BUYER HAS NO STATUTORY OBLIGATION TO DETERMINE IF SUPPLIER IS

SPURIOUS
The Petitioner Tridharma Marketing Corporation filed a Petition for Review seeking the
cancellation of the Respondent Commissioner of Internal Revenue assessment in the amount
of Php 4,473,228,657.86. Several issues were raised but the main issue is centered on the
disallowance made by the Respondent on the Petitioner’s purchases with Etheria Trading as
part of its cost of goods. The disallowance was premised on the result of a thorough audit and
third party cross verification of information wherein it was revealed that a certain Carlos
Adraque Ching, owner of Etheria Trading whose substantial purchases were made by the
Petitioner, does not exist anymore resulting to the findings of disallowance. The Respondent
insists that the Petitioner is engaged in fraudulent transactions. However, Petitioner countered
that there is no law or regulation which requires the Petitioner to verify the validity of spurious
supplier. The Court PARTIALLY GRANTED the Petition and clarified that any violation of
Etheria Trading should concern only Etheria Trading and the BIR, more so, the Petitioner has
nothing to do with purported violation. Consequently, the assessment was substantially
reduced to Php 54,715,611.53. [TRIDHARMA MARKETING CORPORATION VS
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8833, FEBRUARY 15,
2018]

FINAL WITHHOLDING VAT & FINAL WITHHOLDING TAX IMPOSITION ON

INCOME PAYMENTS MADE ABROAD
The Petitioner Sabre Travel Network (Philippines), Inc. filed a Motion for Reconsidering
seeking reconsideration on the earlier decision of the Court holding the Petitioner liable to a
total assessment of Php 31,460,597.17.Several issues were raised but the bulk of the
assessment is centered on the imposition of Final Withholding Tax (FWT) and Final
Withholding VAT (FVAT) assessment on Communication Expenses and Marketing Fees. The
Petitioner argues that these should not be imposed with FVAT since these are mere
reimbursements and should not be construed as income payments made to Abacus
International Pte. Ltd. (AIPL). Petitioner further argues that even assuming that the said
expenses were income payments made to AIPL, the same are still not subject to FWT and
FVAT on the ground that the services performed by the latter do not pertain to the privilege to
use the Abacus System in the Philippines. Rather, such services were rendered via the
mainframe located outside the Philippines. However, the Court finds that the Petitioner failed
to present sufficient evidence, thereby failing to convince the Court that the subject expenses
were mere reimbursements. Accordingly, since these are income arising from the privilege to
use the computer system in the Philippines, it necessarily follows that there is a sale of service
by AIPL in the course of trade or business, hence, subject to FVAT. Also, considering that the
subject payments represent income derived by AIPL in the Philippines, the same are subject to
30% FWT. The Court PARTIALLY GRANTED the Petitioner’s Motion, lowering BIR’s
assessment on several issues nonetheless imposing FVAT and FWT on income payments made
abroad. Consequently, the assessment is reduced to Php 19,723,347.92. [SABRE TRAVEL
NETWORK (PHILIPPINES), INC. VS. COMMISSIONER OF INTERNAL REVENUE,
CTA CASE NO. 8678, FEBRUARY 15, 2018]
REFUND ON PAYMENT OF REAL PROPERTY TAXES NOT GRANTED; ISSUE OF
BENEFICIAL USE TACKLED
The Petitioner Bangko Sentral ng Pilipinas, filed a Petition for Review seeking refund of real
property taxes paid under protest for the years 2004 to 2008 in order to completely transfer
the ownership of the property, it bought under an auction sale, in its name. The Petitioner
contends that the property was exempt from real property taxes as it was before owned and
registered in the name of the local government of Batangas. However, the possession, full
control and uninterrupted enjoyment remained with Evercrest/Mega Heights, a taxable entity.
The Court ruled to DENY the Petition for Review citing that the exemption from payment of
real property taxes owned by the Republic of the Philippines or any of its political
subdivisions ceases from the moment the beneficial use thereof has been granted to a taxable
person, as in this case, to Evercrest/Mega Heights. [BANGKO SENTRAL NG PILIPINAS
VS. THE CENTRAL BOARD OF ASSESSMENT APPEALS, ET.AL, CTA EB NO. 1438
FEBRUARY 14, 2018]

COURT CANNOT GO BEYOND THE ASSESSMENT CONTAINED IN THE FINAL

ASSESSMENT NOTICE; RESULTS OF NOTED DISCREPANCY PURSUANT TO
THIRD-PARTY MATCHING MUST BE FURTHER VERIFIED; SUBSTANTIATION
REQUIREMENT ON SALES RETURNS & DISCOUNTS
The Petitioner Ale Mart Corporation filed a Petition for Review seeking the cancellation of
the BIR assessment in the amount of Php 481,137,433.13. Several issues were raised on the
substantive aspect of the assessment which includes assessment on undeclared purchases
which happens to be higher per Court findings as compared to the BIR’s assessment which
was later ruled as void since the Court cannot go beyond the contested assessment per Final
Decision on Disputed Assessment following CIR vs Transational Plans Inc. On findings of
undeclared sales as a result of third-party matching, the same was cancelled due to the failure
of the BIR to further confirm the noted discrepancy which casts doubts as to the reliability
and correctness of the assessment. In addition, the court also ruled that sales returns and
discounts should be substantiated, even if it is not ordinary and necessary expense as
provided under Section 34 (A)(1)(b) of the Tax Code of 1997, as amended, since it partakes
the nature of exemptions and following the rule of strictissimi juris the taxpayer has the
burden of proof that these are allowed to be deducted. Consequently, the Petitioner is ordered
to pay a reduced amount of Php 146,838,247.74. [ALE MART CORPORATION VS
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8998, FEBRUARY 14,
2018]
ASSESSMENT CANCELLED FOR LETTER OF AUTHORITY IS NOT EQUIVALENT TO
TAX VERIFICATION NOTICE
The Petitioner, Tektite Insurance Brokers, Inc. filed a Petition for Review seeking the
cancellation of BIR assessment citing its invalidity for failure of the BIR to issue a Letter of
Authority (LOA). In the course of the trial, it was revealed that only Tax Verification Notice
(TVN) was issued. The Court, citing the landmark case of Medicard Philippines, Inc. vs. CIR
resolved to grant the Petition ruling that the absence of LOA violates the right of the taxpayer to
due process. Consequently, the BIR assessment was CANCELLED. [TEKTITE INSURANCE
BROKERS, INC. VS. CIR, CTA CASE NO. 8555, FEBRUARY 14, 2018]

