Copyright © 2019 by Du-Baladad and Associates (BDB Law). All rights reserved. No part of this issue covered by this copyright may be produced and/or used in any form or by any means – graphic, electronic and mechanical without the written permission of the publisher.
What's Inside ...
- Tax Case Digest
- Court Issuances
- CTA
- Court Issuances
Taxpayer is estopped from questioning the validity of waivers if it has paid the assessed tax.
A taxpayer who pays an assessed tax shall be held in estoppel to question the waiver it executed prior to the issuance of the assessment.
In this case, if the taxpayer believed that the subject waivers were invalid, then it should not have partially paid the deficiency tax assessments. The fact that it had done so is an indication that it recognized the validity thereof. Thus, the taxpayer is in estoppel from questioning the subject waivers’ validity. (San Miguel Foods, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9241, October 2, 2019)
The issuance of an Amended Assessment Notice by the BIR did not abandon the Original FAN.
In invoking prescription as defense against BIR’s assessment, taxpayer contends that the Amended Assessment Notices have abandoned and abrogated the original FAN issued by the BIR. While the original FAN was issued within the prescriptive period, the Amended Assessment Notices were issued only after more than seven (7) years.
The CTA found taxpayer’s argument unmeritorious. The CTA ruled that the issuance of an Amended Assessment Notice did not abandon the original FAN. Taxpayer failed to specifically indicate what details were not included in the original FAN that were included in the FDDA and the Amended Assessment Notices. The FDDA with Amended Notices constitute BIR's decision on taxpayer's request for reinvestigation. The FDDA and Amended Notices could not be regarded as new assessments since there was no change on the basis of the original income tax, VAT and EWT assessments issued against taxpayer. Thus, the contention of the taxpayer is erroneous. (Titanium Corporation v. Commissioner of Internal Revenue, CTA Case No. 9515, October 2, 2019)
In a claim for refund of input VAT, it not necessary that there be zero-rated or effectively zero-rated transactions at the time the claimed input VAT was incurred or paid.
Upon taxpayer’s filing of its administrative claim for refund involving its alleged unutilized input VAT for taxable year 2012, the BIR argued that it is not entitled to the refund since it did not have zero-rated sales in 2012 to which its input VAT can be attributed.
In ruling this case, the CTA held that the taxpayer is entitled to the refund. In a claim for refund of input VAT, it is not necessary that that there be zero-rated or effectively zero-rated transactions at the time the claimed input VAT was incurred or paid. What the law and the implementing regulations provide is that a taxpayer who has zero-rated or effectively zero-rated transactions is allowed to apply for the issuance of a tax credit certificate or for a tax refund for the input taxes paid. (Commissioner of Internal Revenue vs. Maibarara Geothermal Inc., CTA EB No. 1863 (CTA Case Nos. 8871, 8937, 8999 and 9042), October 4, 2019)
If the CTA Division renders an Amended Decision, taxpayer must again timely file a motion for reconsideration or new trial before appealing to the CTA En Banc.
In this case, the CTA ruled that when the Court in Division renders an Amended Decision, or one which modifies or reverses the finding/s in the Original Decision, it is virtually a decision different and distinct from the original one. As such, the party aggrieved by the Amended Decision must again timely file a motion for reconsideration or new trial thereto, lest the Amended Decision shall become final and executory.
In this case, however, the taxpayer utterly failed to do so. Given this fatal procedural mishap committed, the Amended Decision attained immutability and may no longer be disturbed. (Commissioner of Internal Revenue v. Irish Fe N. Aguilar, et al., CTA EB No. 1859 (CTA Case No. 9073), October 4, 2019)
Payment based on PAN is erroneous.
In this case, the taxpayer paid the deficiency VAT appearing in the PAN after the prescriptive period to reply to the said PAN has already lapsed. No FAN was issued after the taxpayer’s failure to file reply to the PAN.
The CTA then ruled that considering that no FAN was issued, the payment was not based on an assessment which became final and executory. The payment was not supposed to be collected. Accordingly, such erroneous payment made by the taxpayer based on the PAN alone may be recovered. (Toledo Power Company v. Commissioner of Internal Revenue, CTA Case No. 9307, October 9, 2019)
The assessment is valid despite the lack of an eLA if taxpayer actively participated in the conduct of audit by revenue officers authorized under manually-prepared LOA.
Taxpayer claimed that the assessment is void for failure of the revenue officers who conducted the audit investigation to replace the manually-prepared Letter of Authority (LOA) with an electronic Letter of Authority (eLA), as required under Revenue Memorandum Order (RMO) Nos. 62-2010 and 69-2010.
