CIR v. NEXT MOBILE, INC. GR No. 212825.

December 7, 2015
FACTS: On April 15, 2002, respondent filed with the Bureau of Internal Revenue (BIR) its Annual Income
Tax Return (ITR) for taxable year ending December 31, 2001. Respondent also filed its Monthly
Remittance Returns of Final Income Taxes Withheld (BIR Form No. 1601-F), its Monthly Remittance
Returns of Expanded Withholding Tax (BIR Form No. 1501-E) and its Monthly Remittance Return of
Income Taxes Withheld on Compensation (BIR Form No. 1601-C) for year ending December 31, 2001. On
September 25, 2003, respondent received a copy of the Letter of Authority dated September 8, 2003
signed by Regional Director Nestor S. Valeroso authorizing Revenue Officer Nenita L. Crespo of Revenue
District Office 43 to examine respondent's books of accounts and other accounting records for income
and withholding taxes for the period covering January 1, 2001 to December 31, 2001.
Ma. Lida Sarmiento (Sarmiento), respondent’s Director of Finance, subsequently executed several
waivers of the statute of limitations to extend the prescriptive period of assessment for taxes due in
taxable year ending December 31, 2001.

On September 26, 2005, respondent received from the BIR a Preliminary Assessment Notice dated
September 16, 2005 to which it filed a Reply.
On October 25, 2005, respondent received a Formal Letter of Demand (FLD) and Assessment
Notices/Demand No. 43-734 both dated October 17, 2005 from the BIR, demanding payment of
deficiency income tax, final withholding tax (FWT), expanded withholding tax (EWT), increments for late
remittance of taxes withheld, and compromise penalty for failure to file returns/late filing/late
remittance of taxes withheld, in the total amount of ₱313,339,610.42 for the taxable year ending
December 31, 2001. On November 23, 2005, respondent filed its protest against the FLD and requested
the reinvestigation of the assessments. On July 28, 2009, respondent received a letter from the BIR
denying its protest. Thus, on August 27, 2009, respondent filed a Petition for Review before the CTA
docketed as CTA Case No. 7965.

With the CTA, it was held that the demand was beyond the three year prescription period under the
NIRC. That the case does not apply the 10 year prescripton period as there was not false return by the
respondent. Also, the waivers did not validly extend the prescription because of irregularities.
ISSUE: Whether or not the period to pay has prescribed.

RULING: NO.
The SC held that a waiver of the statute of limitations must faithfully comply with RMO No. 20-90 and
RDAO 05-01 in order to be valid. Sarmiento failed to show her authority to the BIR to sign the waivers.

The BIR were also at fault having to neglect their ministerial duties.

Both parties knew the infirmities of the waivers but still continued. Respondents were held in bad faith
as after having benefited by the waivers by giving them more time to pay, they used the waivers they
made themselves when the consequences were not in their favor.
The BIR's negligence amounts to malice and bad faith as they also knew the waivers did not conform
with RMO 20-90 and RDAO 05-01.
As both parties are in bad faith, the SC granted the petition on the issue of the nullification of the formal
letter of demand to the CTA.

The Supreme Court held that a taxpayer who is in bad faith cannot impugn the
validity of the waiver.

 While the Supreme Court reiterated that a waiver must strictly comply with the
requirements prescribed by the regulations, it qualified and held that a taxpayer
cannot impugn the validity of the waiver on the basis of the defects he himself has
caused after benefiting from it, as he will be deemed estopped by his bad faith.
Despite the waiver’s non-compliance with the requirements in the regulations, the
Supreme Court ruled in favor of the BIR and treated the waiver as valid and
binding upon the taxpayer since the defect was attributable to the latter’s
deliberate acts.

 There is no hard-and-fast rule on the issuance of waivers, which is why taxpayers

need to take all factors into consideration. While executing a waiver may allow
more time for a taxpayer to gather and submit relevant documents before an
assessment is finalized, it also prolongs the tax audit taking a toll on the
taxpayer’s time and resources, not to mention the continuous running of the
interest penalty should the assessment be found valid.

 With the issuance of RMO 14-2016 and the pronouncement of the Supreme Court
in the Next Mobile case, it appears that tax assessments can no longer be won
simply based on technicalities by attacking the validity of waivers. Taxpayers
should make it a point to focus not just on procedural or technical issues but more
on the merits or the strength of its substantive factual and legal bases against a
tax assessment of the BIR.

 The Court of Tax Appeals (CTA), however, has differing views. In the most recent case of Next
Mobile, Inc. vs. Commissioner of Internal Revenue, the CTA, applying the Aznar ruling,
interpreted that any deviation from the truth, even a 5% under-declaration of the reported
gross revenues, already constitutes a false return and warrants the application of the 10-year
prescriptive period to assess