SEPTEMBER 2023 COURT OF TAX APPEALS DECISIONS

TAX ASSESSMENTS

A SEPARATE LETTER OF AUTHORITY (LOA) IS NEEDED FOR THE EXAMINATION OF OTHER TAXPAYERS. An LOA defines and limits the scope of audit and examination that revenue officers can undertake with respect to a particular taxpayer’s books of accounts and other accounting records for purposes of determining the tax liability. One of these limitations is naming the taxpayer to be subjected to a tax audit. In this case, the Revenue Officers (ROs) named in the LOA were authorized to undertake an audit and examination of Jimmy Kho only. It does not authorize the extension of such investigation to Winplus Sales Center, Inc., who has separate juridical personalities from petitioner. This is true even if such parties are related to petitioner. (Jimmy Kho vs. Commissioner of Internal Revenue, CTA Case No. 10308; 14 September 2023)

 

A MEMORANDUM OF ASSIGNMENT (MOA) CANNOT BE USED AS A SUBSTITUTE FOR AN LOA. An MOA simply notifies a taxpayer of the transfer of an audit/investigation to another set of revenue officers. Unlike an LOA, a MOA does not show that the new set of revenue officers who will pursue the audit are properly authorized to do so. In contrast, and importantly, an LOA is a special grant of authority to a specific set of revenue officers to examine a taxpayer’s books of accounts and other accounting records for purposes of determining the taxes due. In the present case, the LOA, was issued by OIC – Assistant CIR Nestor S. Valeroso of the LTS authorizing ROs Reynante Martirez and Sheila Samaniego, and GS Rolando Balbido of RLTAD-1, to audit and examine Star Songs, Inc.’s books of accounts and other accounting records for all internal revenue taxes including DST and other taxes for the period from 1 January 2013 to 30 June 2014 pursuant to a mandatory audit because of a merger/consolidation that took place which included Star Songs, Inc. as one of the parties to such event. Subsequently, Ms. Shirley A. Calapatia, Chief of RLTAD-1, issued an MOA referring the continuation of the audit/verification of Star Songs, Inc.’s internal revenue tax liabilities for the period 1 January 2013 to 30 June 2014 to RO Carolyn V. Mendoza and GS Rosario A. Arriola. Through the audit/examination conducted by RO Mendoza and GS Arriola of Star Songs, Inc.’s books of accounts and other accounting records, the PAN, FLD/FAN, and FDDA were issued against Star Songs, Inc. Consequently, due to the absence of an LOA authorizing RO Mendoza and GS Arriola, to examine Star Songs, Inc., the present deficiency tax assessments are void. Accordingly, no tax collection can be pursued based on these assessments. (Commissioner of Internal Revenue vs. ABS-CBN Film Productions, Inc. CTA EB No. 2619; 28 September 2023)

 

AN EXAMINATION MADE BY A REVENUE OFFICER NOT NAMED IN THE LOA IS INVALID. The absence of LOA issued in favor of the ROs who continued the assessment or examination is a patent nullity. In this case, no LOA (either amended, substituted, or otherwise) was issued by the CIR or his duly authorized representatives under the names of the ROs who continued and completed the audit and examination of the taxpayer. Ergo, the absence thereof tainted the whole examination process, and resultant tax assessments with invalidity. (Sellery Phils. Enterprises Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10049; 6 September 2023; Fort Palm Spring Condominium Corporation vs. Hon. Caesar R. Dulay, in his capacity as Commissioner of the Bureau of Internal Revenue, CTA Case No. 9999; 5 September 2023). Even though the group supervisor (one of the ROs named in the LOA before her promotion to group supervisor) reviewed the findings by the ROs who conducted and completed the audit and examination, there was nothing for the group supervisor to review or check, since the findings unearthed by the ROs who conducted the audit and examination were a patent nullity (3M Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9841; 19 September 2023)

 

A REINVESTIGATION CONDUCTED BY AN RO NOT NAMED IN THE LOA IS VOID. A new or amended LOA is necessary for the substitute or replacement RO to continue the audit or investigation. In this case, an RO not named in the LOA conducted the reinvestigation and submitted her findings to the regional director who, on the basis of which, issued the FDDA with details of discrepancies. Since no LOA was issued in favor of the RO who conducted the reinvestigation, the subject tax assessments issued against the taxpayer were void. (Montalban Methane Power Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10038; 21 September 2023; Racal Motorsales Corporation vs. Bureau of Internal Revenue (CTA Case No. 9737; 14 September 2023)

 

ONLY ROS WHO WILL AUDIT AND EXAMINE TAXPAYER FOR PURPOSES OF ISSUING A TAX ASSESSMENT ARE REQUIRED TO BE ARMED WITH AN LOA AUTHORIZING THEM TO PERFORM SUCH INVESTIGATION. When the BIR docket is referred to a new set of ROs after a deficiency tax assessment has already been issued such as but not limited to: a) when there is a need to resolve a Protest filed by a taxpayer against an FLD/FAN; or b) when there is a need to decide on a request for reconsideration filed by a taxpayer against an FDDA, a new LOA is not required for the new set of ROs. Primarily, this is because the new set of ROs will no longer be conducting an audit and examination of the taxpayer’s books of accounts and other accounting records but will simply be reviewing the findings of the previous ROS which resulted in the already issued tax assessment. At this stage, there is no longer a potential encroachment on the taxpayer’s person and property which the LOA requirement was imposed to avoid. Consequently, only ROS who will actually audit and examine a taxpayer for purposes of issuing a tax assessment are required to be armed with an LOA authorizing them to perform such an investigation. In this case, the actual audit and examination which resulted in the issuance of the was conducted by RO Pagulayan and GS Bautista since it was through their efforts that the FLD/FAN was issued by the BIR. Both RO Pagulayan and GS Bautista were duly authorized to perform such investigation of the taxpayer’s books of accounts and other accounting records. With respect to RO Torio and GS Cruz, they did not perform an actual audit and examination of the petitioner’s books of accounts and other accounting records when the present case was re-assigned to them through an MOA. There was no need for them to conduct such an investigation since a deficiency tax assessment had already been issued. Rather, when they were asked to resolve petitioner’s Protest, they simply reviewed the findings of RO Pagulayan and GS Bautista. Although an FDDA was issued through RO Torio and GS Cruz’s efforts, the same was done without them having to actually audit and examine once more petitioner’s books of accounts and other accounting records. As such, there was no potential or actual encroachment on petitioner’s person and property that needed to be protected through the LOA requirement. (Jimmy Kho vs. Commissioner of Internal Revenue, CTA Case No. 10308; 14 September 2023)

 

IN COMPUTING FOR THE REGLEMENTARY PERIOD TO FILE A PETITION FOR REVIEW WITH THE CTA, THERE IS ONLY ONE (1) “180-DAY PERIOD” OF INACTION TO SPEAK OF. There is a singular 180-day period, i.e., the period counted from the filing of the protest or the submission of the required documents. Accordingly, if an authorized representative of the CIR denies the protest within the 180-day period and the taxpayer appeals to the CIR, the CIR has the remainder of the 180-day period within which to act. And if there is no action, the taxpayer may appeal to the CTA within 30 days after the lapse of the said remaining period. It also follows that if the taxpayer waits for the decision of the CIR’s representative and the same is issued after the lapse of the 180-day period, the same may be appealed to the CTA. In the latter case, the 180-day period is no longer a consideration and the only remedy for the taxpayer is to wait for the CIR’s decision before elevating its case to the CTA, if the same is not favorable. (Benguet Electric Cooperative, Inc. (BENECO) vs. The Commissioner on Internal Revenue, CTA Case No. 9967; 11 September 2023)

 

WHEN THE TAXPAYER DENIES RECEIPT OF THE PAN AND FAN, IT BECOMES INCUMBENT UPON THE COMMISSIONER OF INTERNAL REVENUE (CIR) TO PROVE THAT THE TAXPAYER RECEIVED THE SAME. Under Section 3 (v), Rule 131 of the Rules of Court, there is a disputable presumption that a letter duly directed and mailed was received in the regular course of the mail. However, the presumption is subject to direct denial, in which case the burden is shifted to the party favored by the presumption to establish that the mailed letter was actually received by the addressee. Unfortunately, the registry receipts submitted in evidence by the CIR hardly suffice to prove that the PAN and FAN were indeed served and received by the taxpayer or by any of its authorized representative/s. The said registry receipts merely proved the fact of mailing, and nothing more. The glaring fact remains that nowhere can it be seen from the evidence presented that the said PAN and FAN were actually served and received by the taxpayer or by any of its authorized representative. Hence, the subject tax assessments are void for violating the taxpayer’s right to due process. (Fort Palm Spring Condominium Corporation vs. Hon. Caesar R. Dulay, in his capacity as Commissioner of the Bureau of Internal Revenue, CTA Case No. 9999; 5 September 2023; Sellery Phils. Enterprises Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10049; 6 September 2023)

 

