filed the protest to the office of the ACIR-LTS, not with the office of the Deputy Commissioner. Thus, the assessment becomes final and executory. Nevertheless, the WDL is void if the prescription sets in regardless whether the assessment is final and executory. (Alphaland Balesin Resort Corporation v. CIR, CTA Case NO. 10485, November 5, 2024)
TAXPAYER’S FAILURE TO DISPUTE ASSESSMENT RENDERS THE ASSESSMENT FINAL, EXECUTORY AND DEPENDABLE; ASSESSMENT CANNOT BE APPEALED TO THE CTA. An assessment is considered "disputed" after a protest is filed against it within 30 days from date of receipt thereof. If a taxpayer fails to file its protest, the assessment becomes final, executory and demandable, and the CTA has no jurisdiction to entertain the case. One of the modes of service of the FLD is by service through registered mail. Where the taxpayer directly denies receipt of the FLD, the burden of proving the actual receipt of the same lies with the BIR. Where it was admitted by the taxpayer that her staff received the FLD, but the taxpayer failed to timely protest the FLD, the FLD cannot be considered as a disputed assessment. Since there is no disputed assessment, nothing can be acted or decided upon by the BIR and nothing can be brought before the CTA for review (Jeanifer P. Ajoc v. CIR, CTA Case No. 10642, December 17, 2024; see also (Ortiz Memorial Chapel, Inc. v. CIR, CTA EB No. 2651, CTA Case No. 9805, December 6, 2024)
AN ASSESSMENT, WHICH WAS NOT EXPRESSLY DENOMINATED AS A "FORMAL LETTER OF DEMAND" DOES NOT AFFECT ITS VALIDITY. The Supreme Court has recognized that there is no specific definition or form of an assessment (CIR v. Fitness By Design, Inc., G.R No. 215957, November 9, 2016, 799 Phil391-420.) It has been referred to as a "formal assessment" and/or "final assessment." What is important is that Formal Letter of demand and FAN must state the facts, law, rules, and regulations upon which the computation of tax liabilities is founded. Furthermore, the formal assessment notice must be served upon the taxpayer; it shall include a demand for payment within a specified period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor." Thus, the assessment served upon taxpayer denominated as a "Formal Assessment Notice" rather than a "Formal Letter of Demand" is not a fatal mistake that invalidates the tax findings against it when the FAN contains all the information required under the law and rules. (Gcomm Business Supplies Corporation v. CIR, CTA Case No. 10696, November 19, 2024)
PROTEST FILED AFTER 30 DAYS RENDERS THE ASSESSMENT FINAL, EXECUTORY AND DEMANDABLE. The taxpayer has 30 days to file its protest on the FAN/FLD. Thus, where taxpayer received the FAN/FLD on January 4, 2017, but it filed the administrative protest on February 6, 2017 or three days after the deadline, the failure to file the administrative protest within 30 days from FAN/FLD's receipt is jurisdictional and renders the assessments issued by respondent final, executory and demandable. (SCG Marketing Philippines, Inc. v. CIR, CTA Case No. 10776, October 30, 2024)
A STATEMENT IN THE ASSESSMENT THAT “PLEASE NOTE THAT THE INTEREST AND THE TOTAL AMOUNT DUE WILL HAVE TO BE ADJUSTED IF PAID AFTER THE DATE SPECIFIED HEREIN" AND A DUE DATE IS SPECIFIED WILL NOT AFFECT THE VALIDITY OF THE ASSESSMENT. In Fitness by Design Case, the Supreme Court invalidated the assessment as the amount was subject to modification and entirely dependent on the taxpayer’s payment date when the assessment stated “interest and total amount due will have to be adjusted if paid prior or beyond April 15, 2004”. Moreover, in the same case, the FAN did not set a specific due date. Thus, where the due date of February 17, 2020 was stated explicitly in the FAN/FLD, there is a definite amount of tax liability in this case. Further, the statement in the FLD that "the interest and total amount due will have to be adjusted if paid after the date specified herein” does not make deficiency withholding tax liability indefinite so as to render the subject FLD/FAN void. This statement merely informs that the interest would have to be adjusted if payment is made after February 17, 2020. Only the 12% deficiency delinquency interest per annum will need to be adjusted if payment is made beyond February 17, 2020. Undeniably, the interest must be recalculated because the BIR cannot predict when the taxpayer will settle the deficiency taxes. Therefore, the total amount due may be adjusted based on the actual payment date. (Commission on Elections v. Commissioner of Internal Revenue, CTA Case No. 10588, November 13, 2024; Hawaiian-Philippine Company v. CIR, CTA Case No. 10726, November 13, 2024; .(Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)
A PHRASE “REQUEST TO PAY” IS CONSIDERED A DEMAND. A demand may take the form of a request for payment. Using phrases such as “requested to pay” or “requested to settle” does not negate an equivocal demand for payment of deficiency taxes. In the Fitness by Design Case, the Supreme Court did not find issue with the use of the word “request” and the assessment was cancelled for the reason that the absence of the due dates in the FAN negated the demand for payment. Thus, where the FLD/FAN indicated the due date, which confirms the BIR’s intent to demand payment before the indicated date, a “requested to pay [the] aforesaid deficiency tax” does not render the assessment void. (Hawaiian-Philippine Company v. CIR, CTA Case No. 10726, November 13, 2024)
IN REQUEST FOR REINVESTIGATION,FAILURE TO SUBMIT ADDITIONAL DOCUMENTS WITHIN THE 60-DAY PERIOD WILL NOT RENDER THE ASSESSMENT FINAL AND EXECUTORY. Under RR 18-2013, an assessment shall become “final” if the taxpayer failed to submit relevant information in support of the protest within 60 days in case of requests for reinvestigation. “Final” means that the taxpayer is barred from introducing newly discovered or additional evidence. It does not mean that the assessment is final, executory or demandable. It cannot be taken to mean as a bar to avail the remedy of appeal as the rules allow taxpayers to appeal. (Health Plan Philippines, Inc. v. CIR, CTA Case No. 10262, December 4, 2024).