LOCAL BUSINESS TAX REFUND GRANTED; HOLDING COMPANY IS NOT A BANK,

FINANCIAL INTERMEDIARY OR INSURANCE BROKER RESULTING TO IMPROPER
CLASSIFICATION
The Petitioner, City of Makati, filed a Petition for Review seeking the reversal of the earlier
decision of the Court in Division ordering the refund of erroneously collected Local Business
Tax (LBT) against the Respondent Metro Pacific Investments Corporation. Several issues were
raised such as the inclusion of sale of fixed assets as well as interests and dividends it received as
part of the taxable gross receipts and proper classification of the Respondent as a bank or other
financial intermediary for LBT purposes. Respondent claims that it is a holding company
engaged in business management services and not a financial intermediary or institution which
should properly belong under Section 3A.02 (G) of the Revised Makati Revenue Code, hence,
the LBT was erroneously computed. Likewise, it was argued that the same section pertains only
to the rates to be imposed and not to what constitutes gross receipts. The Court ruled in favor of
the Respondent citing that it cannot be considered as a bank or other financial institution or
intermediary. Consequently, the interests and dividends it received should not be subjected
to LBT ordering the Petitioner to REFUND the Respondent for the erroneously collected
LBT. [THE CITY OF MAKATI & THE CITY TREASURER OF MAKATI CITY VS. METRO
PACIFIC INVESTMENTS CORPORATION, CTA CASE EB NO. 1530, FEBRUARY 9,
2018]
LOA COVERING UNVERIFIED PRIOR YEARS OF TAX EXAMINATION CANCELLED
The Petitioner, Commissioner of Internal Revenue, filed a Petition for Review seeking the
reversal of the earlier decision of the Court in Division cancelling the BIR assessment against the
Respondent China State Philippines Construction Corporation. The decision was rooted out on
an invalid Letter of Authority (LOA) which covers more than one taxable year and unverified
prior years. Likewise, the decision was premised on the set-in of prescription. However, the
Petitioner asserts the falsity of the returns filed, thus, the prescriptive period shall be 10 years.
The Court, citing the landmark case of Dela Salle University vs. CIR, resolved to DENY the
Petition emphasizing that theprovisions of Revenue Memorandum Order (RMO) No. 43-90, does
not explicitly state that the practice of issuing LOAs covering audit of unverified prior years is
void rather stressed that if a taxpayer is audited for more than one taxable year, the BIR must
specify each taxable year or taxable period in separate LOAs. On the issue of prescription, the
Court ruled out that defenses not pleaded in the lower court cannot be assailed in the higher court
for reconsideration. The Petition for Review is DENIED. [COMMISSIONER OF INTERNAL
REVENUE VS. CHINA STATE PHILIPPINES CONSTRUCTION CORPORATION, CTA
EB NO. 1558, FEBRUARY 08, 2018]

ACTS CONSTITUTING DOING BUSINESS IN PH BY NON-RESIDENT FOREIGN

COMPANY GROUNDS FOR DENIAL OF INPUT VAT REFUND
The Petitioner, Amadeus Marketing Philippines, Inc., filed a Petition for Review seeking refund
of its unutilized input VAT attributable to its zero-rated sales. Several issues have been raised but
the main point of contention is centered on the eligibility of the Petitioner for refund. The Court
resolved to DENY the refund citing that the Petitioner failed to present evidence that the other
party related to the transactions is in fact a non-resident foreign corporation not doing business in
the Philippines. The Court in resolving the claim noted that the purchase made by the company
to the non-resident foreign corporation, pursuant to the agreement entered into between the
Petitioner and Amadeus IT Group S.A., is tantamount to continuous commercial dealings, which
shows the intention of the company to pursue business in the Philippines. Likewise, the Court
ruled that such company is apparently a non-resident foreign corporation who performs services
in the course of trade or business which is an established ground for its disqualification to apply
zero rate on its VAT transactions. [AMADEUS MARKETING PHILIPPINESS, INC. VS.
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9107, FEBRUARY 6, 2018]

COMMERCIAL MANUFACTURER & SELLER OF PATENTED PRODUCTS EXTENT

OF TAX EXEMPTION
The Petitioner, Splash Corporation, filed a Petition for Review praying for the cancellation of
deficiency income tax assessment which supposedly represents sales made by the Petitioner
relating to the patented products. Several issues were raised but the main issue is centered on
whether the Petitioner is entitled to the tax exemption granted, even it is not the inventor but only
the commercial manufacturer of the patented products. In the course of the resolution, the Court
referred to Section 6 of RA 7459 which states that any income derived from these technologies
shall be exempted from all kinds of taxes during the first ten (10) years from date of the first sale.
To further clarify, the Court also referred on a final resolution by Office of the President which
states that tax exemption pertains only to income tax. Notably, in their previous CTA Case No.
8530, the Court already held that the Petitioner, who is a manufacturer and seller of inventions is
entitled to tax incentives under RA 7459. Following the previous court decision, the instant
Petition for Review is GRANTED. Consequently, the deficiency income tax assessment against
the Petitioner is CANCELLED and WITHDRAWN. [SPLASH CORPORATION VS.
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO 8904, FEBRUARY 02, 2018]

APPLICATION OF BEST-EVIDENCE OBTAINABLE RULE IN THE TAX ASSESSMENT

PROCESS
The Petitioner, 8199 Convenience Corporation, filed a Petition for Review seeking the
cancellation of the BIR assessment in the amount of Php 10,275,013.05. The Petitioner argued
that the disallowed expenses based on best evidence obtainable are actually supported with
official receipts (ORs), invoices or other adequate records for the BIR examination and
verification. Likewise, the Petitioner further stressed that throughout the course of the tax
investigation, they have consistently made it known in its communication with the Revenue
Office that the documents supporting the expenses are voluminous, and therefore has requested
that the examinations be conducted at the office of Petitioner where the documents are kept. The
Court allowed the Petitioner to present the voluminous documents and resolved to reduce the
assessment substantially at Php 774,280.54. [8199 CONVENIENCE CORPORATION VS.
COMMISSIONER OF INTERNAL REVENUE, FEBRUARY 2, 2018]