WHEN THE TAXPAYER PUTS FORWARD A DEFENSE THROUGH A REPLY OR RESPONSE ON THE PAN, THE BIR MUST GIVE REASON WHY SAID DEFENSES ARE LACKING IN MERIT IN THE FLD/FAN. Item II (3) of RMO No. 26-2016 allows the BIR to issue the FLD/FAN against the taxpayer, irrespective of whether the latter replied on the PAN. However, when the taxpayer puts forward its defenses, through a reply or response on the PAN, the BIR must give reason why said defenses are lacking in merit. The BIR’s FLD/FAN issued against petitioner failed to satisfy said dictum, resulting in transgression of the latter’s right to due process. The defenses posed by petitioner in its reply or response on the PAN, must be answered by the BIR in the FLD/FAN, and not in the FDDA. For one, the FDDA is issued by the BIR in ruling on the taxpayer’s administrative protest on the FLD/FAN. The FDDA is not meant as the answer to the taxpayer’s reply or response on the PAN. For another, should the BIR find the taxpayer’s explanation in its reply or response on the PAN unsatisfactory, the BIR would issue the FLD/FAN. Necessarily, the duty to give reason as to why the taxpayer’s defenses against the PAN, must be immediately explained in the FLD/FAN. Besides, to subscribe with the BIR’s reasoning that the taxpayer’s defenses in its response or reply on the PAN, may still be belatedly addressed in the FDDA would defeat the very purpose for which the mechanism on the PAN and the chance to respond thereto were made—an opportunity for both the taxpayer and the BIR to settle the case at the earliest possible time without need for the issuance of the FAN, much more, the FDDA. (The Residences a Greenbelt Condominium Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9942, 27 September 2023)

 

ISSUANCE OF A FAN BEFORE THE LAPSE OF THE TAXPAYER’S PERIOD TO RESPOND TO THE PAN RENDERS THE FAN VOID. Respondent issued the FAN on January 14, 2013 or barely five (5) days after receipt by petitioner of the Preliminary Assessment Notice (PAN), without regard to the fifteen (15)-day period within which petitioner is allowed by law to respond to the PAN. Clearly, the BIR violated the taxpayer’s right to due process. (D.M. Wenceslao & Associates, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9764; 15 September 2023)

 

THE FAILURE OF THE BIR IN THE PAN AND FLD TO PROVIDE COPIES OF ANNEXES WITHOUT WHICH THE TAXPAYER COULD NOT VALIDATE THE BIR’S COMPUTATION OF ITS SALES SUBJECT TO 0% VAT VIOLATES THE TAXPAYER’S RIGHT TO BE INFORMED OF THE FACTS AND LAW ON WHICH THE ASSESSMENT IS BASED. Under Section 3 (v), Rule 131 of the Rules of Court, there is a disputable presumption that “a letter duly directed and mailed was received in the regular course of the mail.” However, the presumption is subject to controversion and direct denial, in which case the burden is shifted to the party favored by the presumption to establish that the subject mailed letter was actually received by the addressee. In the instant case, petitioner directly denied receipt of Annex “A-7” of the PAN and Annex “B-l ” of the FLD. The burden then shifts to respondent to establish that petitioner received the said attachments. However, CIR failed to present any proof to discharge said burden. As it stands, the evidence shows that the taxpayer did not receive said attachments, in violation of petitioner’s right to due process. On this point alone, cancellation of the deficiency assessment against the taxpayer is warranted. (Global Cars Phils., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10225, 7 September 2023)

 

SALES TO A FREEPORT ZONE-REGISTERED ENTERPRISE ARE SUBJECT TO VAT ZERO-RATING. Sales by VAT-registered entities to enterprises duly registered with the Subic Bay Metropolitan Authority (SBMA) pursuant to Republic Act No. 7227 are subject to VAT zero-rating. Here, Westcoast Automotive Corporation (“WAC”), is a freeport zone-registered enterprise registered with SBMA. Upon consummation of the contract between the petitioner and WAC, ownership of the automobiles passes on to WAC. The automobiles will then form part of WAC’s inventory considering that WAC’s primary purpose is to engage in the sale and distribution of motor vehicles. The tax treatment of any subsequent sale between WAC and its customers will then depend on the identity of WAC’s customers but have no bearing on the petitioner. Hence, the taxpayer is not liable for the VAT assessed. (Global Cars Phils., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10225, 7 September 2023)

 

THE FAILURE OF THE RO TO COMPLETE THE AUDIT WITHIN THE PRESCRIBED PERIOD DOES NOT RENDER NULL AND VOID THE ISSUED LOA BUT MERELY SUBJECTS THE RO TO ADMINISTRATIVE SANCTIONS. Revenue Memorandum Circular (RIMC) No. 23-2009 categorically states that failure on the part of the concerned RO to request for revalidation of an LOA or upon the expiration of the “revalidation period” does not nullify the same, nor will it affect or modify the rules on the reglementary period within which an assessment may be validly issued. The effect of such failure is merely to subject the concerned ROs to applicable administrative sanctions, and not to render null the issued LOA. More significantly, the lapse of the said period of audit would not have the effect of revoking the authority given to the concerned ROs. Considering that the present LOA was issued on April 1, 2013, the above-quoted provisions of RNIO No. 044-2010 must already apply, as the same was already in full effect at the time of the issuance of the said LOA. Correspondingly, the lack of revalidation of the subject LOA, despite the lapse of the 120-day period, does not nullify the same. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317 dated 14 September 2023)

 

WITHHOLDING TAX ASSESSMENTS ARE SUBJECT TO THE PERIOD OF LIMITATION OF THREE (3) YEARS UNDER SECTION 203 OF THE NIRC. Except as provided in Section 222 of the NIRC of 1997, internal revenue taxes must be assessed within three (3) 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. Withholding tax assessments are also within the purview of deficiency internal revenue taxes and thus, are also subject to the period of limitation of three (3) years under Section 203 of the NIRC of 1997. In case the FLD and Audit Results/Assessment Notices were received by the taxpayer only after the end of the three (3)-year prescriptive period, there is no doubt that the FLD and Audit Results/Assessment Notices were issued beyond the said prescriptive period to assess under Section 203 of the NIRC of 1997, thereby rendering the assessments void. However, as regards DST and IAET assessments where the taxpayer did not file a tax return, the ten (10) year prescriptive period under Section 222(a) of the NIRC of 1997 applies. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317, 14 September 2023)

 

THE CIR HAS ANOTHER THREE (3) YEAR PERIOD WITHIN WHICH TO COLLECT THE TAXES DUE IN CASE OF ASSESSMENTS ISSUED WITHIN THE 3-YEAR ORDINARY PRESCRIPTIVE PERIOD. Citing the Supreme Court case of CIR vs. Court of Tax Appeals Second Division and QL Development, Inc., the CTA held that in cases of assessments issued within the three (3) year ordinary period in accordance with Section 203 of the NIRC, the CIR has another three (3)-year period within which to collect the taxes due. The three (3)-year period to collect starts to run from the date the FLD/FAN is released, mailed, or sent by the BIR to the taxpayer. However, such period to collect is tolled whenever a request for reinvestigation has been filed by a taxpayer which was subsequently approved by the CIR. In the case at bar, the BIR issued the FLD/FAN on 6 November 2014. The taxpayer then filed a Protest on the FLD/FAN on December 12, 2014. Since the protest filed by the taxpayer merely requested for a reconsideration (not reinvestigation) of the VAT assessment issued against him, the running of the three (3)-year period to collect assessed taxes was not suspended by the filing of such protest. For this reason, the CIR should have instituted collection efforts to collect the deficiency VAT assessment within three (3) years from 6 November 2014 or until 6 November 2017. However, the earliest date on which CIR enforced collection of the deficiency VAT assessment was 4 December 2020 when a WDL was sent to the taxpayer to collect the deficiency VAT assessment. Hence, the CIR’s right to collect the deficiency VAT assessment issued against the taxpayer has definitely prescribed. (Jimmy Kho vs. Commissioner of Internal Revenue (CTA Case No. 10308, 14 September 2023; see also Commissioner of Internal Revenue vs. Citiparking Management Corporation, CTA EB No. 2626, 29 September 2023)

 

A REQUEST FOR RECONSIDERATION DOES NOT SUSPEND THE RUNNING OF THE PRESCRIPTIVE PERIOD FOR COLLECTION. There is no merit to the CIR’s argument that Citiparking’s request for reconsideration before the CIR, in the Letter dated December 5, 2011, suspended the running of the prescriptive period for collection. A perusal of the said Letter dated December 5, 2011, shows that the same is merely a request for reconsideration which would not suspend the running of the prescriptive period for collection. (Commissioner of Internal Revenue vs. Citiparking Management Corporation, CTA EB No. 2626, 29 September 2023)

 

A WAIVER OF THE STATUTE OF LIMITATIONS WHICH DOES NOT INDICATE THE NATURE AND THE AMOUNT OF THE TAX DUE IS INVALID. For a waiver of the statute of limitations to be valid and have the effect of extending the three (3)-year prescriptive period to assess under Section 203 of the NIRC of 1997, it is required (among others) that the waiver indicates the nature and the amount of the tax due. According to the Supreme Court, these details are material as there can be no true and valid agreement between the taxpayer and respondent absent these pieces of information. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317, 14 September 2023; Commissioner of Internal Revenue vs. PHILUSA Corporation, CTA EB No. 2566, 13 September 2023)