ASSESSMENT IS VOID IF SENT VIA PRIVATE COURIER BUT SERVER DID NOT ACCOMPLISH THE BOTTOM PORTION OF THE NOTICE, NO DATE OF RECEIPT AND NO REPORT ON THE SERVICE. Section 228 of the Tax Code provides that the taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment is void. Assessment notices, sent via reputable professional courier service, must comply with the following requirements: the server shall accomplish the bottom portion of the notice; he shall also make a written report under oath before a Notary Public or any person authorized to administer oath under Section 14 of the NIRC, as amended, setting forth the manner, place and date of service, the name of the person/barangay official/professional courier service company who received the same and such other relevant information; and the official receipt issued by the professional courier company containing sufficiently identifiable details of the transaction shall constitute sufficient proof of mailing and shall be attached to the case docket. Where the assessment is issued via LBC, but the server did not accomplish the bottom portion of the notice, leaving the printed name, signature and designation of the person who received the subject assessment notices, and the date of receipt blank; the OR issued by LBC contains no identifiable details of the transaction, merely noting "document" without further specifics, he or she did not present any written report, certification, or any other document from LBC regarding the service of the assessment notice, the assessment is void. (CIR v. Grand Geo Spheres Construction Corp. (CTA EB No. 2763, CTA Case No. 9891, October 8, 2024), October 8, 2024)
A REVENUE DISTRICT OFFICER’S ADMINISTRATIVE DECISION ON THE PROTEST IS INVALID; 180+30 DAY PERIOD WILL APPLY. The Commissioner's powers can be delegated only to subordinates with a position of "division chief or higher," meaning, that the CIR's power to decide on disputed assessments cannot be validly delegated to a BIR official of a rank lower than that of a division chief. Where the Administrative Decision is issued by the Revenue District Officer, which is not equivalent to or higher than a division chief, it is as though no decision was made. If no valid decision is arrived at, what is applicable is the 180+30-day period, i.e., petitioner had 30 days from the lapse of the 180-day period within which to file the instant Petition. (John V. Olegarion v. CIR, CTA Case No. 10967, December 10, 2024)
A REPRESENTATIVE MUST BE AUTHORIZED BY SPECIAL POWER OF ATTORNEY FOR SERVICE OF NOTICE TO BE VALID. Revenue Regulations No. (RR) 12-99 expressly provides that in serving the required notices, personal delivery must be acknowledged by the taxpayer or his duly authorized representative. In Mannasoft Technology Corp. v. Commissioner of Internal Revenue, G.R. No. 244202, July 10, 2023, personal delivery shall be made directly to the taxpayer or a person who has been designated or authorized particularly to act for and on behalf of the taxpayer. The recipient acting on the taxpayer's behalf must possess sufficient authority or discretion. The tax authorities must inquire into the extent of authority the representative actually possesses before serving a tax notice. Thus, where notices were addressed to a certain “Rommel Braga,” the tax agents could have very well requested a special power of attorney or valid identification from this "Rommel Braga," to verify his supposed authority; and where apart from the bare assertion that this person was respondent's employee, the BIR did not offer proof that it took the necessary steps to verify and confirm the authority supposedly vested upon the person who received the notices, the assessment is void. (CIR v. Fidela D. Fernandez, CTA EB No. 2791, CTA Case No. 9908, November 6, 2024)
LACK OF DUE DATE IN THE FAN/FLD RENDERS THE ASSESSMENT VOID; A STATEMENT THAT THE “INTEREST WILL BE ADJUSTED IF PAID BEYOND APRIL 30, 2014” IS NOT THE DUE DATE. As held in the Fitness by Design case, the reckoning date of the accrual of penalties and surcharges cannot be considered as the due date for payment of tax liabilities. This was further reiterated in the more recent case of Republic v. First Gas Power Corporation (G.R NO. 214933, February 15, 2022) , where the Supreme Court held that the FAN and FLD subject therein were not valid because they failed to indicate a definite due date for payment. Thus, where the FLD issued against the taxpayer stated that the interest and the total amount due will have to be adjusted if paid beyond April 30, 2014, but the due dates were left blank, the date April 30, 2014 indicated in the FLD, cannot be considered as the due date to pay the assessments as said date only serves as the reckoning date for accrual of penalties and surcharges. (CIR v. Berringer Marketing, Inc., CTA EB No. 2662, CTA Case No. 8978, November 4, 2024)
THE BIR’S FAILURE TO PROVIDE BREAKDOWN AND SCHEDULE SHOWING HOW THE ITEM OF ASSESSMENT IS ARRIVED AT RENDER THE ITEM OF ASSESSMENT VOID. Under Section 228 of the NIRC, the taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. The presumption of correctness of assessment does not apply when the assessment is without foundation or rational basis. Thus, where the FLD/FAN did not provide any breakdown or schedule showing how the amount was arrived at; that BIR merely provided a separate audit working paper, which simply summed up the amounts in the debit portion to the taxpayer’s receivable allegedly taken from the general ledger; and the BIR failed to consider the adjustments such as correction of errors and other adjustment resulting in reduction in sales; and the taxpayer also submitted ICPA report providing for reconciliation, the taxpayer’s right to due process was violated as it was not formally informed of the facts and laws on which the assessment is based. (Hawaiian-Philippine Company v. CIR, CTA Case No. 10726, November 13, 2024)