INPUT VAT REFUND DENIED FOR FAILURE TO SUBMIT APPROPRIATE

SUPPORTING EVIDENCE
The Petitioner, Colt Commercial, Inc., filed a Petition for Review seeking refund of its unutilized
input VAT attributable to its zero-rated sales for taxable year 2013. The Petitioner contends that
the claimed input VAT remained unutilized until it was deducted as “VAT Refund/TCC
Claimed” in its Quarterly VAT Return for the 2ndquarter of taxable year 2015. However, in the
course of the trial, it was revealed that the excess input VAT in the subject claim was indeed
carried to the succeeding periods and failed to provide evidence that it was deducted as VAT
Refund/TCC Claimed. Similarly, it was found out that the excess input tax claimed was for the
3rd quarter of taxable year 2013, not for 2nd quarter as the company claimed. Consequently, the
Court resolved to DENY the Petition citing that the Petitioner was unable to comply with the
requirement in availing tax refund in reference to the evidence offered and admitted to the
Court. [COLT COMMERCIAL, INC. VS. COMMISSIONER OF INTERNAL REVENUE,
CTA CASE NO. 9205, JANUARY 11, 2018]
 ROYALTY WHEN CONSIDERED PASSIVE OR ACTIVE INCOME
Both ICONIC BEVERAGES, INC., (IBI) and the COMMISSIONER OF INTERNAL
REVENUE (CIR) seeks to reverse the earlier decision and resolution of the Court in Division
cancelling the BIR assessment on compromise penalty and modified the assessment for
deficiency Income tax. Several issues were raised but the main issue is centered on the
determination on whether the royalty income received by IBI from San Miguel Brewery Inc.
(SMBI) and My Philippines Lifestyles, Inc. is a passive income subject to 20% Final Tax
(FT) or an active income subject to 30% Regular Corporate Income Tax (RCIT). It was the
claim of CIR that such royalty income is in the nature of active income arising from the
active pursuit of its business and therefore must be subjected to 30% RCIT. The CIR referred
to IBI’s Amended Articles of Incorporation to know its primary purpose which is giving out
of license. IBI, on the other hand, maintained its stand saying that the royalty income it
receives is based on the ownership of trademark or intellectual property rights is passive as it
is derive based on the ownership of the asset and does not require any action or active
participation from the owner. Likewise, it was argued that it did not incur any operating
expenses to generate the said royalties which further support its position that the same
is a passive income. In addition, IBI claimed that the licensing out of its intellectual property
rights under the License Agreement was not in line or within its primary purpose, rendering
the License Agreement with SMBI a mere incidental and one-time transaction. The Court En
Banc is not swayed with the arguments of IBI, holding its income to be considered as
an active one in reference to its Audited Financial Statements which shows that licensing out
of its trademarks and intellectual property rights were its only business activities
and for the reason that it did not engage in any business activity beyond licensing out of its
trademarks and intellectual property rights implies its primary purpose. Consequently, the
Court En Banc AFFIRMED the earlier decision and resolution of the Court in
Division. [ICONIC BEVERAGES, INC., VS.COMMISSIONER OF INTERNAL
REVENUE,CTA CASE EB NO. 1412, JANUARY 30, 2018]

ASSESSMENT NOTICE CANCELLED DUE TO IMPROPER SERVICE

The Petitioner Commissioner of Internal Revenue (CIR) filed a Petition for Review seeking the
reversal of the earlier decision of the Court in Division cancelling the assessment against the
Respondent Asian Navigation & Tracking Systems, Inc. The Petitioner contends that the Court
in Division lacks jurisdiction to hear the case for failure of the Respondent to submit a timely
protest letter against the assessment, hence, there is no disputed assessment to speak of. The
Respondent argues that it was deprived of due process because all assessment notices were not
duly served, hence, all the proceedings conducted by the Petitioner are null and avoid. However,
the Petitioner claims that the Respondent failed to inform the BIR about the change of postal
address and it is not enough that the notice is sent by registered mail. The Court ruled
to DENY the Petition for Review and AFFIRM the earlier decision and resolution of the Court
in Division citing that the assessment notices were sent to the wrong address, hence, the
assessment never attained finality because the Respondent never received it, either actually or
constructively. The Court likewise noted that the instant Petition was not properly prepared by
the Petitioner; and that the Petition was referred therein as a mere “Motion”. [COMMISSIONER
OF INTERNAL REVENUE VS. ASIAN NAVIGATION & TRACKING SYSTEMS, INC.,
CTA EB NO. 1490 JANUARY 11, 2018]
BAD FAITH CANNOT BE PRESUMED; CAPITAL GAINS TAX REFUND ARISING
FROM RESCISION OF CONTRACT GRANTED
The Petitioner CIR filed a Petition for Review seeking the reversal of the earlier decision and
resolution of the Court in Division granting the claim of refund for CGT paid by the Respondent
Spouses Genato relative to the latter’s transfer of properties. The refund stemmed from the
rescission of the Deed of Conveyance executed before in favor of the Corporation. The Petitioner
argued that refund should not be granted since the rescission was tainted with bad faith.
Accordingly, when Respondents learned about the Petitioner's imposition of donor's tax on the
excess book value of the shares of stock over the value of the real properties transferred, the
former resorted to the execution of the Affidavits of Rescission. The Court resolved
to DENY the Petition citing that bad faith is never presumed, and does not connote bad judgment
or negligence however it imports a dishonest purpose. Moreover, in rescission, proof of return of
the object and consideration to their rightful owners is necessary to show that the parties have
returned to their status quo ante. That without such proof, there is no rescission to speak
of.[COMMISSIONER OF INTERNAL REVENUE VS. SPOUSES EDUARDO X. GENATO
& LYDIA M. GENATO, CONDOMINIUM PUSHERS, INC. & LANDMART PHILIPPINES,
INC. CTA EB CASE NO. 1695, JANUARY 12, 2018]

WILLFUL ATTEMPT NECESSARY TO CONVICT THE ACCUSED FROM THE CRIME

OF TAX EVASION; ACCUSED ALSO EXONERATED FROM PAYMENT OF
DEFICIENCY TAX DUE TO INTERNAL LAPSES OF THE BIR
Accused Maila Laxamana y Baluyot is charged of crimes of attempt to evade or defeat the
payment of income tax for taxable years 2010 and 2011, failure to file Income Tax Return (ITR)
for taxable year 2010, and failure to supply correct and accurate information in the ITR for
taxable year 2011. The accused gets her income by servicing the food needs of PAGCOR. It was
the representation of the accountant of PAGCOR to the accused that the taxes withheld serve as
her taxes due to the government, relying on this, she did not file her ITR for taxable year 2010
anymore. The Court ruled that this merely shows the negligence of the accused for relying on the
assertion of the PAGCOR Accounting Office. Accordingly, to sustain conviction for attempt to
evade or defeat tax, one of the elements is the willful attempt thereof, of the taxpayer. Based on
the foregoing discussions, lacking the element of “willfulness”, the Court ACQUITTED the
accused of the crime of willful failure to file ITR for 2010 and failure to supply correct and
accurate information on its 2011 ITR. Though the accused had been acquitted of her criminal
liability, it cannot operate to discharge her from the duty to pay tax. But the evidence presented
by the prosecution and admitted by the Court is said to be incompetent because it is lacking the
computation of the deficiency income tax of the accused and does not even bear the signature of
the CIR, thus, the Court cannot include in its judgment an order to pay the deficiency taxes
subject of the instant criminal cases. [PEOPLE OF THE PHILIPPINES VS. MAILA
LAXAMANA Y BALUYOT VS. PEOPLE OF THE PHILIPPINES, CTA CRIMINAL CASE
NO’s. 0-445, 0-446, 0-447, & 0-448, JANUARY 17, 2018]
DOCUMENTARY STAMP TAX ASSESSMENT ON INSURANCE POLICY
SUBSTANTIALLY REDUCED ON ACCOUNT OF RE-INSTATED & CANCELLED
POLICIES
The Petitioner Oriental Assurance Corporation filed a Petition for Review seeking the
cancellation of the Respondent CIR’s Final Decision on Disputed Assessment (FDDA) on
deficiency DST assessment in the amount of Php 125 Million due for taxable year 2013.
Petitioner contends that the FDDA was devoid of factual and legal basis since the
Respondent failed to consider the consequence of DST on reinstated and cancelled policy.
Accordingly, reinstated policy refers to the insurance policy whereby the applicant applied
and signed the insurance application form and paid the required premium for which the
corresponding policy was issued. Consequently, the corresponding DSTs due thereon were
collected and remitted for year 2012; however, due to incomplete submission of pertinent
requirements, the said policies were finalized in the first quarter of 2013 resulting to timing
difference on reporting and recognition of DST. On the other hand, cancelled policy refers to
the policy which was not issued and became effective because the Petitioner and its
prospective client failed to reach an agreement. The Respondent then claims that it relied on
the Insurance Commission (IC) report which was submitted by the Petitioner. The Court,
citing the provisions of Section 184 of the Tax Code as well as Revenue Memorandum Order
No.’s 48-99 and 66-98 that gross premium reported in the IC report already includes returns
and cancellations as well as the Independent CPA report, PARTIALLY GRANTED the
Petition holding the Petitioner liable at a reduced amount of Php 37 Million. [ORIENTAL
ASSURANCE CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE,
CTA CASE NO. 9169 JANUARY 12, 2018]