 

A WAIVER OF THE STATUTE OF LIMITATIONS MUST BE EXECUTED BY THE TAXPAYER AND ACCEPTED BY THE BIR BEFORE PRESCRIPTION SETS IN. The CTA noted that, in violation of the requirement in Commissioner of Internal Revenue v. Kudos Metal Corporation (Kudos Metal) (G.R. No. 178087; 5 May 2010), both the dates of execution by the taxpayer and dates of acceptance by the BIR occurred after the prescription had set in.  In Kudos Metal, the Supreme Court summarized the rules governing the proper execution of waivers under Revenue Memorandum Order (RMO) No. 20-90 and Revenue Delegation Authority Order (RDAO) No. 05-01, and requires among others that “Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.”  (Commissioner of Internal Revenue vs. PHILUSA Corporation, CTA EB No. 2566, 13 September 2023)

 

FLD AND FDDA THAT FAIL TO STATE A DUE DATE FOR THE PAYMENT OF THE TAXPAYER’S TAX LIABILITIES ARE VOID. A valid assessment does not only include a computation of tax liabilities, it also includes a demand for payment within a period prescribed. FLDs and FDDAs which do not state a due date are void since they hardly fall under the jurisprudential definition of a tax assessment under the NIRC, considering that they lack “a due tax liability that is definitely set and fixed.” They do not purport to be a demand for payment of tax due, which a final assessment notice should supposedly be. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317, 14 September 2023; Commissioner of Internal Revenue vs. PHILUSA Corporation, CTA EB No. 2566, 13 September 2023).

 

PROJECT INVESTMENT AGREEMENTS (PIAs) ARE NOT CONTRACTS OF SALE. PIAs are akin to contracts to sell since in a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement, the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price. (JTKC Land, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10059, 4 September 2023)

 

PROJECT INVESTMENT AGREEMENTS (PIAs) ARE NOT INVESTMENT CONTRACTS. The Supreme Court in Power Homes Unlimited Corporation v. Securities and Exchange Commission, et al. (G.R. No. 164182; 26 February 2008) explained that the concept of Howey test was adopted to define investment contracts under Republic Act (RA) No. 8799 or “The Securities Regulation Code” (SRC). Thus, in our jurisdiction, to be classified as an investment contract, there must be: (1) an investment of money; (2) in a common enterprise; (3) with expectation of profits; and, (4) primarily from the efforts of others. Using the above parameters, as also already discussed in the assailed decision, the CTA observed that petitioner failed to establish the common enterprise among the 19 alleged “investors”. (JTKC Land, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10059, 4 September 2023)

 

ASSESSMENT IS VOID IF SUCH DID NOT CONTAIN THE AMOUNT OF DEFICIENCY TAX, SURCHARGES, INTEREST, PENALTIES, AND THE DUE DATE. Section 195 of the Local Government Code (RA No. 7160) provides that the notice of assessment that will be issued by a local government unit against its taxpayers must not only contain the nature of the tax, fee or charge but also the amount of deficiency, the surcharges, interests and penalties. In the instant case, petitioner grounded its judicial action against respondents on the letter dated 4 June 2009, demanding payment of NPC’s franchise obligation without specifying the amount due and due date. Thus, there was no amount of deficiency tax assessment yet issued against the petitioner since an assessment must contain a fixed tax due. The absence of an assessment containing a fixed tax due is tantamount to an assessment without definite amount which is null and void. Hence, there is no basis to remand the case to the court a quo for the substantiation of the parties’ respective claim as an assessment that is null and void, bears no valid fruit. (National Power Corporation vs. Province of Dinagat Islands and Ermilinda C. Biol, CTA EB No. 1723; 19 September 2023)

 

IT IS INCUMBENT UPON THE CITY OF MANILA TO STATE THE PARTICULAR PROVISION OF THE MANILA REVENUE CODE IN THE LOA. Respondents must be aware that the essence of due process in administrative proceedings is not only for the petitioner to file a protest letter and have the opportunity to be heard but as well as the opportunity to properly and intelligently prepare for the answer to such charges. However, respondent City Treasurer in her Letter dated January 7, 2014, instead of responding to petitioner’s inquiry and providing the particular tax rate in the Manila Revenue Code as the basis of the LOA, merely cited the “Gross on Learning Institution and Rental Income” as the basis of her computation without providing the specific tax rate in the Manila Revenue Code which was used in arriving at the deficiency local business tax of petitioner. Even if Section 195 of the Local Government Code of 1991 does not expressly require the assessment notice to specifically cite the provision of the ordinance, reference to the local tax ordinance is vital considering that the Manila Revenue Code provides multiple provisions on business taxes and at varying rates. (Malayan Education System, Inc. (formerly known as Malayan Colleges, Inc. and presently operating under the name of Mapua University vs. City of Manila, City Mayor, and City Treasurer, CTA AC No. 260, 19 September 2008)

 

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. A compromise is, by its nature, mutual in essence. It implies agreement. One party cannot impose it upon the other. Considering that there is no indication that petitioner consented to the subject compromise penalties, the said total amount cannot likewise be sustained. (The Landmark Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9317, 14 September 2023)

 

UNDER SECTION 203 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, THE CIR HAS THREE (3) YEARS TO ASSESS AND COLLECT AN INTERNAL REVENUE TAX. CIR only had three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. If the taxpayer filed its VAT Quarterly Return for the months of: (1) January, February and March 2014 on April 25, 2014; and (2) April, May and June 2014 on July 25, 2014, CIR had three (3) years from the filing thereof, or until: (1) April 25, 2017; and (2) July 25, 2017, to issue an assessment against the taxpayer for its: (1) January, February and March 2014 VAT Quarterly Return; and (2) April, May and June 2014 VAT Quarterly Return, respectively. Since the CIR issued a FAN / FLD on January 10, 2017 covering the taxpayer’s deficiency VAT assessment for the 1st and 2nd quarters of 2014, the same is not barred by prescription. (Racal Motorsales Corporation vs. Bureau of Internal Revenue, CTA Case No. 9737, 14 September 2023)

 

A DULY REGISTERED COOPERATIVE IS EXEMPT FROM LOCAL BUSINESS TAX. Cooperatives are exempt from the payment of local business taxes pursuant to Section 133(n) of the Local Government Code and Article 61 of RA No. 9520. The proviso in Section 61(3) of RA No. 9520 that “all sales or services rendered for non-members shall be subject to the applicable percentage taxes except sales made by producers, marketing or service cooperatives” does not pertain to local business tax, but pertains to percentage tax under the NIRC. Nowhere in the LGC did the law pertain to local business taxes as “percentage taxes.” Hence, the CTA declined to construe the proviso allowing the imposition of percentage tax as granting petitioner the power to impose local business taxes on a cooperative selling to non-members. (The City Government of Tayabas represented by Hon. Ernida A. Reynoso, City Mayor, et al. vs. St Jude Multi-Purpose Cooperative, represented by its Manager, Melanie Fontarum, CTA AC No. 254 6 September 2023)

 

A DULY REGISTERED COOPERATIVE IS EXEMPT FROM REAL PROPERTY TAX.  Cooperatives are exempt from the payment of real property taxes pursuant to Section 234 of the Local Government Code and Article 61 of RA No. 9520. Anent respondent’s exemption from real property taxes, it has already been settled by the Supreme Court in Provincial Assessor of Agusan Del Sur us. Filipinas Palm Oil Plantation, Inc. (G.R. No. 183416; 5 October 2016) that “all real property owned by cooperatives” are exempt “without distinction.” The Supreme Court continued that “nothing in the law suggests that the real property tax exemption only applies when the property is used by the cooperative itself. Similarly, the instance that the real property is leased to either an individual or corporation is not a ground for withdrawal of tax exemption.” (The City Government of Tayabas represented by Hon. Ernida A. Reynoso, City Mayor, et al. vs. St Jude Multi-Purpose Cooperative, represented by its Manager, Melanie Fontarum, CTA AC No. 254, 6 September 2023)

 

SECTION 7B.14 (C) OF THE REVISED MAKATI REVENUE CODE (RMRC) IS VOID FOR BEING INCONSISTENT WITH SECTION 195 OF THE LOCAL GOVERNMENT CODE. The CTA in Division correctly invalidated Section 7B.14 (c) of the RMRC concerning “payment under protest” for being inconsistent with Section 195 of the LGC, which does not require prior payment to validly protest the assessment. In setting aside Section 7B.14(c) of the RMRC, the CTA is simply guided by the well-established doctrine that ordinances, which are inferior in status, should not contravene and should remain consistent with the law. Otherwise, the ordinance is void. (City of Makati and Jesusa E. Cuneta in her capacity as the Makati City Treasurer, CTA EB No. 2634, 18 September 2023)

 