FAN/FLD IS VOID IF ISSUED RIGHT AFTER THE TAXPAYER RESPONDED TO PAN; IDENTICAL FINDINGS IN PAN AND FAN WITHOUT CONSIDERATION OF THE EXPLANATION OF THE TAXPAYER IN THE REPLY TO THE PAN RENDERS THE ASSESSMENT VOID. As part of the taxpayer's due process rights in the issuance of a deficiency tax assessment, the taxpayer is granted a period of fifteen (15) days from receipt of the PAN to file a response thereto with the BIR. Moreover, in Avon Case (G.R. Nos. 201398-99 & 201418-19, October 3, 2018), the Supreme Court ruled that The BIR must render its decision in such a manner that the taxpayer can know the various issues involved, and the reasons for the decisions rendered. Thus, where the taxpayer responded to PAN on December 18, 2020 (Friday); and the BIR issued a letter on Monday, December 23, 2020, informing the taxpayer that the response will not be considered and on the same day the FLD was issued, and the PAN and FLD are identical and no substantial difference between them except for a minor adjustment in computation of the deficiency interest, the assessment is void. (Central Pangasinan Electric Cooperative Inc. v. CIR, CTA Case No. 10724, October 22, 2024 See also First Telecom Philippines, Inc. v. CIR, CTA Case No. 10688, December 18, 2024; Aeon Credit Service (Philippines), Inc. v. CIR, CTA Case No. 10373, December 13, 2024)
THERE IS NO VIOLATION OF DUE PROCESS IF THE BIR ACCEPTED THE TAXPAYER’S EXPLANATION AND REDUCED THE ASSESSMENT. In CIR v. Avon Products Manufacturing, Inc. (Avon Case), G.R. Nos. 201398-99 & 201418-19, October 3, 2018, the Supreme Court set aside the assessment for violation of due process. Among other infractions, the CIR issued identical PAN and FAN, without acknowledging and considering the taxpayer's reply to the PAN, administrative protest, submission of additional supporting documents. There was no reference to, comment on, or, much less, explanation on the merits of Avon's explanations. Where the taxpayer ably raised its defenses, which, eventually, were considered by the BIR and resulted in a reduction of the assessment, and the taxpayer’s reply was acknowledged in the FAN and made part of BIR records, and the BIR cancelled some items of assessment, and the amount due was reduced in the Final Decision on Disputed Assessment, there is no violation of due process. (Gcomm Business Supplies Corporation v. CIR, CTA Case No. 10696, November 19, 2024; Marina Square Properties, Inc. v. CIR, CTA Case No. 10601, December 13, 2024)
IF A PURCHASE DISCOUNT IS GRANTED AFTER THE ISSUANCE OF THE INVOICE, THE DISCOUNT DOES NOT AFFECT THE VAT BASE. As rule, the tax base of VAT on the sale of goods or property shall be the gross selling price or gross value in money as indicated on the invoice. The tax base may be reduced should there be returns or allowance and/or discount. Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within the same quarter it was given. Where the discount was agreed upon at the outset, and it was not given automatically, such that it remained conditional upon the taxpayer’s payment within the discount period, the discount should not affect the tax base and the BIR cannot validly disallow or reduce input VAT on purchase discount.(Gcomm Business Supplies Corporation v. CIR, CTA Case No. 10696, November 19, 2024)
ASSESSMENTS FOR DEFICIENCY INCOME TAX ARISING FROM UNDECLARED SALES VS. THIRD PARTY INFORMATION (TPI) IS CANCELLED FOR FAILURE TO VERIFY THE TPI SOURCES. Revenue Memorandum Order (RMO) No. 46- 2004 requires the BIR to verify the amounts it obtained from its computerized/third-party matching by securing confirmation or certification from the TPI source. Where no such confirmation or certification from the TPI sources was made/obtained, the data gathered from the computerized/third party matching are left unverified, thus, are not credible, the resulting assessment is void for lack of factual and legal basis. (Goodyear Steel Pipe Corporation v. CIE, CTA Case No. 10555, December 10, 2024)
THE BIR CANNOT VALIDLY SUBJECT TO INCOME TAX AN UNDECLARED PURCHASE OR IMPORTATION. 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. The Supreme Court (Commissioner of Internal Revenue vs. The Court of Appeals, et. at., G.R. No, I08576, January 20, 1999) sets forth the three elements in the imposition of income tax, to wit: (1) there must be gain or and profit; (2) that the gain or profit is realized or received, actually or constructively; and, (3) it is not exempted by law or treaty from income tax. Where the BIR failed to establish the taxpayer’s right to receive income or that the gain or profit is realized or received from the alleged undeclared purchases and importations; and where BIR only assumed that the alleged undeclared purchases and importations were sold and then applied petitioner's gross profit ratio for the TY 20 11 to determine the supposed taxable income therefrom, the assessment lacks factual basis (Goodyear Steel Pipe Corporation v. CIE, CTA Case No. 10555, December 10, 2024)
FINAL DECISION ON DISPUTED ASSESSMENT (FDDA)