IMPROPERLY ACCUMULATED EARNINGS TAX ASSESSMENT SUSTAINED; DETERMINATION OF

WHETHER A CORPORATION IS PUBLIC OR CLOSELY-HELD
The Petitioner Cebu Air, Inc. filed a Petition for Review seeking the cancellation of the
Respondent CIR’s improperly accumulated earnings tax assessment. It was alleged that the
Respondent committed error when it expanded the coverage of the improperly accumulated
earnings tax by excluding its 2010 Additional Paid-In Capital (APIC) from the definition of "paid-
up capital" to the prejudice of all taxpayers. If the APIC is to be excluded from the amount that
may be retained, it would necessarily form part of the improperly accumulated earnings. It was
further argued that with the issuance of Revenue Memorandum Circular No. 35-2011, the BIR
has restricted the coverage of paid up capital. Further, it was the claim of the Petitioner that it is
a publicly-held corporation and therefore exempt from improperly accumulated earnings tax
assessment. The Respondent, on the other hand, argued that it cannot apply the afore-cited
RMC as it was only made effective on March 14, 2011 and therefore may constitute violation of
non-retroactivity of rulings if it were to apply in 2010. Further, it was averred that ownership of
a domestic corporation for purposes of determining whether it is a closely-held or publicly-held
corporation is ultimately traced to the individual shareholder of the parent
company. Consequently, the Court ruled to DENY the petition for failure of the Petitioner to
present convincing evidence that it is a publicly-held corporation. [CEBU AIR, INC VS. CIR- CTA
CASE NO. 9106, JANUARY 11, 2018]
ASSESSMENT INVALIDATED FOR FAILURE OF THE BIR TO ESTABLISH
AUTHORITY OF THE PERSON RECEIVING THE ASSESSMENT NOTICE
The Petitioner Drugmaker’s Biotech Research Laboratories, Inc. filed a Petition for Review
seeking the cancellation and withdrawal of the Warrant of Distraint and/or Levy issued by
the Respondent CIR relative to its deficiency assessment. The Petitioner denied the receipt of
the assessment notice which was controverted by the Respondent by presenting the registry
return receipt and its corresponding certification from the Philippine Postal Corporation. The
Court resolved to GRANT the Petition for Review and CANCELLED the Warrant of
Distraint and/or Levy for failure of the Respondent to prove that the signature of the recipient
of the registry return belongs to the Company’s authorized representative. [DRUGMAKER’S
BIOTECH RESEARCH LABORATORIES, INC VS. COMMISSIONER OF INTERNAL
REVENUE, CTA CASE NO. 8664, JANUARY 05, 2018]

ASSESSMENT RESULTS OF THIRD-PARTY MATCHING MUST BE FURTHER VERIFIED; ACCESS

LETTER INDISPENSABLE
The Petitioner Keansburg Marketing Corporation filed a Petition for Review seeking the
cancellation of the Respondent CIR’s deficiency 6-month VAT audit assessment centered on
undeclared sales pursuant to third-party matching and disallowance of input VAT. On the
findings of undeclared sales, the Respondent admitted that no Access Letter was sent to the
suppliers of the Petitioner and that it just relied on the findings and results of third-party
computerized matching. The Court, citing the Supreme Court case in Hantex as well as the
provisions of Revenue Memorandum Order (RMO) No. 4-03, resolve to PARTIALLY
GRANT the Petition. Accordingly, the RMO requires the BIR to verify the amounts
reflected in the third-party matching report with other externally sourced data in ascertaining
the taxpayer's under declaration of revenues. Prima facie correctness of a tax assessment does
not apply upon proof that an assessment is utterly without foundation, meaning it is arbitrary
and capricious. Where the BIR has come out with a 'naked assessment,' i.e. without any
foundation character, the determination of the tax due is without rational basis. On the issue
of disallowance of input VAT, the Court sustained partially the findings of the Respondent
for failure of the Petitioner to comply with the invoicing requirements. [KEANSBURG
MARKETING CORPORATION VS. CIR- CTA CASE NO. 9076, JANUARY 5, 2018]
DETERMINATION ON WHEN IS AN ASSET CAPITAL OR ORDINARY
Parity Packaging Corporation (PPC), formerly: Parity Holdings Equity Inc., a domestic
corporation engaged primarily in printing services, is seeking confirmation whether the parcel of
land owned by them is considered a capital asset, in accordance with the provisions of Revenue
Regulation (RR) No. 7-2003. It was represented by the City Treasurer’s Office of Pasig City that
the parcel of land shall be classified as an idle one due to non-use. Furthermore, there
was a certification issued stating that no improvement has been introduced in the said property.
In reply, the BIR has opined that under RR No. 7-2003 it states that real properties classified as
ordinary assets for being used in business by a taxpayer engaged in business other than real
estate business are automatically converted into capital assets upon showing of proof that the
same has not been used for two (2) years prior to the consummation of the taxable transactions
involving said properties. Applying the said provision, PPC’s real properties after showing proof
of not being used for two years i.e. idle land tax, are now automatically converted into capital
assets. [BIR RULING NO. 187-2017, OCTOBER 18, 2017]