LBT IS LEVIED ON THE ENTITY’S GROSS RECEIPTS DERIVED FROM THE CONDUCT OF ITS PRINCIPAL TRADE OR BUSINESS. It is settled that LBT under Section 143 of the LGC is levied on the entity’s gross receipts derived from the conduct of its principal trade or business. While respondent may be subject to LBT on its gross receipts derived from the conduct of its principal trade or business as a holding company following Section 143 of the LGC, its dividend and interest income derived from investment on shares of stock and other money market placements cannot be subject to LBT because such income is not derived from the pursuit of its principal business activity. (City of Makati and Jesusa E. Cuneta in her capacity as the Makati City Treasurer, CTA EB No. 2634, 18 September 2023))

 

HOLDING COMPANIES ARE NOT LIABLE FOR LBT PURSUANT TO SECTION 143(F) OF THE LGC. For respondents to be properly assessed under Section 3A.02(h) of the RMRC, petitioners must show that respondent is doing business as a bank or a non-bank financial intermediary. The CTA in Division has meticulously discussed that respondent does not fall under the purview of “banks and other financial institutions” as defined under Section 131(e) 33 of the LGC and that respondent is neither a financial intermediary nor lending investor, finance and investment company, pawnshop, money shop, insurance business, stock market, stockbroker, and dealer in securities. As a “holding company,” respondent’s main business is simply to hold shares to control the policies of its subsidiaries; thus, respondents cannot be taxed under Section 3A.02(h) of the RMRC. Also, the Supreme Court has already settled that holding companies are not liable for LBT pursuant to Section 143(f) of the LGC as they are not considered banks or non-bank financial intermediaries. Consequently, petitioners’ assessment of respondent pursuant to Section 3A.02(h) of the RMRC is erroneous. In fine, the RTC Makati City did not err in, and the Court in Division in sustaining, the cancellation of the subject assessment, levying LBT on respondent’s other income, namely, its management fees, investment income, and revenues from its employees’ benefit pension plan for being ultra vires. (City of Makati and Jesusa E. Cuneta in her capacity as the Makati City Treasurer, CTA EB No. 2634, 18 September 2023)

 

REFUND OF ERRONEOUSLY OR ILLEGALLY ASSESSED OR COLLECTED TAX

PAYMENTS MADE UNDER PROTEST PURSUANT TO A VOID DEFICIENCY TAX ASSESSMENT CAN BE REFUNDED. Section 229 of the NIRC, as amended, allows the recovery of taxes erroneously or illegally collected. An “erroneous or illegal tax” is defined as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which is some other similar respect is illegal. Deficiency tax assessments based on an audit and examination conducted by ROs not authorized to do so under a LOA are void because the same was a result of an illegal examination conducted by the BIR. A fortiori, the EWT, FWVAT, and Miscellaneous Tax (compromise penalties) for TY 2014, paid under protest by 3M, in the total amount of P13,398.898.25, were unlawfully collected by the BIR and should be refunded to 3M (3M Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9841, 19 September 2023)

 

PERIOD TO FILE CLAIM FOR REFUND. 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. (San Miguel Brewery Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8955; 14 September 2023; Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 9627,9697, 9760, 9830, and 9856; 8 September 2023). The timeliness of the filing of the claim is mandatory and jurisdictional and the CTA cannot take cognizance of a judicial claim for refund filed either prematurely or out of time. As for a judicial claim, our tax laws explicitly provide that it should be filed within two (2) years from payment of the tax “regardless of any supervening cause that may arise after payment”. (San Miguel Brewery Inc. vs. Commissioner of Internal Revenue ,CTA Case No. 8955; 14 September 2023; British American Tobacco (Philippines), Limited vs. Commissioner of Internal Revenue, CTA Case No. 9998; 12 September 2023; Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10483; 4 September 2023). As regards respondent’s contention that petitioner is in bad faith for allegedly filing an administrative claim before the BIR one (1) month before its claim for refund prescribes, depriving the BIR of making an assessment and/or audit investigation on its claim, the CTA found the same without merit. Verily, the primary purpose of filing an administrative claim was to serve as a notice of warning to the CIR that court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code  however does not mean that the taxpayer must await the final resolution of its administrative claim for refund, since doing so would be tantamount to the taxpayer’s forfeiture of its right to seek judicial recourse should the two (2)-year prescriptive period expire without the appropriate judicial claim being filed. Thus, considering the rationale behind the rule requiring the prior filing of an administrative claim for refund before the judicial claim, the CTA held that the period of thirty (30) days given to respondent to decide on petitioner’s administrative claim was sufficient to resolve the matter. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue, CTA Case No. 10284; 26 September 2023). From the language of the law, it does not matter how far apart the administrative and judicial claims were filed, or whether respondent was actually able to rule on the administrative claim, so long as both claims were filed within the two-year prescriptive period. (Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10483, 4 September 2023)

 

PERIOD TO FILE CLAIM FOR REFUND OF EXCISE TAXES ON DOMESTIC PRODUCTS; WHEN RECKONED. For excise tax on domestic products in general, the return is filed and the excise tax is paid by the manufacturer or producer before removal of the products from the place of production. Hence, the date of payment of excise tax on domestic products depends on the date of actual removal of the taxable domestic products from the place of production. Thus, the reckoning of the two (2)-year prescriptive period under Sections 204(C) and 229 should be from the date of “actual removal” of the taxable domestic products from the place of production; and not from the date when the pertinent excise tax return was filed and/or when the corresponding excise tax was paid. In the present case, in 2013, petitioner filed Excise Tax Returns and paid excise taxes; and actually removed its beer products from its plants, the earliest date was made on January 2, 2013. Such being the case, petitioner had two (2) years from the said date or until January 2, 2015, at the earliest, within which to file its administrative and judicial claims for refund. (San Miguel Brewery Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8955, 14 September 2023)

 

OPTIONS AVAILABLE TO A TAXPAYER WHENEVER IT OVERPAYS ITS ANNUAL INCOME TAX FOR A TAXABLE YEAR. Under Section 76 of the NIRC, there are two options available to the corporation whenever it overpays its income tax for the taxable year: (1) to carry over and apply the overpayment as tax credit against the estimated quarterly income tax liabilities of the succeeding taxable years (also known as automatic tax credit) until fully utilized (meaning, there is no prescriptive period); and (2) to apply for a cash refund or issuance of a tax credit certificate within the prescribed period. Such overpayment of income tax is usually occasioned by the over-withholding of taxes on the income payments to the corporate taxpayer. (Sonoma Services, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10272; 22 September 2023). 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 Annual Corporate 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. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue, CTA Case No. 10284; 26 September 2023)

 

REQUISITES TO CLAIM FOR REFUND OF CREDITABLE WITHHOLDING TAX. In addition to the requisites provided under Section 76 of the NIRC of 1997, the taxpayer must satisfy the following three (3) requisites (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10284; 26 September 2023; Sonoma Services, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10272; 22 September 2023); GHD Pty Ltd. (formerly Gutteridge Haskins & Davey Pty Ltd.) vs. Commissioner of Internal Revenue (CTA EB No. 2637; 6 September 2023)):

 

1. The claim for refund must be filed within the two-year prescriptive period as provided under Sections 204(C) and 229 of the NIRC, as amended

 

While the law provides that the two years is counted from the date of payment of the tax, jurisprudence, however, clarified that the two-year prescriptive period to claim a refund commences to run at the earliest on the date of the filing of the final adjustment return or adjusted final tax return because this is where the figures of the gross receipts and deductions have been audited and adjusted, reflective of the results of the operations of a business enterprise. Thus, it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue, CTA Case No. 10284; 26 September 2023; Sonoma Services, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10272; 22 September 2023)

 

2. The fact of withholding must be established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom.

 

The Supreme Court affirmed that the CWT certificate is the competent proof to establish the fact that taxes are withheld and that proof of actual remittance is not a condition to a claim for refund of unutilized tax credits. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10284; 26 September 2023)

 

3. The income upon which the taxes were withheld must be included in the return of the recipient.

 

The income payments/management fees of P56,587,650.68 related to the claimed CWTs of P8,488,147.60 or P8,488,148.00 formed part of petitioner’s taxable income per its 2017 Annual ITR. Verily then, petitioner is considered to have complied with the third requisite. (Bethlehem Holdings, Inc. vs. Commissioner on Internal Revenue, CTA Case No. 10284. 26 September 2023)

 

An examination of the ICPA report and the relevant annexes thereto shows the matching procedure used the income payments subjected to CWT to the ORS and of the GL of FY 2015. However, petitioner’s GL for FY2015 (that would have allowed the CTA to trace and verify that the income payments were declared in 2015) was never presented during the trial. Also, the CTA agreed with respondent’s observation that the Annual ITR for 2015 and the related ORS (which petitioner deemed sufficient evidence) are not adequate for the CTA to ably determine that the income payments were indeed declared in 2015. It is noted that the Annual ITR merely reflected the gross revenue while the ORS showed the specific income payments. As it is, there is dearth of evidence linking the specific income payments in the OR with the gross revenue in the Annual ITR, thus the CTA cannot validate the ICPA’s findings. The CTA makes an independent verification and it is not bound to accept the conclusion reached in the ICPA report. (GHD Pty Ltd. (formerly Gutteridge Haskins & Davey Pty Ltd.) vs. Commissioner of Internal Revenue, CTA EB No. 2637, 6 September 2023)