A BIR LETTER, EVEN IN THE ABSENCE OF SIGNED FDDA, IS CONSIDERED A FINAL DECISION OF THE BIR. A BIR letter is considered final decision where (1) it expressly mentioned that the assessment had become final, executory and demandable, and considered the deficiency taxes as delinquent taxes; (2) it also mentioned that, since petitioner's protest was not valid, the BIR did not have to issue the FDDA as the assessment had already become final; (3) a witness unrebutted testimony confirmed that the BIR already informed the taxpayer that it will issue an FDDA and that petitioner eventually received the said Letter; and, (4) the BIR demonstrated no intention of issuing the FDDA, as it remained unsigned and unserved. (Health Plan Philippines, Inc. v. CIR, CTA Case No. 10262, December 4, 2024)
THE FDDA AND THE ATTACHED ASSESSMENT NOTICES ARE VOID FOR FAILURE TO STATE THE DEFINITE DATE FOR THE PAYMENT; BUT A VOID FDDA WILL NOT RESULT IN INVALIDITY OF THE FORMAL LETTER OF DEMAND. In Pascor Case, G.R. No. 128315, June29, 1999, and Fitness by Design Case, G.R No. 215957, November 9, 2016, the Supreme Court ruled that a demand for settlement of the tax liability must be definite and fixed within the specified period. Where the FDDA with Assessment Notices reflected a due date of "March 31, 2021" but was issued on May 19, 2021 and received by petitioner on May 20, 2021, showing that the due date has already lapsed when the FDDA and the corresponding Assessment Notices were issued, making it impossible for petitioner to comply therewith, the said due date and the FDDA is deemed invalid. Nevertheless, despite the infirmity of the FDDA and the attached Assessment Notices, the FLD dated August 5, 2016 remains valid in the absence of any other ground which may nullify it as held in Liquigaz Case, G.R. Nos. 215534 and 215557, April 18, 2016, where the Supreme Court ruled that a void FDDA does not ipso facto render an assessment void. (Goodyear Steel Pipe Corporation v. CIE, CTA Case No. 10555, December 10, 2024; (Grand Union Supermarket, Inc. v. CIR, CTA Case No. 10390, December 17, 2024)
DATE OF RECEIPT OF THE FDDA MUST BE INDICATED IN THE FDDA OR SUPPORTED BY TESTIMONIAL EVIDENCE. A taxpayer has 30 days from the receipt of the FDDA to file a judicial appeal. Thus, where the taxpayer claimed that it received the FDDA on April 27, 2021, but the FDDA did not indicate the date of receipt and only the date of issuance, which is on April 14, 2021, is stamped and where the date was not even supported by testimonial evidence, the petition, filed on May 27, 2021, is considered belatedly filed. (Goodyear Steel Pipe Corporation v. CIR, CTA Case No. 10541, November 25, 2024)
APPEAL TO COMMISSIONER
FAILURE TO INDICATE THE DATE OF RECEIPT OF THE FINAL DECISION ON REQUEST FOR RECONSIDERATION RENDERS THE CASE DISMISSIBLE FOR LACK OF JURISDICTION. Under 228 of the NIRC, the taxpayer has 30 days to appeal to the CTA from the receipt of the CIR’s decision or ruling. The Rules of Court clearly requires that the specific material dates shall be indicated in the petition for the purpose of showing that the same was filed on time, and that the petition be accompanied, among others, by material portions of the record that would support petitioner's allegations. Where the taxpayer failed to provide proof of date of receipt, and the date or receipt was not also indicated in the Final Decision on Request for Reconsideration (FDRR); the taxpayer’s witness did not also testify nor declare the date of the receipt, but rather confirmed that they were unaware of the circumstances surrounding the FDRR’s receipt; the Court is unable to confirm the date of petitioner's actual receipt of respondent's FDRR. As a result, it could not thus make a proper determination if petitioner's instant Petition for Review has been timely filed. (SCG Marketing Philippines, Inc. v. CIR, CTA Case No. 10776, October 30, 2024)
CRIMINAL CASE
FAILURE TO ESTABLISH AUTHORITY OF THE RECIPIENT RESULTS IN INVALIDITY OF ASSESSMENT AND ACQUITTAL OF THE ACCUSED. In substituted service of assessment notices, the rules require that the notice be left with the clerk or a person having charge of the taxpayer’s place of business. Where the BIR examiner failed to verify the identity of the recipient of the documents, and merely assumed that the recipient was the authorized representative, and the records did not show that the recipient was a “clerk of person having charge” and was not duly authorized by the accused to receive, the assessment is void. (People of the Philippines v. Serafin Panaligan Villalobos, CTA Crim Case No. O-917, November 26, 2024)
IMPORTATION OF CHAINSAWS REQUIRE PRIOR PERMIT BY DENR; IMPORTATION OF USED TIRES IS PROHIBITED; SHIPMENT NOT USED AS INSTRUMENT TO COMMIT ILLEGAL IMPORTATION SHOULD NOT BE FORFEITED. Under Section 117 of the Customs Modernization and Tariff Act (CMTA), regulated goods shall be imported only after securing the necessary requirements before the importation. The importation of chainsaws is regulated under Chain Saw Act of 2002 (RA 9175) to prevent illegal logging. The same law allows importation of chainsaws with prior authorization from the DENR. Otherwise, the importation is unlawful even though DENR authorization is subsequently obtained. Moreover, under Section 113 (f) of the CMTA, used tires are prohibited import. Thus, they may be seized by the Bureau of Customs. Lastly, under Section 113 (f) of the CMTA, goods imported contrary to law and goods used as instruments in the importation of the former should be seized or forfeited. The word "instrument" is defined as "a means whereby something is achieved, performed, or furthered;" or "one used by another as a means or aid. Thus, partial seizure is allowed if the remainder of the shipment is not used in the commission of the offense. (ERS Surplus Venture v. Republic of the Philippines, CTA Case No. 10953, October 15, 2024)