APPLICATION OF THE 10-YEAR PRESCRIPTIVE PERIOD CANCELLED DUE TO

FAILURE TO ESTABLISH FALSITY OF THE RETURN SUBMITTED
The Petitioner Commissioner of Internal Revenue (CIR) filed a Petition for Review seeking to
reverse and set aside the earlier decision and resolution of the Court in Division cancelling the
assessment against the Respondent taxpayer Robert Christopher M. Carmona. The assessment
arose from the Letter Notice issued as a result of discrepancies noted in the reported sales of
the Respondent pursuant to third-party matching. The respondent filed his protest against the
assessment notice which remained unacted by the Petitioner. In the Petition, it was argued that
the 10-year prescription period shall apply considering that the noted discrepancy manifesting
substantial under-declaration which constitutes fraud. The Court is not swayed with the
arguments of the Petitioner. Accordingly, the Petitioner’s invocation of fraud is merely an
afterthought to justify the late issuance of the impugned assessment and the application of the
10-year prescriptive period to assess. Since the 180-day period from the date when the
Respondent submitted supporting documents for its protest against FAN, lapsed without any
action from the CIR, it resulted to the cancellation of FAN on the ground of prescription.
Consequently, the Petition for Review was DENIED. [COMMISSIONER OF INTERNAL REVENUE
VS. ROBERT CHRISTOPHER M. CARMONA, DOING BUSINESS UNDER THE NAME SAGA
CASTING & PRODUCTIONS, CTA CASE NO. 1324, DECEMBER 20, 2017]
CONVENIENCE OF THE EMPLOYER RULE AS A MATTER OF DEFENSE
Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking to nullify
the earlier decision of the CTA 1st Division holding the Respondent Asian Transmission
Corporation liable at a reduced amount of itsassessment. Several issues were raised but the
main issue is centred on the imposition of deficiency withholding tax on compensation as a
result of discrepancy noted on salaries and wages per Audited Financial Statements versus
the amount reported in the Alphabetical List of Employees. The Respondent claimed that the
noted discrepancy pertains to non-taxable compensation such as statutory contributions, de
minimis benefits, and other benefits such as Hospitalization Company Contribution, Group
Insurance, and Retirement Plan Contribution. However, the Court is not completely
swayed by the arguments of Respondent for its failure to establish evidence that other
benefits such as employee uniforms, canteen allowance, and maintenance and tools
expenses which are treated as de minimis benefits are actually for the convenience of the
employer and that the other benefits are specifically exempted from withholding tax on
compensation. Consequently, the Petition for Review was partially granted holding the
Respondent liable to deficiency withholding tax on compensation at a reduced amount with
20% interest per annum. [COMMISSIONER OF INTERNAL REVENUE VS. ASIAN
TRANSMISSION CORPORATION, CTA EB NO. 1519, DECEMBER 15, 2017]

ARTY LIABLE TO PAY CAPITAL GAINS TAX (CGT) & DOCUMENTARY STAMP
TAX (DST)
Petitioner, LKY Property Holding, Inc. filed a Petition for Review seeking the cancellation of
BIR assessment on CGT and DST as a result of its purchase of hotel from Mayon
International Hotel Inc. (MIHI) as evidenced by a Deed of Absolute Sale. The assessment is
premised on the interpretation of the BIR on the stipulationcontained in the deed that the
Petitioner shall advance the payment of CGT and DST that may fall due by virtue of the sale.
Petitioner denies that it agreed to shoulder the payment of CGT and DST and posits that it is
very clear in the Deed of Absolute Sale that it shall merely advance the amount for the
payment of the CGT and DST to MIHI who shall still bear the burden of paying the said
taxes. The amount advanced by Petitioner shall be deducted from the total purchase price
that the Petitioner would pay to MIHI. Hence, by agreement of the parties, MIHI, the seller,
shall bear the burden of paying the CGT and DST. The Court resolved to grant the Petition
for Review and cancelled the assessment citing that CGT is a tax imposed on the gains
presumed to have been realized by the seller, thus, the party liable to pay the CGT should
be the seller (i.e MIHI). Likewise, the decision to cancel the CGT and DST imposition is
premised on the fact that the BIR failed to issue a Formal Assessment Notice which is a
substantive prerequisite to tax collection, for it contains not only a computation of tax
liabilities but also a demand for payment within the prescribed period, thereby signaling the
time when penalties and interests begin to accrue against the taxpayer and enabling the latter
to determine his remedies therefor. [LKY PROPERTY HOLDINGS, INC. REPRESENTED
BY MR. WILBERT T. LEE VS. HON. KIM HENARES IN HER CAPACITY AS
COMMISSIONER OF INTERNAL REVENE & ESMERALDA TABULE IN HER
CAPACITY AS REVENUE REGIONAL DIRECTOR OF REVENUE REGION NO. 10,
CTA CASE No. 9066, DECEMBER 14, 2017]
SALE OF PROPERTY BY RETIREMENT PLAN ENTITY NOT SUBJECT TO VAT
The BIR has modified its earlier BIR Ruling No. 409-2015[December 14, 2015] stating that the
sale by the Coca-Cola Bottlers Philippines, Inc. Retirement Plan in favor of the Social Security
System (SSS) of the former’s 16.72% undivided shares in a parcel of land is subject to VAT. In
the modified ruling, the BIR has already considered that the sale of the subject lot in favor of the
SSS should have not been subjected to VAT since the said property was not held primarily for
sale to customers or held for lease in the ordinary course of trade or business. Likewise, the
subject property is not being used in business or trade as the seller is not engaged in real
estate business or any other business other than its main function or objective. In support, a BIR
district certification was submitted to effect that the real property has no existing improvement
nor is it used in business. [BIR RULING NO. 476-2017, OCTOBER 12, 2017]