 

DETERMINING THE RECOVERY PERIOD IN A FINANCIAL OR TECHNICAL ASSISTANCE AGREEMENT. Based on the foregoing provisions of the FTAA, petitioner had 36 months or three (3) years from the approval of its PDMF on 11 October 2005, or until 11 October 2008, to develop and construct mining production facilities. Thereafter, it had to submit, within 30 days, another Work Program for the period of 3 years for the actual production activities (including the commencement of commercial production). Clearly from the foregoing, petitioner should have commenced commercial operation and production within the 4th quarter of 2008 up to 4th quarter of 2011. Consequently, the recovery period would have ended in the 3rd quarter of 2015 to fourth quarter of 2016 (subject periods of the instant refund), regardless of petitioner’s declaration of the commencement of commercial production on 27 March 2013. Accordingly, the subject payments of excise taxes that were made between 01 July 2015 and 19 December 2016 (which are beyond the recovery period) are not rendered erroneous nor illegal. (Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 9627,9697, 9760, 9830, and 9856, 8 September 2023)

 

PAYMENTS OF EXCISE TAXES DURING THE RECOVERY PERIOD. Even assuming arguendo that the subject payments of excise taxes were made within the recovery period, DAO No. 99-56 and the FTAA  state categorically that, in case the excise taxes paid are not recovered, the same would merely form part of the Government’s share or the same shall be deducted from the latter’s share. Note that Section 3(g)(1) of DENR DAO NO. 99-56, in part, states: “Any taxes, fees, royalties, allowances, or other imposts, which should not be collected by the Government, but nevertheless paid by the Contractor and are not refunded by the Government before the end of the next taxable year, shall be included in the Government Share in the next taxable year. (Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue (CTA Case Nos. 9627,9697, 9760, 9830, and 9856, 8 September 2023)

 

DEFINITION OF THE TERM “DETRIMENTAL” FOR FTTA PURPOSES. Section Il of the FTAA provides for a definition of terms. The definition of the word “detrimental” is, however, not provided therein. With the absence of a technical definition, resort to the plain or literal meaning of the word is in order. The term “detriment” means “[a]ny loss or harm suffered in person or in property”. Thus, per the subject FTAA, petitioner must show that the collection of excise tax during the Recovery Period resulted in loss or harm in its person or property. (Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 9627,9697, 9760, 9830, and 9856; 8 September 2023)

 

THE PAYMENT OF EXCISE TAXES MUST BE DETRIMENTAL TO THE CONTRACTOR’S RECOVERY OF PREOPERATING EXPENSES AND PROPERTY EXPENSES. Even assuming arguendo that the subject payments of excise taxes were made within the recovery period, petitioner failed to prove that the payments of the subject excise taxes, during the said 5-year period, were detrimental to its recovery of the said pre-operating and property expenses. As it is, the records of these cases do not yield any evidence showing that such excise tax payments resulted in losses (to petitioner). Moreover, petitioner failed to present evidence that its payments of excise taxes had an adverse effect on its financial position and/or performance as it did not also offer in evidence its Audited Financial Statements during the subject period. Even the ICPA Report is silent as to a supposed detrimental effect of the payments of the excise taxes during the Recovery Period. With the above disquisitions, this Court thus finds no erroneous or illegal collection of excise taxes that may be refunded to petitioner. (Oceanagold (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 9627,9697, 9760, 9830, and 9856; 8 September 2023)

 

IMPORTATION OF ALKYLATE IS NOT SUBJECT TO EXCISE TAX. The pieces of evidence for petitioner, including the testimony of an expert, which respondent failed or did not even attempt to rebut, clearly established that alkylate is not a product of distillation; hence, not subject to excise tax. In fact, in the subsequent case of Petron Corporation v. Commissioner of Internal Revenue (G.R. No. 255961; 20 March 2023), the Supreme Court has already categorically and unequivocally declared that alkylate does not fall under the category of “other similar products of distillation” subject to excise tax. (Petron Corporation vs. Commissioner on Internal Revenue, CTA Case No. 9947, 27 September 2023)

 

EXCEPTION TO THE DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES. Petitioner has already filed an administrative claim for refund or tax credit in 2018. However, since the two (2)-year period provided in Section 229 of the NIRC of 1997, as amended, was already about to lapse, petitioner filed its judicial claim within the said two (2)-year period without waiting for respondent’s decision. This present case is one of the jurisprudentially-recognized exceptions on the doctrine of exhaustion of administrative remedies, i.e., where insistence on its observance would result in the nullification of the claim being asserted. Settled is the rule that in cases of recovery of erroneously paid or illegally collected tax under Section 229 of the NIRC of 1997, as amended, both the administrative claim for refund and the filing of the suit in Court should be made before the expiration of two (2) years from the date of payment regardless of any supervening cause that may arise after payment. Even if petitioner would raise the matter before the SOF, the latter’s resolution of the issue would still be meaningless for petitioner considering that any supervening cause (i.e., the SOF’s favorable ruling) could no longer extend the two (2)-year period provided in Section 229 of the NIRC of 1997, as amended. Therefore, given the limited time frame remaining for petitioner to file its judicial claim, appealing CMC No. 164-2012 with the SOF may result in the nullification petitioner’s claim for refund; thus, the CTA held that direct recourse to it is understandable and warranted. (Petron Corporation vs. Commissioner on Internal Revenue, CTA Case No. 9947, 27 September 2023)

 

A TAXPAYER’S BALANCE IN THE IRSIS MAY BE REFUNDED WHEN THE SAME MAY NO LONGER BE UTILIZED BY THE TAXPAYER. The Internal Revenue Stamp Integrated System (IRSIS) balance stated in a taxpayer’s ledger may be refunded under Section 229 of the NIRC of 1997, as amended, when the said balance may no longer be utilized by the same taxpayer such as when the latter is no longer a going concern (since it may fall under the category of “any sum alleged to have been excessively … collected”). After all, to reiterate, erroneous or wrongful payment includes excessive payment because they all refer to payment of taxes not legally due. Furthermore, the return of what was erroneously paid is founded on the principle of solutio indebiti, a basic postulate that no one should unjustly enrich himself or herself at the expense of another. The caveat against unjust enrichment covers the government. In this case, petitioner was able to show that it has ceased its business operation in the Philippines and it has already obtained the required tax clearance in connection therewith. Such being the case, any balance reflected on petitioner’s ledger relative to internal revenue stamps (as it can no longer be utilized), may be refunded as long as the same has been duly substantiated. (British American Tobacco (Philippines), Limited vs. Commissioner of Internal Revenue, CTA Case No. 9998, 12 September 2023)

 

 

THERE IS NO ERRONEOUS OR ILLEGAL TAXES THAT ARE REFUNDABLE IN CASE OF PAYMENT OF TAXES IN RELATION TO AN APPLICATION FOR COMPROMISE SETTLEMENT. Section 6 of RR No. 30-2002,  as amended by RR No. 9-2013  provides that no application for compromise settlement shall be processed without the full settlement of the offered amount, and that in case of disapproval of the application for compromise, the amount paid upon filing shall be deducted from the total outstanding tax liabilities. Based on the foregoing regulation, the amount offered must be paid before the application for compromise settlement may be processed, and that in cases where the application is disapproved, the amount paid shall be deducted from the total outstanding tax liabilities. In this case, as petitioner itself insists, the amount of total outstanding tax liabilities has yet to be determined because they have yet to become final and executory, as they are currently pending with the CTA, and may even be the subject of appeals. Accordingly, based on RR No. 30-2002, as amended, the amount paid pursuant to the application for compromise settlement will be applied towards such outstanding tax liabilities yet to be determined, if any, and may not be the subject of a refund at this time. Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue. (Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10483, 4 September 2023)

 

REQUISITES FOR THE APPLICATION OF THE PRINCIPLE OF SOLUTIO INDEBITI. In the case of Commissioner of Internal Revenue vs. San Miguel Corp. (G.R. Nos. 180740 & 180910; 11 November 2019), the Supreme Court held that the principle of solutio indebiti applies where (1) payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. Notably in this case, there is a binding relation between the payor, the petitioner that filed an application for compromise settlement in relation to deficiency tax assessments for three (3) taxable years, and the respondent, the taxing authority in this jurisdiction. Moreover, the payment was made, not through mistake, but in pursuit of an application for compromise settlement. (Barrio Fiesta Manufacturing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10483, 4 September 2023)

 

APPLICABILITY OF THE PRINCIPLE OF SOLUTIO INDEBITI TO THE GOVERNMENT. The Government comes within the scope of the solutio indebiti principle as elucidated in Commissioner of Internal Revenue vs. Fireman’s Fund Insurance Company (G.R. No. L-30644; 9 March 1987) where the Supreme Court held that: “Enshrined in the basic legal principles is the time-honored doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the Government is not exempted from the application of this doctrine. (GHD Pty Ltd. (formerly Gutteridge Haskins & Davey Pty Ltd.) vs. Commissioner of Internal Revenue CTA EB No. 2637, 6 September 2023)