THE BIR CANNOT SEIZE GOODS WITHOUT A SEARCH WARRANT WITHOUT PRIOR JUSTIFICATION FOR THE INTRUSION. One of the exceptions to the rule that the BIR must obtain a search warrant is that there was a prior justification for an intrusion or probable cause to enter the premises. Where the BIR seized cigarette raw materials, padlock the taxpayer’s office and warehouse thereby shutting down the taxpayer’s business operation by virtue of a mission order, which was issued based on an unverified allegation or “tip”, and the letter neither identified the signatory nor bore the company’s official letterhead, the seizure is invalid. Moreover, the intrusion is invalid if the Mission order did not comply with the requirements for its issuance such as conduct of “prelude to surveillance”. (People of the Philippines v. GB BEM Cigarette Co., CTA Crim No. O-935, November 20, 2024)
LACK OF PARTICIPATION IN THE PREPARATION OF DOCUMENTS AND SHIPMENT NEGATES FRAUD; IMPORTER MAY REDEEM SEIZED GOODS. Section 6 of CAO No. 001-20 provides that a discrepancy amounting to more than 30% of the duty and tax to be paid between what is legally determined and what is declared shall constitute prima facie evidence of fraud in case of misdeclaration, misclassification or undervaluation. Fraud must be actual and intentional. Where the taxpayer was able to refute fraud, the Customs must prove the same. Where it was shown that the taxpayer did not participate in the preparation of shipping documents and actual shipment, fraud is not present. Moreover, without fraud, the importer may redeem the shipment. (Commissioner of Customs v. Globe Telecom, Inc., CTA EB No. 2782, CTA Case No. 9883, November 14, 2024)
LOCAL BUSINESS TAX
A PROVINCE CANNOT IMPOSE FRANCHISE TAX IF PRINCIPAL PLACE OF BUSINESS IS NOT LOCATED WITHIN ITS JURISDICTION. The Supreme Court in the case of City of Iriga v. Camarines Sur III Electric Cooperative, Inc., G.R. No. 192945, ruled that the situs of taxation for franchise tax is the principal place of business, regardless where the services are delivered. Where the principal place of business is not located in the province, the province cannot impose a franchise tax even though a station of the taxpayer is situated in the province. (TRANSCO v. Province of Davao Del Sur, et. al. CTA Case No. 239, October 31, 2024)
A LENDING DESK/OFFICE ACCEPTING A LOAN APPLICATION IS CONSIDERED DOING BUSINESS, BUT NOT CONSIDERED A SALES OUTLET SUBJECT TO LOCAL BUSINESS TAX. Local business taxes shall accrue and be paid in the city where there is a branch or sales outlet making sales or transaction; otherwise, the sale shall be recorded in the principal place of business and the taxes due shall accrue and be paid in the city where the principal place of business is located. An act of accepting a loan application, although considered doing business as it is conducted with a view to profit, is not considered a sale transaction. Thus, where a lending desk is in Davao, but the loan applications are processed and approved in Makati, Davao cannot impose local business tax. The taxes due accrue and should be paid in Makati City (Toyota Financial Services Philippines Corporation v. City of Davao et. al., CTA AC No. 280, October 15, 2024)
PRIOR REGISTRATION WITH THE LGU AS CEMENT MANUFACTURER IS NOT REQUIRED TO AVAIL OF PREFERENTIAL RATE OF LOCAL BUSINESS TAX; LGU MAY ASSESS TAXPAYER USING PRESUMPTIVE INCOME LEVEL ASSESSMENT APPROACH (PILAA) IN THE ABSENCE OF PROOF OF GROSS SALES AND WHEN ORDINANCE PROVIDES THEREFOR; TAXPAYER IS NOT ENTITLED TO PREFERENTIAL RATE IF IT IS NOT EXCLUSIVELY ENGAGED IN MANUFACTURING OF CEMENT AND IT FAILED TO SHOW THAT THE SALES WERE DERIVED FROM SALE OF CEMENT. Manufacturers and/or wholesalers of essential commodities are entitled to a preferential rate for local business tax. Cement is considered an essential commodity. A prior registration with the LGU Bureau of permits that an entity is a manufacturer is not required, as long as the articles of incorporation of the entity shows that it is engaged in the business of manufacturing of cement. Moreover, the LGU may use PILAA as a method to assess LBT when two conditions occur simultaneously: (1) the taxpayer is unable to provide proof of its gross sales or receipts and (2) such is permitted by the local tax ordinance. Where the taxpayer failed to submit Certification of its gross sales or receipts and Manila ordinance allows the use of PILAA, the LGU validly assessed the Company using the PILAA. Where the taxpayer is not exclusively engaged in the sale and/or manufacture of cement such that the AOI shows that the taxpayer may engage in sale and/or manufacture of all kinds of minerals and building materials; the certification of total gross receipts/sales does not indicate that the sales were derived solely from the sale of cement; and where the taxpayer’s witness stated that the taxpayer is engaged in wholesale and warehousing, the taxpayer is not entitled to preferential rate. (Holcim Philippines, Inc. v. The City of Manila et. al., CTA EB No. 2758, CTA AC No. 251)
AN ENVIRONMENTAL FEE IS NOT A TAX AND THUS NOT WITHIN THE JURISDICTION OF THE CTA. The CTA’s appellate jurisdiction over regional trial court’s decisions become operative only when the case involves a tax. Tax and fees are different from each other. An imposition is considered a tax if the generation of revenue is the primary purpose; otherwise, it is a regulatory fee. An environmental tax is not a tax but a regulatory fee, as it is imposed for purposes of watershed protection, conservation and management program under the Watershed Code. Thus, the CTA has no jurisdiction in assailing the environmental fee. (DOLE Philippines Inc. – Stanfilco Division v. The Sangguniang Panlungsod of the City of Davao et. al., CTA AC no. 285, October 22, 2024); Other charges consisting of (a) Mayor's Permit; (b) Ecological and Waste Management Charges; (c) Peace & Order Charge; (d) Barangay Clearance; (e) Dr. Pia Scholarship Fund; (f) Fire Inspection Fee- National; and, (g) Penalties for Operating without Permit are not local taxes (NLEX Corporation v. The City of Valenzuela et. al., CTA AC. No. 297, November 18, 2024; see also National Grid Corporation of the Philippines v. Municipality of Bayombong, Nueva Vizcaya et. al., CTA EB No. 2795, October 10, 2024; The City Treasurer of Taguig v. Bellagio Two Condominium Association, Inc., CTA EB No. 2843, RTC SCA Case No. 285, October 3, 2024)