REFUND OF CREDITABLE WITHHOLDING TAX OF REAL ESTATE COMPANY

GRANTED; TAX & ACCOUNTING RULES FOR REAL ESTATE DIFFERENT FROM
ORDINARY CORPORATIONS
The Petitioner Stateland, Inc., a real estate company, filed a Motion for Reconsideration
seeking the reversal of the earlier decision of the Court denying its application for refund or
issuance of Tax Credit Certificate for its unutilized creditable withholding tax. In the earlier
decision, the Court emphasized that one of the requisites to grant refund is that the income
upon which taxes were withheld must be declared as part of the gross income of the
recipient. Accordingly, the Petitioner failed on this aspect. However, the Petitioner argued
that as one engaged in real estate, it follows the Percentage of Completion Method for
accounting purposes. Moreover, it adhered to the provisions of Section 2.57.2 of Revenue
Regulations (RR) 2-98 as amended by RR 17-2003 on the proper recognition of by real estate
company for tax compliance purposes. The Court resolved toPARTIALLY GRANT the
Petition citing the Petitioner’s adherence to the rules and regulations. [STATELAND, INC.
VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8633, JANUARY
10, 2018]
 VATABILITY OF GROSS RECEIPTS BY HEALTH MAINTENANCE
ORGANIZATIONS (HMOs)
Maxicare Healthcare Corporation filed a Manifestation and Motion for Reconsideration
seeking the reversal of the earlier decision of the Court En Banc holding it liable to
deficiency VAT. Several factual and legal issues have been raised but the main issue is
centered on whether or not the 80% of its enrolment fees, which it earmarked and utilized for
medical/hospitalization expenses of its clients, should form part of its gross receipts for the
purpose of computing VAT. Citing the Supreme Court case of MEDICARD PH vs. CIR
[G.R. No. 222743, April 5, 2017], the Court En Banc ruled that the definition of gross
receipts for purposes of determining the VAT liability of HMO shall exclude the 80% of the
amount of the contract price earmarked as fiduciary funds for the medical utilization of its
members. On the basis of the subsequent decision of the Supreme Court in Medicard, the
Court En Banc resolved to grant the Motion for Reconsideration filed by Maxicare.
Accordingly, the May 8, 2017 Decision of the Court En Banc, and the April 21, 2014
Decision and May 5, 2015 Amended Decision of the Court in Division are SET ASIDE. The
case is REMANDED to the Court in Division for further proceedings.[MAXICARE
HEALTHCARE CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE,
CTA EB NO. 1312 & CTA EB NO. 1317, DECEMBER 12, 2017]

70-30% RULE ON HEAD OFFICE & BRANCH LOCAL BUSINESS TAX

City of Makati filed a Petition for Review praying for the reversal of Calamba’s Regional Trial
Court’s (RTC) decision holding the Respondent Fuji-Haya International Corporation, liable to
accrue fully and solely the Local Business Tax (LBT) to the City of Calamba. City of Makati
claimed that Respondent established a branch office in Makati City and therefore it is entitled to
the corresponding 30% share of the LBT as remitted to the City of Calamba. This is evidenced
by the place where the books of accounts are kept and that administrative, executive, engineering
and accounting activities are being conducted and consummated in Makati. The Court granted
the Petition and reversed and set aside the decision of the RTC. Consequently, the Petitioner is
entitled to the LBT derived from the sales made in the company’s branch office. [THE CITY OF
MAKATI VS. THE CITY TREASURER & THE CITY GOVERNMENT OF CALAMBA &
FUJI-HAYA INTERNATIONAL CORPORATION, CTA AC NO. 167, DECEMBER 11,
2017]
CAPITAL GAINS TAX (CGT) & DOCUMENTARY STAMP TAX (DST) EXEMPTION AS A
RESULT OF TAX-FREE EXCHANGE TRANSACTION
Sartorious Aketiengesellschaft filed a Petition for Review praying for the refund of alleged
erroneously paid CGT and DST. Several issues were raised but the main point of contention is
whether or not the Petitioner is entitled to claim for refund the erroneously paid CGT and DST.
Petitioner contends that the transfer of its shares in Sartorius Philippines to its wholly-owned
subsidiary, SWT GmbH, a German-based company is not subject to CGT pursuant to Section
40(C)(2) of the 1997 Tax Code, as amended, which provides that no gain or loss shall be
recognized if property is transferred to a corporation by a person in exchange for stock or unit of
participation in such a corporation of which as a result of such exchange said person, alone or
together with others, not exceeding four (4) persons, gains control of said corporation. Provided,
that stocks issued for services shall not be considered as issued in return for property. After
careful study and analysis of the case, the Court finds that Petitioner's transfer of its shares in
Sartorius Philippines to SWT GmbH satisfied the requisites of a tax-free exchange and is exempt
from CGT. Likewise, it is exempt from DST pursuant to Section 199 of the 1997 Tax Code, as
amended.[SARTORIOUS AKETIENGESELLSCHAFT VS COMMISSIONER OF
INTERNAL REVENUES, CTA CASE NO. 8951, DECEMBER 8, 2017]

BIR ASSESSMENT PURSUANT TO BENCHMARKING & THIRD-PARTY MATCHING

NOT CONCLUSIVE
Wellform Trading Corporation, filed a Petition for Review seeking for the cancellation of BIR
deficiency VAT assessment in the amount of Php 96,527,897.39 as a result of comparison made
on the sales reported by the Petitioner vis-à-vis sales established based on industry
benchmark. The Petitioner opposes the computation and alleges that the industry benchmark
cannot be used as the best evidence to support an assessment. Likewise, the Petitioner argues that
there was no mention from the objectives of benchmarking program on the imposition of taxes
on the mere basis of a benchmark which could bring about a deficiency assessment against a
taxpayer. Respondent CIR, on the other hand, argues that the assessment was based on best
evidence obtainable because of Petitioner’s failure and refusal to make certain records available
despite issuance of Subpoena Duces Tecum, hence, there is no means by which the correctness
and accuracy of Petitioner’s receipts can be ascertained. The Court ruled that the use of the
benchmark rate in computing the Petitioner’s tax liability has no legal basis for was arrived at
arbitrarily and capriciously. At the very least, the CIR should have assessed the Petitioner based
on its own investigation pursuant to a Letter of Authority. Consequently, the Court holds the
Petitioner liable at a reduced amount of Php 20,035,440.15 representing other deficiency VAT
assessment issues. [WELLFORM TRADING CORPORATION VS COMMISSIONER OF
INTERNAL REVENUE, CTA CASE NO. 9086, NOVEMBER 27, 2017]
LIMITATION ON COMPENSATION OF TRUSTEES & NATIONALITY OF NON-STOCK
NON-PROFIT CORPORATION FOR PURPOSES OF ACQUISITION OF LAND
SEC has confirmed that SEC OGC Opinion No. 15-12 which discusses the limitations on
compensation of trustees applies to the Board of Trustees of Sokka Gakkai International
Philippines, a non-stock, non-profit religious corporation. However, SEC stressed-out that
members of the board may still receive compensation when rendering services in their capacity
other than as directors/trustees. In addition, the SEC has also confirmed the applicability of
Public Land Act to the corporation as a non-stock non-profit religious corporation. Accordingly,
the nationality of a non-stock corporation, in relation to the constitutional provision on land
acquisition, is computed on the basis of the nationality of its members and not premised on the
membership contribution. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 17-
15,NOVEMBER 22, 2017]