 

TAX REGULATIONS CANNOT IMPOSE ADDITIONAL REQUIREMENTS OTHER THAN WHAT IS REQUIRED UNDER THE LAW AS A CONDITION FOR TAX EXEMPTION. Evidently, the foregoing provision states that the existence itself of the law, treaty (which in this case is the Philippine-Kuwait Tax Treaty that took effect on January 1, 2014) or agreement to which the Philippines is a signatory already suffices. Accordingly, requiring the international carriers covered by any treaties or agreements to provide proof of actual enjoyment by Philippine carriers of income tax exemption in the home country of the international carrier unduly expands the law and, in turn, creates an additional burden upon international carriers which this Court cannot tolerate. Settled is the rule that tax regulations cannot impose additional requirements other than what is required under the law as a condition for tax exemption. It can be said that the third paragraph of Section 4.2 (B) of RR No. 15-2013, which requires actual proof of enjoyment by Philippine carriers of income tax exemption in the home country of the international carrier, should be invalidated as it negates the availment of the reliefs provided for under international agreements. More so, respondent seems to be asking for the impossible, for it cannot be expected that petitioner could have access to the records of Philippine carriers operating in Kuwait that could have verified the latter’s actual enjoyment of the exemption on income tax provided for by its home country in favor of Philippine carriers. (Kuwait Airways Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10107; 4 September 2023)

 

 

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:

1. The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made.In accordance with Section 112(A) and (C) of the NIRC of1997, as amended by TRAIN, the administrative claim for refund of unutilized input VAT must be filed with the BIR within two (2) years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023); AMMEX I-Support Corporation vs. Commissioner on Internal Revenue (CTA Case No. 10190; 5 September 2023))

 

2. 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 made(Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 1045,  28 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190, 5 September 2023).

 

With reference to the taxpayer’s registration with the BIR:

3. The taxpayer is a VAT-registered person(Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 1045,  28 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190, 5 September 2023).

 

In relation to the taxpayer’s output VAT:

4. The taxpayer is engaged in zero-rated or effectively zero-rated sales(Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10450, 28 September 2023).

 

1. For zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b), and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations Petitioner presented documents such as: (1) Certificate of Inward Remittance issued by BDO Unibank, Inc. dated 14 March 2019; and (2) ORS issued for zero-rated sales. As noted by ICPA L.S. Gomez, petitioner’s zero-rated sales amounting to Php 30,402,837.98 are traceable to the Certificate of Inward Remittance and are all supported with zero-rated ORS. (AMMEX I-Support Corporation vs. Commissioner on Internal Revenue (CTA Case No. 10190; 5 September 2023));

 

1. • Re. sales of goods abroad, in order for an export sale to qualify as zero-rated
     • there was sale and actual shipment of goods from the Philippines to a foreign country, as evidenced by the following:
       • Whenever there is an actual shipment of goods from the Philippines to a foreign country, regardless of the incentive the exporter is enjoying, it must be supported with a certificate of inward remittance or a bank-certified credit memo to show that it was paid for in acceptable foreign currency-and accounted for in accordance with the rules and regulations of the BSP. Export sales under Section 106(A)(2)(a)(5) of the NIRC must also be paid for in acceptable foreign currency (Carmen Copper Corporation vs. Commissioner of Internal Revenue, CTA EB No. 2596, 25 September 2023)

 

o Sale of services to ECOZONE-registered enterprises. Since the Ecozone, by legal fiction, is viewed as a foreign territory, a VAT-registered person’s sales of goods and services to an entity registered and operating within the ecozone in the Philippine customs territory are considered exports to a foreign country subject to zero percent (0%) VAT. Note that the Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10450, 28 September 2023).

 

o Sale of goods, properties, or services made by a VAT-registered supplier to a BOI-registered entity. In Commissioner of Internal Revenue v. Filminera Resources Corporation (G.R. No. 236325; 16 September 2020), the Supreme Court ruled that sales made to a BOI-registered buyer are export sales subject to the zero percent (0%) rate if the following conditions are met: (1) the buyer is a BOI-registered manufacturer/producer; (2) the buyer’s products are 100% exported; and, (3) the BOI certified that the buyer exported 100% of its products. For this purpose, the BOI Certification is vital for the seller-taxpayer to avail of the benefits of zero-rating. The certification is evidence that the buyer exported its entire products and shall serve as authority for the seller to claim for refund or tax credit. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10450, 28 September 2023).

 

o 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:

 

1. • • 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” (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue (CTA EB No. 2640; 15 September 2023))

 

1. • • The service must be performed in the Philippines by a VAT-registered person (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue, CTA EB No. 2640, 15 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190; 5 September 2023)

 

1. • • Petitioner proved that the services were rendered in the Philippines by submitting the following in evidence:
       1. Service agreement;
       2. Unrebutted testimony of the ICPA that the services rendered to its client;
       3. By its very nature as an ROHQ, petitioner is tasked to provide qualifying services to its foreign affiliates and is allowed to derive income in the Philippines by performing such services pursuant to Section (2) (3) of RA 8756 which amended EO No. 226.  (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue, CTA EB No. 2640, 15 September 2023)
       4. As an ROHQ, petitioner is considered as a resident foreign corporation which is taxable only on tis income from sources within the Philippines pursuant to Section 23 (F) of the 1997 NIRC.

 

1. • • The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue, CTA EB No. 2640, 15 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190; 5 September 2023)

 

1. • • The recipient of the services must be engaged in business conducted outside the Philippines or not engaged in business and is outside the Philippines when the services are performed, (Regus Service Centre Philippines B.V. vs. Commissioner of Internal Revenue, CTA EB No. 2640, 15 September 2023; AMMEX I-Support Corporation vs. Commissioner on Internal Revenue, CTA Case No. 10190; 5 September 2023)

 

1. • • There must be sufficient proof of both components, namely: (1) that its clients or affiliates are foreign corporations (which can be proven by the SEC Certifications of Non-Registration of Company); and, (2) that they are not doing business in the Philippines (the prima facie proof of which is the articles of association/certificates of incorporation stating that these affiliates are registered to operate in their respective home countries, outside the Philippines). In the instant case, to prove that it rendered services to NRFCs doing business outside the Philippines, petitioner presented their SEC Certifications of Non-Registration of Company and consularized foreign registration documents (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023); AMMEX I-Support Corporation vs. Commissioner on Internal Revenue (CTA Case No. 10190; 5 September 2023)

 

As regards the taxpayer’s input VAT being refunded:

 

6. 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 (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023).

 

Contrary to the CIR’s position, there is nothing in the afore-quoted Section 112 (A) of the NIRC of 1997, as amended, which requires that the input taxes subject of a claim for refund be directly attributable to zero-rated sales or effectively zero-rated sales. Input taxes that bear a direct or indirect connection with a taxpayer’s zero-rated sales satisfy the requirement of the law. (Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2568; 19 September 2023)

 

With respect to its input taxes attributable to zero-rated sales, it is the taxpayer (and not the court) who is given the option to either: (1) charge a portion of its input taxes attributable to zero-rated sales to the output taxes, and refund the balance, if any; or, (2) refund all of the input taxes attributable to zero-rated sales. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023)

 

1. The input taxes are not transitional input taxes. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023);

 

1. The input taxes have not been applied against output taxes during and in the succeeding quarters. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023);

 

1. Input tax must comply with invoicing requirements. The following information shall be indicated in the VAT invoice or official receipt:

 

1. A statement that the seller is a VAT-registered person, followed by its TIN;
2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT, provided that (i) the amount of tax shall be shown as a separate item in the invoice or receipt, (ii) if the sale is exempt from VAT, the term “VAT exempt sale” shall be written or printed prominently on the invoice or receipt, or (iii) if the sale is subject to zero percent (0%) VAT, the term “zero-rated sale” shall be written or printed prominently on the invoice or receipt; and (iv) if the sale involves goods, properties or services, some of which are subject to and some of which are VAT-zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the VAT on each portion of the sale shall be shown on the invoice or receipt. The seller has the option to issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale;
3. In the case of sales in the amount of one thousand pesos (P1,0000.00) or more, where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and TIN of the purchaser, customer or client;
4. Date of transaction; and,
5. Quantity, unit cost and description of merchandise or nature of service.