GROSS RECEIPTS, FOR PURPOSES OF IMPOSING LBT, EXCLUDES VAT. The taxpayer is not required to submit copies of its VAT returns. (The City of Valenzuela et. al. v. NLEX Corporation, CTA AC No. 290, November 25, 2024)
LGU WHERE PRINCIPAL PLACE OF BUSINESS IS SITUATED CANNOT VALIDLY COLLECT TAX ON BRANCH SALES; SIGNAGES AND INSTALLATIONS OUTSIDE LGU IS NOT CONSIDERED A BRANCH OR SALES OFFICE. Branches or sales outlets which record their sales therein should pay the local tax due in the city or municipality where they operate. Where an entity has factories, assembly plants, plantations, farms and project offices, the 30-70% rule on payment of local business tax shall apply. Where the entity has shown that it has branches outside of the principal office located in QC, QC LGU cannot impose tax on sales in the branches outside the LGU. (Quezon City et. al. v. Sky Cable Corporation, CTA AC No. 295, October 8, 2024); signages and installations in the LGU (outside of principal office) is not considered a branch or sales office or a fixed place of business where business transactions were held as there is no physical space within the general vicinity of these assets that are used for the generation, booking, and/or recording of revenue for these transactions. (NLEX Corporation v. The City of Valenzuela et. al., CTA AC. No. 297, November 18, 2024)
A BUSINESS SHALL BE CONSIDERED TERMINATED WHEN ITS OPERATIONS ARE STOPPED COMPLETELY AND SHALL BE OFFICIALLY RETIRED WHEN THE CORRESPONDING TAX DUE IS PAID. A mere application for business retirement/termination of business or even actual transfer of principal office to another locality does not automatically relieve the taxpayer from paying any taxes which may have accrued prior to the official closure or termination of business. Thus, where the application for retirement in Makati was filed two years after it has transferred its principal office to Taguig; where the sworn statement of gross sales/receipts showed sales in Makati; and where the Company has not paid, but rather protested the tax due, the Company cannot be said to have retired its business and is still liable for local business tax in Makati even if it has transferred to Taguig. (Lazada E-Services Philippines, Inc. v. City of Makati, City Treasurer of Makati, CTA EB No. 2766, CTA AC No. 261; City of Makati, City Treasurer of Makati v. Lazada E-Services Philippines, Inc., CTA EB No. 2767, CTA AC No. 261, October 24, 2024)
A CONDOMINIUM CORPORATION IS EXEMPT FROM LOCAL BUSINESS TAX UNLESS IT IS ENGAGED IN ACTIVITIES FOR PROFIT. In the case of Yamane v. BA Lepanto Condominium Corporation, G.R. No. 154993, October 25, 2005, the Supreme Court ruled that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise. A condominium corporation may be liable for local business tax if it is engaged in activities for profit under the shelter of the condominium corporation. Thus, where the LGU failed to prove that the condominium corporation is engaged in any business with a view to generate profit, such LBT assessment has no basis. (Taguig City Government et. al. v. Kensington Place Condominium Corporation, CTA EB No. 2807, SCA Case No. 272, December 3, 2024)
NGCP IS EXEMPT FROM REAL PROPERTY TAX. NGCP is liable to pay franchise tax “in lieu of all taxes”, which includes real property tax. A prior factual determination of the actual use of the properties is a condition for their exemption from real property tax. If these properties are determined to be actually and directly used for NGCP's electric power transmission, they are exempt; otherwise, they are not. The requirement of "actual and direct use" does not imply total or exclusive usage; it acknowledges that properties may be principally used in a manner that supports NGCP's franchise. The definition of "actual use" uses the modifiers "principally or predominantly." The term "exclusive" was purposefully not used by Congress in defining NGCP's tax exemption. (Heide D. Pangilinan et. al. v. The Central Board of Assessment Appeals and National Grid Corporation of the Philippines (CTA EB No. 2827, CBAA Nos. L-120 & L-121)
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;
- An application should be filed with the VAT Credit Audit Division (VCAD). Filing with an RDO, which is a wrong office, renders the application not filed. Failure to file before the VCAD is fatal since it is the correct office that has jurisdiction over its claim. Consequently, a taxpayer is considered to have failed to prove timely filing of administrative claim within the two-year prescriptive period. (BW Shipping Philippines, Inc. v. CTA Case No. 10317, November 19, 2024)
- Taxpayer must prove the date of receipt. A manifestation showing the PHLPOST registered mail barcode and Certification issued by the Central Post office are not sufficient. They must be identified by testimony, and it must be proved that the mail matter pertains to the alleged decision of the BIR. (Chemrez Tehcnologies, Inc. v. CIR, CTA Case No. 10454, December 4, 2024)
- 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.