INPUT VAT REFUND DENIED FOR FAILURE TO MEET THE REQUISITE OF

ABSENCE OF ACTS CONSTITUTING DOING BUSINESS IN THE PHILIPPINES
The Petitioner, Amadeus Marketing Philippines, filed a Petition for Review seeking the refund of
unutilized input VAT attributable to its zero-rated sales. In the course of the trial, it was noted
that Amadeus IT Group SA, the Petitioner’s foreign affiliate, is engaged in some activities which
constitute doing business in the Philippines in reference to the Distributorship Agreement.
Consequently, the Court resolved to deny the Petition for Review.[AMADEUS MARKETING
PHILIPPINES VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8869,
NOVEMBER 27, 2017]
LAND SOLD FOR LESS THAN ADEQUATE OR FULL CONSIDERATION SUBJECT TO
DONOR'S TAX
Petitioner Vesta Property Holdings, Inc. filed a Petition for Review seeking for the cancellation
of BIR assessment on donor’s tax imposed on the sale of real property pursuant to Section 100 of
the 1997 Tax Code as amended, which provides the imposition of donor’s tax on sale or transfer
for less than adequate or full consideration. Petitioner claims that the said Tax Code provision is
not applicable to transactions in the ordinary course of trade and business. In addition, being an
arm’s length transaction between the Petitioner and Ayala Land Inc., the same should not give
rise to a donation. Petitioner further anchors its arguments on Department Order (D0) 50-
2000and contends that the property is undeveloped or raw land, and should be classified as
General Purpose. With this, the Respondent applied the Php 1,200.00 zonal value per square
meter, but failed to consider that the property was an interior lot and is not located along the
road. However, Respondent contends that the assessment is based on Section 100 of the Tax
Code and that the difference between the selling price of Php 882.00 per square meter and the
zonal value of Php 1,200.00 per square meter is considered as donation pursuant to Section 100
and 99 (B) of the Tax Code. Moreover, Respondent stated that donations made
between an individual and a business organization shall be considered as donations made to
stranger and is subject to 30%. The Court ruled that the legislative intent of the deemed gift
provision is to discourage the parties in a transaction from controlling their selling price in order
to reduce the taxes to be paid to the government. Hence, the Tax Code automatically treats the
difference between the Fair Market Value (FMV) and selling price of the property as gift subject
to donor’s tax. In the instant case, as stated in the Details of Discrepancies , the subject lot, with
an area of 404,691 square meter zonal value was sold by petitioner at Php 882.00 per square
meter. The difference between the zonal value and the selling price is considered as donation
subject to 30% pursuant to Sections 100 of the Tax Code of 1997. Petition for Review
was DENIED holding the Petitioner liable to donor’s tax of 30%. [VESTA PROPERTY
HOLDINGS, INC. VS. COMMISSIONER OF INTERNAL REVENU, CTA CASE NO. 9234,
NOVEMBER 28, 2017]

ASSESSMENT BASED ON LETTER (LN) VOID IN THE ABSENCE OF LETTER OF

AUTHORITY (LOA)
The Petitioner, Admorlina F. Fontejon, filed a Petition for Review seeking the cancellation of
BIR’s deficiency VAT and Income Tax assessment pursuant to LN issued as a result of third-
party matching. Assessment and collection enforcement notices were issued for failure of the
Petitioner to explain the noted discrepancies and provide the necessary breakdown of gross
receipts from contracted services representing the agency fees and the salaries of workers.
Respondent CIR presumed that the entire contract price earned was taxable as income pursuant
to RMC 39-2007. It is the claim of the Petitioner that the assessment should be cancelled citing
prescription and the failure of the BIR to issue LOA. Respondent CIR, on the other hand,
disagreed claiming that a 10-year prescriptive period shall apply since the Petitioner filed false
and fraudulent returns. Citing the Supreme Court case in MEDICARD, the Court granted the
Petition and cancelled the assessment for failure of the BIR to establish authority in the conduct
of tax examination. [ADMORLINA L. FONTEJON VS. COMMISSIONER OF INTERNAL
REVENUE, CTA CASE NO. 9314, NOVEMBER 28, 2017]
ABSENCE OF LETTER OF AUTHORITY INVALIDATES ASSESSMENT PURSUANT TO
LETTER NOTICE
The Petitioner, Catering Professionals, Inc. filed a Petition for Review seeking the cancellation
of BIR’s deficiency tax assessment pursuant to LN issued as a result of third-party matching.
Petitioner alleges that the assessment violated its right to due process because no Letter of
Authority (LOA) was ever served nor was there any actual audit conducted by the BIR to
determine the veracity of the information provided in the computerized matching with third party
sources. The Court granted the Petition for Review citing the Supreme Court case in
MEDICARD for failure of the BIR to establish authority in the conduct of tax
examination. [CATERING PROFESSIONALS INC. VS. COMMISSIONER OF INTERNAL
REVENUE CTA CASE NO. 8852, NOVEMBER 28, 2017]

PRESCRIPTION ON BIR’S RIGHT TO COLLECT

The Petitioner, Calumpit Water District, filed a Motion for Reconsideration (MR) on the earlier
decision of the CTA 1st Division holding the Petitioner liable to Franchise Tax and invalidating
its defense of prescription since no Franchise Tax Return was filed. The Petitioner asserts that
the right of the BIR to collect has lapsed given the set-in of prescription on collection. The Court
granted the MR citing that the Respondent CIR should have issued a Warrant of Distraint or
Levy or at least sent a Preliminary Collection Letter to pursue the tax collection not later than
February 26, 2013 or the last day of the 5-year prescriptive period to collect will set in. In
addition, the Court emphasized that the period for the running of the Statute of Limitation for the
collection was not suspended due to the absence of an approved request for reinvestigation from
the respondent. Consequently, the BIR is barred from collecting the deficiency franchise tax by
reason of prescription. [CALUMPIT WATER DISTRICT VS. COMMISSIONER OF
INTERNAL REVENUE, CTA CASE NO. 9493, DECEMBER 1, 2017]

DIVIDENDS OF HOLDING COMPANY NOT SUBJECT TO LOCAL BUSINESS TAX

The Petitioner, Fernandez Holdings, Inc. filed a Petition for Review seeking the nullification of
the Decision and Resolution of CTA 2nd Division which upheld the 0.55% LBT as imposed by
Davao City LGU on the Petitioners dividend income from San Miguel Corporation preferred
shares of stock. Petitioner claims that it is erroneous and illegal for the Respondent to assess and
collect because they are not a non-bank financial intermediary and that its income partake the
nature of public funds on which LBT may not be imposed. In a Supreme Court En Banc case, the
Court declared the Petitioner is one of the 14 holding companies funded by coconut levy fund
(COCOFED), which were formed or organized solely for the purpose of holding the San Miguel
shares. The Respondent, on the other hand, argues that the Petitioner is a non-bank financial
intermediary, citing the Amended Articles of Incorporation, and therefore subject to LBT
pursuant to Section 143 of the Local Government Code of 1991. The Court granted the Petition
for Review and cancelled the assessment citing that the Petitioner is not a non-bank financial
intermediary in reference to the BSP Manual of Regulations and BIR
regulations. [FERNANDEZ HOLDINGS INC VS. CITY OF DAVAO, CTA EB NO. 1531,
DECEMBER 5, 2017]