 

It bears noting that our VAT system is invoice-based, i.e., taxation relies on sales invoices or ORs.  Also, Section 237 of the NIRC of 1997, as amended, uses the word “shall” and thus operates to impose a duty which may be enforced. Consequently, the taxpayer-claimant is duty bound to ensure full compliance with the invoicing requirements. Furthermore, along with the entity name, the address serves as a connection between petitioner’s ORS and the foreign registration documents. Based on the foregoing, the entire amount of petitioner’s zero-rated sales must be disallowed. (AMMEX I-Support Corporation vs. Commissioner on Internal Revenue (CTA Case No. 10190; 5 September 2023))

 

Revenue Memorandum Circular (RMC) No. 42-0344 expressly provides that a taxpayer’s failure to comply with the invoicing requirements will result in the disallowance of the claim for input tax. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023))

 

WHEN VAT IS NOT AN “EXCESSIVELY” COLLECTED TAX UNDER SECTION 229. Under the VAT System, there is no claim or issue that the ‘excess’ input VAT is ‘excessively or in any manner wrongfully collected.’ In fact, if the ‘excess’ input VAT is an ‘excessively’ collected tax under Section 229, then the taxpayer claiming to apply such ‘excessively’ collected input VAT to offset his output VAT may have no legal basis to make such offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such ‘excessively’ collected tax, and thus there will no longer be any ‘excess’ input VAT. It is clear from the foregoing that input VAT is not ‘excessively’ collected as understood under Section 229 because at the time the input VAT is collected, the amount paid is correct and proper. Moreover, even if said input VAT is in fact ‘excessively’ collected as understood under Section 229, then it is the person legally liable to pay the input VAT, and not the person to whom the tax is passed on and who is applying the input VAT as credit for his or her own output VAT, who can file the judicial claim for refund or credit outside the VAT system. (Melco Resorts Leisure (PHP) Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10099 & 10176; 21 September 2023))

 

A TAXPAYER HAS NO RECOURSE AGAINST THE GOVERNMENT TO RECOVER INPUT VAT PAID ON DOMESTIC PURCHASES OF GOODS AND SERVICES FOR WHICH NO VAT SHOULD HAVE BEEN PAID. We should also take into consideration the nature of VAT as an indirect tax. Although the seller is statutorily liable for the payment of VAT, the amount of the tax is allowed to be shifted or passed on to the buyer. However, reporting and remittance of the VAT paid to the BIR remained to be the seller/supplier’s obligation. Hence, the proper party to seek the tax refund or credit should be the suppliers, not the petition [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2596; 25 September 2023)]

 

REMOVAL OF THE INPUT TAX ON “INVALID ZERO-RATED” SALES FROM THE REFUNDABLE AMOUNT. The method for computing the refundable amount. Insofar as the input tax on “invalid zero-rated” sales is concerned, the Supreme Court held that the substantiated or valid input VAT should be multiplied to the valid zero-rated sales over total sales. This is contrary to petitioner’s contention that there should be no allocation in case of 100% BOI-registered exporters. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2596; 25 September 2023)]

 

ACTIVITIES INCLUDED IN THE PHRASE “DOING BUSINESS IN THE PHILIPPINES”. Section 3(d) of Republic Act No. 7042 defined “doing business in the Philippines” as follows:

 

“d) The phrase ‘doing business’ shall include soliciting orders, service contracts, opening offices, whether called ‘liaison’ offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase ‘doing business’: shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.”

 

In affirming the decision rendered by the CTA in division, the CTA en banc affirmed in approval the following observations made by the CTA in division:

 

1. Amadeus Philippines is a wholly-owned subsidiary of Amadeus Spain.

 

2. Amadeus Philippines is tasked to promote, make available and facilitate access to the Amadeus System to the subscribers located in the Amadeus ACO Territory (Philippines) and to act as a neutral agent for all Amadeus Spain participants and subscribers under the agreement. More significantly, the ACO Agreement is replete with provisions that govern Amadeus Spain’s control and participation in running the marketing and distribution of the Amadeus System in the Philippines, a few of the significant provisions are as follows:

 

• Nothing in the agreement shall constitute a license to Amadeus Philippines to use or sub-license its own right to the software which runs the Amadeus System, other than in accordance with the terms of the agreement.
• Ownership of any and all intellectual property, including those generated by Amadeus Philippines in the performance of its obligations such as, without limitation, any developments, improvements, enhancements, modifications, or changes to the Amadeus Products or Amadeus System shall remain the exclusive property of Amadeus Spain.
• Amadeus Philippines, with respect to the performance of the services under the agreement, shall not solicit business, or open its own offices or facilities outside Philippine territory without the prior written consent of Amadeus Spain.
• Amadeus Spain reserves its right to negotiate and contract with multinational subscribers for the provision of services and products by Amadeus Philippines.
• Amadeus Spain is obliged to provide improvements and additions to Amadeus Products and Services, market information and promotional materials, basic and continuing training programs covering all Amadeus Products and Services, sales training, training programs for technical support staff and 24-hour central Customer Services/Help Desk.
• Amadeus Philippines is obliged to follow and comply with all the privacy policies and procedures established by Amadeus Spain.
• Amadeus Spain has the right to terminate the agreement if Amadeus Philippines violates the non-competition provisions, significantly deviates from the business plan or fails to meet the targets set by the parent and subsidiary by a significant margin.

 

Clearly, the ACO Agreement paved the way for Amadeus Spain through and together with Amadeus Philippines to further advance its purpose to continually promote, market, and distribute the Amadeus System in the Philippines. These and its powers above, fall squarely under the definition of “doing business in the Philippines” under Section 3 (d) of Republic Act No. 7042 quoted above. In view of the foregoing, petitioner failed to show that it is engaged in zero-rated sales pursuant to Section 108 (B)(2) of the Tax Code. (Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2598; 13 September 2023)

 

APPOINTING A LOCAL AGENT CONSTITUTES DOING BUSINESS IN THE PHILIPPINES. Simply put, so that a foreign corporation may be considered engaged in trade or business, its business transaction must be continuous. And such continuity may be shown by “the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization” and is exemplified by “the appointment of a local agent.” In this case, petitioner acts as the representative of AGSA in that while the latter retains all title, copyright, and other proprietary rights in and to the subject Product, petitioner has been authorized to grant to the Subscribers non-exclusive, nontransferable licenses to use the same. In other words, instead of AGSA itself granting licenses to Subscribers, as the owner of the said Product, it is being done by petitioner on behalf of the former in the Philippines. Thus, there can be no doubt that petitioner is constituted as the local agent of AGSA in the Philippines. (Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2496; 15 September 2023)

 

A TAXPAYER’S SITE REGISTERED ONLY AS A FACILITY IS NOT AUTHORIZED TO CONDUCT SALES TRANSACTIONS. A cursory look of the appealed administrative decision show that respondent denied petitioner’s claim for refund, finding that petitioner’s Puerto Princesa, Palawan Site was registered only as a “Facility” instead of a “Branch” – as such it was not authorized to conduct sales transactions. Moreover, considering that the registration of the said Site as a “Facility” was effected only on August 9, 2017, which is beyond the said period of claim, the declared sales transactions for the Site has no force and effect and could not be considered as VAT zero-rated as contemplated under Section 108 (B) (2) in relation to Section 112(A) of the National Internal Revenue Code (NIRC) of 1997, as amended. From the foregoing, petitioner should have shown to this Court that respondent committed a patent error in arriving at his decision in the administrative claim. Unfortunately, same as in the administrative proceeding, petitioner did not present evidence that it was properly registered with the BIR during the period of the claim, i.e., January to March 2017. Evidently, by not being able to show that respondent erred in finding that the declared sales transactions in petitioner’s Palawan Site could not be considered as VAT zero-rated under Section 108(B)(2) in relation to Section 112(A) of the NIRC of 1997, as amended, petitioner’s appeal should be denied. (Sitel Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10136; 4 September 2023)

 

SECTION 108(B)(2) MUST BE READ IN CONJUNCTION WITH SECTION 108(B)(1) OF THE TAX CODE. In the Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (G.R. No. 153205; 22 January 2007) case, the Supreme Court harmonized both Sections 102(b)(1) and 102(b)(2) of the 1977 Tax Code, as amended, pertaining to zero-rated transactions. A parallel approach should be accorded to the renumbered provisions of Sections 108(B)(2) and 108(B)(1) of the 1997 NIRC. This means that Section 108(B)(2) must be read in conjunction with Section 108(B)(1). Section 108(B)(2) requires as follows: a) services other than processing, manufacturing or repacking rendered by VAT registered persons in the Philippines; and b) the transaction paid for in acceptable foreign currency duly accounted for in accordance with BSP rules and regulations. The same provision made reference to Section 108(B)(1) further imposing the requisite c) that the recipient of services must be performing business outside of Philippines. Otherwise, if both the provider and recipient of service are doing business in the Philippines, the sale transaction is subject to regular VAT. (Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2598; 13 September 2023)

 

CONDITIONS TO QUALIFY FOR VAT ZERO-RATING UNDER SECTION 108(B)(2) OF THE TAX CODE. To qualify for VAT zero-rating under Section 108(B)(2) of the Tax Code requires the concurrence of four (4) conditions: first, the services rendered should be other than “processing, manufacturing or repacking of goods”; second, the services are performed in the Philippines; third, the service-recipient is (a) a person engaged in business conducted outside the Philippines; or (b) a non-resident person not engaged in a business which is outside the Philippines when the services are performed; and, fourth, the services are paid for in acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations. (Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2598; 13 September 2023)

 