With reference to the taxpayer's registration with the BIR:
- The taxpayer is a VAT-registered person;
- Every person subject to any internal revenue tax is mandated to register with the BIR within a certain period of time. If such person maintains a head office, a branch, or facility, such registration shall be made with the BIR office having jurisdiction over said branch or facility. Moreover, said person or entity is required to pay an annual registration fee in the amount of P500 for every separate or distinct establishment or place of business, which specifically includes "facility types where sales transactions occur". Thus, a facility must be registered with the BIR, and in case sales transactions occur therein, the annual registration fee of P500.00 must be paid. Where a “facility” houses the contact center agents who would perform contact center services, even if no billing statements or official receipts would be issued therefrom, the facilities should be registered as branches before the commencement or start of the business and paid the annual registration fee. Since the facilities are not register as VAT taxpayer, the refund should be denied. (Foundever Philippines Corporation v. CIR, CTA Case No. 10629, December 13, 2024)
In relation to the taxpayer's output VAT:
- The taxpayer is engaged in zero-rated or effectively zero-rated sales;
- The invalid zero-rated sales will effectively result in a disallowance of valid input VAT because the effect of invalid zero-rated sales is as if no zero-rated sales were generated from which the valid input taxes may be imputed (CIR v. Carmen Copper, CTA EB No. 2735, CTA Case No. 10201; Carmen Copper Corporation v. CIR, CTA EB No. 2743, CTA No. 10201, November 26, 2024)
- 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
- The amounts in the remittances must correspond to the zero-rated sales. Otherwise, the claim is denied.(MD Rio Vista Agri-Ventures, Inc. v. CIR, CTA Case No. 10624, December 10, 2024)
- Re. 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” (Royal Caribbean Cruises Ltd., under the name of RCL Regional Operating Headquarters v. CIR, CTA Case No. 10508, October 15, 2024)
- The taxpayer must comply with invoicing requirements:
- The VAT invoice or VAT official receipt must indicate the TIN of the purchaser or client in case of sales in the amount of more than 1,000 or more where the transfer is made to a VAT registered person. (CBK Power Company Limited v. CIR, CTA Case No. 8784, October 31, 2024)
Zero-rated on sale to renewable energy developers:
All RE Developers are entitled to VAT zero-rating on their purchases of local supply of goods, properties, and services necessary for the development, construction, and installation of plant facilities. The law explicitly declares that VAT zero-rating applies to the whole process of exploring and developing renewable energy sources up to their conversion into power, including but not limited to the services performed by subcontractors and/or contractors. For a sale transaction to an RE Developer to qualify for VAT zero-rating under RA No. 9513 and its IRR, the following conditions must be met:
- The RE Developer must be registered with the Department of Energy and Board of Investments;
- The local sales of goods, properties and services to the RE Developer are needed for the development, construction, and installation of the RE Developer's plant facilities and the whole process of exploration and development of RE sources up to its conversion into power; and
iii. With regard to the supply of locally-produced RE equipment to an RE Developer, the manufacturer, fabricator, and supplier thereof must also be registered with the DOE and BOI (Air Drilling Associates Pte Ltd. v. CIR, CTA Case No. 10944, December 18, 2024)
As regards the taxpayer's input VAT being refunded:
- The input taxes are not transitional input taxes.
- Transitional input tax credit operates to benefit newly VAT-registered persons, regardless of whether they previously paid taxes on the acquisitions of their beginning inventory of goods, materials, and supplies. During the transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer (Air Drilling Associates Pte Ltd. v. CIR, CTA Case No. 10944, December 18, 2024)
- 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.
- Input tax must comply with invoicing requirements.