DOCUMENTARY STAMP TAX (DST) ON SUBSCRIPTION OF SHARES, CLARIFIED

The Petitioner, Netrepreneur Connections Enterprises, Inc. filed a Petition for Review
seeking the refund of erroneously paid DST in the amount of Php 2,229,335.74. Several issues
were raised but the main issue is centred on the overpayment of DST on the issuance of its
common shares to Intervision. The Petitioner and Intervision executed a Subscription Agreement
with an aggregate subscription price of Php 460,050,248.68 which involves 1,831 common
shares of stock with a par value of Php 100.00 per share. Petitioner paid and remitted the amount
of Php 2,300,251.24 as DST due on the issuance of the shares based on its subscription price.
However, Section 174 of the 1997 Tax Code states that there shall be a collection of DST of One
Peso on each Two Hundred Pesos of such shares (1/200) based on par. Applying the said
provision, the DST due thereon should be based on the par value of Php 915.50 and not on the
consideration or subscription price. Consequently, the Court ordered to refund the Petitioner in
the amount of Php 2,229,335.74. [NETREPRENEUR CONNECTIONS ENTERPRISES INC
VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9037, NOVEMBER 21,
2017]

PASSIVE INCOME NOT SUBJECT TO LOCAL BUSINESS TAX

Petitioner Metro Pacific Resources Inc. seeks to reverse and set aside the decision rendered by
the Regional Trial Court (RTC) of Makati City which denied its claim for tax refund of
erroneously paid Local Business Tax (LBT) to Makati City Hall. Several issues were raised
including the proper determination of whether the Petitioner is an investment company or a non-
bank financial institution and whether its corresponding passive income (i.e. dividend income)
constitute taxable gross receipts which may be subject to LBT. The Court held that the Petitioner
did not meet the definition of a non-bank financial institution in accordance of General Banking
Act or Republic Act No. 337, Revenue Regulations No. 9-2004 & Manual Regulation issued by
the Bangko Sentral ng Pilipinas. Likewise, the Court citing Michigan Holdings, Inc. vs. The City
Treasurer of Makati ruled that dividend income is excluded from gross receipts for imposition of
LBT. Consequently, the Petition for Review is GRANTED and ordered the Respondent to
REFUND the erroneously collected LBT. [METRO PACIFIC RESOURCES INC. VS
MAKATI CITY & THE CITY TREASURER OF MAKATI CITY, CTA AC NO. 174,
NOVEMBER 21, 2017]

BIR & TAXPAYER IN PARI DELICTO; CLAIM OF FALSITY DOES NOT

AUTOMATICALLY TRANSLATE TO APPLICATION OF 10-YEAR PRESCRIPTIVE
PERIOD; ISSUE ON DEFECTIVE WAIVER
Hoya Glass Disk Philippines, Inc. (Hoya) and Commissioner of Internal Revenue (CIR) seek to
reverse the decision and resolution of CTA 3rd Division cancelling the VAT assessment,
upholding the Final Withholding Tax at a reduced amount, and declaring that partial prescription
has already set-in. CIR claims that since Hoya filed a false return, the 10-year prescriptive period
shall then apply. Hoya, on the other hand, argued that the waiver is defective and therefore the
right of the BIR to assess has lapsed citing the set-in of prescription. The Court struck down the
claims of both parties citing that mere falsity of the return does not automatically justify the
application of 10-year prescriptive period emphasizing that the falsity of returns must be
intentional and design to deceive the government. Likewise, the Court declared that Hoya is
estopped from questioning the validity of the executed waivers citing the Supreme Court’s
decision on Next Mobile case. Consequently, both parties are declared in pari delicto. On FWT
assessment, the Court affirmed the Court 3rd Division’s ruling ordering Hoya to pay FWT of
32% as a result of its failure to prove that services were rendered outside the Philippines and that
the expense is not classified as royalties but as compensation for services rendered in the
Philippines. Both Petitions were DENIEDand the assailed decision and resolution of Court’s 3rd
Divisions was AFFIRMED. [COMMISIONER OF INTERNAL REVENUE VS. HOYA
GLASS DISK PHILIPPINES INC., CTA CASE NO. 8115 & CTA EB NO. 1473 & 1474,
NOVEMBER 17, 2017]

FAILURE TO ISSUE NEW LOA DUE TO RE-ASSIGNMENT TO NEW EXAMINER

FATAL
Petitioner CIR is seeking the reversal of the decision and resolution of CTA 3rd Division
declaring the assessment as void for failure of the BIR to issue new LOA as a result of re-
assignment of the case to a new examiner. Petitioner argues that there is no need for the issuance
of a new LOA if the examination is reassigned only to another revenue officer or group
supervisor citing Revenue Memorandum Order (RMO) No’s. 8-2006 and 62-2010. The Court En
Banc, however, is not convinced. Accordingly, the provisions of RMO No. 8-06 contemplate a
situation where reassignment is a consequence of transfer, resignation or retirement of both the
original Revenue Officer (RO) and Group Supervisor (GS); while RMO No. 62-10 provides the
propriety of a reassignment for the continuation of an audit investigation to another RO due to
resignation, retirement or transfer of the original RO. In the instant case, it was not shown that
there was a transfer, resignation or retirement of both the original RO and GS assigned under the
LOA. Considering that the reassignment of the audit investigation does not conform to the
RMOs cited, it follows that the audit examination by the examiners were conducted without
authority. Consequently, Court En Banc agrees with the conclusion reached by the CTA
3rd Division citing the Supreme Court decision in Commissioner of Internal Revenue v. Sony
Philippines, Inc. declaring that any revenue officer must be armed with authority to conduct an
examination or assessment. The Petition for Review is DENIED for lack of merit and the
resolution of CTA 3rd Division’s Decision is AFFIRMED. [COMMISSIONER OF
INTERNAL REVENUE VS. ITHIEL CORPORATION, CTA CASE No. 1551, NOVEMBER
17, 2017]

ASSESSMENT NOTICES SENT TO WRONG ADDRESS LEADING TO VOID

ASSESSMENT
Petitioner Daewoo Engineering & Construction Company Ltd. filed a Petition for Review
seeking the cancellation of VAT assessment on the ground that assessment notices were not
received by the Petitioner. Respondent CIR counters that there is a disputable presumption that a
letter duly directed and mailed was received in the regular course of mail pursuant to Section 3
(v) of Rule 131 of the Rules of Court. The Court noted however that while it is true that the
revenue officers served the assessment notices, it appears from the records that the address
indicated therein is the old address of the Petitioner in Makati in spite of the official notification
on the change of address in Pasig. Consequently, the Petitioner was denied of its right to due
process leading to the cancellation of the assessment. [DAEWOO ENGINEERING &
CONSTRUCTION COMPANY LIMITED VS. COMMISSIONER OF INTERNAL
REVENUE, CTA CASE No. 8829, NOVEMBER 17, 2017]