PAGCOR IS EXEMPTED FROM VAT UNDER RA 9337. In the cases of The Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation (G.R. No.147295; 16 February 2007) and Philippine Amusement and Gaming Corporation (PAGCOR) v. The Bureau of Internal Revenue (BIR), et al. (G.R. No. 172087; 15 March 2011), the Supreme Court ruled categorically that PAGCOR is exempted from VAT under RA 9337. Consequently, petitioner’s sales of services to PAGCOR are subject to zero percent (0%) VAT. (Nippon Express Philippines Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10450; 28 September 2023))

 

PAGCOR’S VAT EXEMPTION DOES NOT EXTEND TO PRIVATE ENTITIES THAT WERE LICENSED TO OPERATE THEIR OWN CASINOS. The tax exemption of PAGCOR extends only to those individuals or entities that have contracted with PAGCOR in connection with PAGCOR’s casino operations. The exemption does not include private entities that were licensed to operate their own casinos. This was further clarified in Revenue Memorandum Circular (RMC) No. 32-2022, which provides (in part): “x x x The tax exemption of PAGCOR extends only to those individuals or entities that have contracted with PAGCOR (PAGCOR Contractees and not Licensees) in connection with PAGCOR’s gaming operations. This is to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR. x x x Thus, pursuant to Acesite and Thunderbird rulings, for PAGCOR Licensees, their revenues from gaming operations, involving sale of goods and/or services in the course of trade or business, are generally subject to VAT.” In the instant case, petitioner is a licensee of PAGCOR, thus, PAGCOR’s exemption does not inure to its benefit. (Melco Resorts Leisure (PHP) Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10099 & 10176; 21 September 2023))

 

VIOLATION OF ADMINISTRATIVE DUE PROCESS; CONSEQUENCE. The Denial Letter alone fails to state the legal basis of respondent’s denial. The Denial Letter merely states that respondent evaluated the documents which “disclosed adjustments and disallowances.” While the Denial Letter refers to certain memo reports which purportedly explain respondent’s findings, said memo reports are mere summaries without any explanation or citation of the legal basis. Administrative due process imposes upon the agency the “duty to give reason” and for the decision to state the facts and law upon which the decision is based. At most, while the Denial Letter states the factual basis for the partial denial, it fails to state the legal basis for the decision. The CTA, however, disagreed with petitioner’s contention that “to the extent that it improperly denies a portion of petitioner’s claim, must be rendered invalid, and the claim for refund be deemed fully granted as a necessary consequence.” The effect of an invalid decision does not automatically result in the deemed granting of the refund claim. (Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2596; 25 September 2023))

 

THE SUPREME COURT CASE OF CHEVRON HOLDINGS, INC. VS COMMISSIONER OF INTERNAL REVENUE (G.R. No. 215159; 5 July 2022) IS APPLICABLE TO NOT JUST TO SECTION 112(A) BUT ALSO SECTION 112(B) OF THE NIRC. While the CTA En Banc agreed with respondent’s observation that Chevron is not on all fours with the instant case. However, notwithstanding these differences, the ratio decidendi and the principles laid down in Chevron are applicable in the instant case and warrant consideration by the CTA for the following reasons:

 

1. The input tax refunds or credits under Sections 112(A) and 112(B) pertain to unutilized or unused input tax. Section 112(A) allows a refund or credit of input tax attributable to zero-rated or effectively zero-rated sales to the extent that such input tax has not been applied against output tax, while Section 112(B) allows a refund or credit of any unused input tax due to retirement from or cessation of business.
2. Even assuming arguendothat Chevron is inapplicable, the CTA En Banc noted that respondent sought to have petitioner substantiate its input tax credit as far back as before FY 2004. This runs even beyond BIR’s recordkeeping requirements for taxpayers and counters the well-settled pronouncements of the Supreme Court regarding prescription and other mandatory periods in the NIRC. Clearly, for the CTA En Banc to compel petitioner to substantiate such input tax credit is for it to require petitioner to do the absurd and impossible. These periods exist to safeguard taxpayers from any unreasonable examination or investigation.
3. Applying the CTA En Banc’s discussion in the immediately preceding paragraph, respondent’s contention that the period covered in Section 112(B) is not just a specific quarter but the entire operations of the business, i.e., from its inception until its retirement or cessation, has no merit as well. By way of example, indeed, Section 112(B) did not envision that an entity operating for a hundred years that has been accumulating input VAT since inception would be likewise required to substantiate its input VAT for a hundred years as well. To provide such a requirement which the law does not require, would be to place an undue burden on the taxpayer’s refund claim.
4. Again assuming arguendothat Chevron is inapplicable, respondent’s fears that taxpayers may accumulate its input tax carryover and subsequently have it refunded is exaggerated and may be eliminated, or at best, mitigated, by its statutorily granted power to examine returns of taxpayers,  which includes VAT returns reflecting input tax carryovers. However, respondent fails to point out any instance in which it had previously disallowed petitioner’s input tax carryover. In fact, petitioner has even secured a Delinquency Verification from the BIR RR No. 8A and a Certificate of No Outstanding Tax Liability. (Mitsui & Co., Ltd. (Manila Branch) vs. Commissioner of Internal Revenue (CTA EB No. 2495; 14 September 2023))

 

VIOLATION OF THE TAX CODE

PRESCRIPTIVE PERIOD TO FILE A CRIMINAL CASE FOR WILLFUL NON-PAYMENT OF DEFICIENCY TAXES. In willful non-payment of deficiency taxes, the five (5) year prescriptive period should commence to run after the finality of the assessment coupled with the taxpayer’s willful refusal to pay taxes within the allotted period. (People of the Philippines vs. FAREAL Builders, Inc., and its responsible officers, Ferdinand I. Santos and Lilibeth M. Santos, CTA Crim Case No. O-958; 29 September 2023; People of the Philippines vs. U-NID-ME Manpower Incorporated and its responsible corporate offices Elaine T. Sunga (President) and Ricardo L. Benitez (Treasurer), CTA Crim. Case No. O-1012; 26 September 2023; People of the Philippines vs. Star Asset Management NPL Inc., Mark S. Frondoso and Joseph Ryan R. Sycip, CTA Crim. Case No. O-994; 26 September 2023; People of the Philippines vs. Marc Anthony B. Geronimo, in his capacity as Partner/General Manager of DENHAR International Company, CTA Crim. Case No. O-1031, 11 September 2023; People of the Philippines vs. Angelito O. Dela Pena, CTA Crim. Case No. O-1078; 5 September 2023; People of the Philippines vs. Angelito O. Dela Pena, CTA Crim. Case No. O-1077; 5 September 2023; People of the Philippines vs. Angelito O. Dela Pena, CTA Crim. Case No. O-1076; 5 September 2023)

 

PRESCRIPTIVE PERIOD TO FILE A CRIMINAL CASE FOR WILLFUL NON-PAYMENT OF DEFICIENCY TAXES; WHEN RECKONED. The crime of failure to pay tax was committed only after receipt of the final notice and demand for payment was coupled with the willful refusal to pay the taxes due within the allotted period. Absent any proof that the final notice and demand for payment was received by the taxpayer, it cannot be said that an offense has been committed because prior to the receipt of the letter-assessment, no violation has yet been committed. Absent proof or receipt, these assessments could not have attained finality, there is no willful failure to pay tax and there is insufficiency to show that the accused sought to be arrested probably committed the crime charged. (People of the Philippines vs. Energitech Industrial Corporation/Ronald Perez (CTA Crim. Case No. O-1052; 7 September 2023)

 

OTHER MATTERS

WDL CANNOT BE ISSUED BY THE ACIR-LTS WHILE THERE IS A PENDING APPPEAL BEFORE THE CIR. Owing to the fact that there is a pending appeal before the CIR, the ACIR-LTS’ action of issuing the assailed the warrant of distraint and/or levy was clearly beyond his or her authority to do. In a way, by issuing the assailed WDL, the ACIR-LTS preempted the CIR’s decision by considering his or her decision on the protest to the FLD/FAN final and executory. Verily, in this situation, the taxpayer has the right to await the CIR’s action on its Request for Reconsideration. The issuance of the assailed warrants not only deprives petitioner of this right but, it also denies the CIR the opportunity to make his or her own decision or to correct any errors of his or her subordinates. Obviously, the ACIR-LTS’ issuance of the assailed warrants was not only done in excess of his or her jurisdiction but whatever semblance of authority the former had was arbitrarily wielded when it sought to supplant his or her decision in place of a superior officer in the person of the CIR. In effect, to sustain the ACIR-LTS’ action will be a direct abrogation of the settled administrative processes ordained in the laws; the NIRC of 1997, as amended, in particular, and the constitutional precepts of due process, in general. With the foregoing disquisitions, the issuance of the assailed warrants could not only be deemed as premature but also that ACIRLTS had no authority to issue the same absent the CIR’s decision on petitioner’s Request for Reconsideration. (Opal Portfolio Investments [FISTC-AMC Asset Management Company)], Inc. formerly Opal Portfolio Investments (SPV-AMC),Inc. vs. Commissioner of Internal Revenue (CTA Case No. 11187; 28 September 2023)