- Reasons for disallowance:
- Nature of services cannot be ascertained in the supporting OR; incorrect TIN; incomplete address (Air Drilling Associates Pte Ltd. v. CIR, CTA Case No. 10944, December 18, 2024))
- Not properly supported by VAT Invoices or ORs; purchase dated outside of the claimed period; without TIN; countersign is different from the authorized signatory; authority of the countersign cannot be ascertained; invoice or OR without t signature (Royal Caribbean Cruises Ltd., under the name of RCL Regional Operating Headquarters v. CIR, CTA Case No. 10508, October 15, 2024)
- 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:
- The claim for refund must be filed within the two-year prescriptive period.
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- 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. (Global Business Power Corporation v. CIR, CTA Case No. 10869, November 20, 2024)
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- 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. (Global Business Power Corporation v. CIR, CTA Case No. 10869, November 20, 2024)
- 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.
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- The second requirement mandates petitioner to establish the fact of withholding of the claimed CWTs by presenting a copy of the statement duly issued by the payor (withholding agent) to the payee, showing the names of the payor and payee, the income payment and the amount of tax withheld. BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source) serves as the competent proof to establish the fact of withholding. It is a withholding statement duly issued by the payor to the payee that reflects the amount paid and tax withheld, as described in Section 2.58.3(B) of RR No. 2-98. (Global Business Power Corporation v. CIR, CTA Case No. 10869, November 20, 2024)
- The income upon which the taxes were withheld must be included in the return of the recipient.
Excise Tax
Pursuant to Sections 131 and 135, in relation to Sections 204(C) and 229, of the NIRC of 1997, as amended, petitioner is required to prove the following in order for its claim for refund to prosper:
- Petitioner filed the refund claim within the two (2)-year prescriptive period;
- The entity to which the petitioner sold the petroleum products is an entity exempt by law from indirect and direct taxes;
- With respect to enterprises located in the Subic Special Economic Zone (SSEZ), their tax exemption only takes effect upon the SBMA's issuance of a Certificate of Registration (CRT) or Certificate of Registration and Tax Exemption (CRTE). It is only from the date of issuance of the CRTE will the concerned business enterprise be entitled to the tax exemption from national and local taxes granted under Section 12(c) of RA No. 7227, as amended (Petron Corporation v. CIR, CTA Case No. 10632, October 28, 2024)
- The petitioner is the statutory taxpayer which actually paid the excise taxes sought to be refunded on the same imported petroleum products sold to the exempt entity.
It is incumbent upon the taxpayer to prove, with preponderant evidence, that: (i) it imported lubricating oils and its additives and paid the excise taxes on said importations; and, (ii) the imported lubricating oils and its additives actually became a component in the blending process that eventually produced the finished goods or lube products that were sold to its tax-exempt customers. (Petron Corporation v. CIR, CTA Case No. 10632, October 28, 2024)
ONLY DECISIONS OR RULINGS ISSUED BY THE COMMISSIONER OF CUSTOMS ARE SUBJECT TO APPEAL TO THE CTA. Inaction does not fall within this purview. Thus, a petition for refund of duty and tax filed with the CTA on the inaction of the COC is dismissed. (LTJS Store v. Hon District Collector of Customs, CTA Case No. 10581, November 13, 2024)
IMPORTATION OF PRESCRIPTION DRUGS AND MEDICINES FOR DIABETES, HIGH CHOLESTEROL, AND HYPERTENSION IS EXEMPT FROM VAT EFFECTIVE JANUARY 1, 2020 UNDER THE TRAIN LAW. RMC No. 62-2020 providing that exemption becomes effective on January 23, 2020 is void as administrative regulations cannot prevail what the law prescribes. (Boehringer Ingelheim (Philippines), Inc. v. CIR, CTA Case No. 10758, October 22, 2024; CTA CASE NO. 10854, December 17, 2024)
SALE OF SHARES TO NRFC IS NOT SUBJECT TO INCOME TAX APPLYING RP-THAILAND TAX TREATY. The net capital gains (being gains from dealings in property) from the sale of shares of stock in a domestic corporation made outside the stock exchange by an NRFC may be subject to CGT but may be exempted therefrom "to the extent required by any treaty obligation binding upon the Government of the Philippines. Where a certificate of residence was submitted to prove that the petitioner is an NRFC and the real property interest is less than 50% of the entire assets, the petitioner is entitled to a refund of the final withholding tax paid. (Cal-Comp Precision (Thailand) Limited, v. CIR, CTA Case No. 10899, November 20, 2024)
ORIGINAL COPIES OF PROOF OF PAYMENT OF EXCISE TAX IS REQUIRED IN REFUND, UNLESS PHOTOCOPIES ARE NOT OBJECTED TO. Excise tax is paid by the owner or importer upon importation and prior to removal from the customs house. For purposes of refund, the 2-year prescriptive period is reckoned from the date of actual payment of excise taxes. Thus, the taxpayer must first show the date of actual payments of the excise taxes. In the case of Kuwait Airways Corporation v. Tokyo Marine and Fire Insurance Co., Ltd., G.R. No. 213931, November 17, 2021, The Supreme Court ruled that a photocopy of an original, therefore, may consist of a "duplicate" if there is no question that it is an accurate reproduction of the original." Thus, where the BIR did not object to the admission on the manner identified in court but subject to the condition that the documents are compared with the original documents, but the taxpayer merely submitted photocopies, the proof of payment should not be admitted in evidence, and therefore refund should be denied (Pilipinas Shell Petroleum Corporation v. CIR, CTA Case No. 10241, October 29, 2024)