The CTA did not rule, however, in favor of the taxpayer. Nowhere in the said RMOs invalidates the manually-prepared LOAs when said LOAs are not retrieved and replaced with eLAs. In case the manually-prepared LOA is not replaced with a new eLA, the remedy of the taxpayer is to invoke Section 6 of RMO No. 62-2010 which allows taxpayers to not entertain any revenue officer, unless a new eLA has been issued.
Such right, however, may be waived when the taxpayer continues to allow the audit/investigation without protest, which taxpayer did in this case. Petitioner even executed several waivers extending the period to assess and it also actively participated in the audit/investigation conducted by the revenue officers authorized under the manually-prepared LOA. Thus, the assessment is valid under the manually-prepared LOA. (Altus Angeles, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9164, October 8, 2019)
The authority to declare an administrative BIR Issuance void is within the jurisdiction of the CTA and not of the RTC.
The taxpayers in this case are employees of ADB whose compensation were subjected to income tax under Section 2(d)(1) of RMC No. 31-2013. On the basis of the decision made by RTC – Mandaluyong declaring the said provision void, the taxpayers then claimed for refund on the taxes withheld on their compensation.
The CTA then ruled against their favor and held that the RTC is without jurisdiction to declare Section 2(d)(1) of RMC No. 31-2013 void. The determination of the validity of administrative issuances issued by the BIR, such as RMC No. 31-2013, falls within the exclusive appellate jurisdiction of the CTA, not the RTC. Thus, RTC – Mandaluyong was not vested with jurisdiction to declare the invalidity of RMC No. 31-2013. The decision of the RTC is therefore void. (Commissioner of Internal Revenue v. Spouses Michael Gavin, Richard L. De Los Reyes And Jennifer C. Co-De Los Reyes, CTA EB No. 1788 (CTA Case No. 9088), October 3, 2019)
Compensation of Filipino employees of ADB are subject to income tax.
The taxpayers in this case are Filipino employees of ADB whose compensation were subjected to income tax, and thus, claimed for refund on the taxes withheld on their compensation. They argued that the government’s reservation to tax its citizens is not self-executing, such that a specific legislation must be passed to impose income tax on the salaries and emoluments of Filipino ADB employees, allegedly similar to the practice of other members of the ADB.
The CTA ruled against the taxpayers. It held that Congress indeed intended to tax the salaries and emoluments received by Filipino ADB employees and that they are covered by the provisions of the Tax Code. Thus, there is no need to enact a law to subject their income to tax.
The ADB Charter also clarifies that the tax exemption does not apply where the member-country retains the right to tax the salaries and emoluments paid by ADB to their citizens or nationals in the instrument of ratification or acceptance. The ADB Charter was ratified and confirmed by the Philippine Government with a reservation, through Senate Resolution No. 6 dated March 16, 1966, that the ratification and confirmation of the ADB Charter is "subject to the reservation that the Philippines declares that it retains for itself and its political subdivision the right to tax salaries and emoluments paid by the Bank to citizens or nationals of the Philippines.”
Thus, the income of Filipino employees of ADB are subject to income tax. (Commissioner of Internal Revenue v. Maria Lorena Dino, et al., CTA EB No. 1976 (CTA Case No. 9083) and Maria Lorena Dino, et al. v. Commissioner of Internal Revenue, CTA EB No. 1978 (CTA Case No. 9083), October 9, 2019)
Estoppel applies if taxpayer fails to impugn the validity of the waiver for a considerable period of time.
Taxpayer was assessed by the BIR for alleged deficiency taxes. Taxpayer then contends that the right of the BIR to assess the latter has prescribed because the two waivers previously executed are not valid and binding. The first waiver allegedly did not indicate the date of acceptance.
The CTA held that the taxpayer had reason to let the BIR believe that the waivers it executed were valid since the tolling of the prescriptive periods allowed it more time to prepare for its defense against the assessment. Here, the parties were given more than a year to further thresh out the issues of the assessments before the FAN was received. Without these two successive waivers, the BIR would have been compelled to issue the FAN much earlier, before prescription could set in. The taxpayer, therefore, benefitted from the extension afforded by the waivers and cannot belatedly assail the waivers when the consequences of the assessment resulted not in its favor.
Also, the taxpayer never raised the defect of the first waiver in the administrative level and even during trial. Taxpayer demonstrated a pattern of deliberately avoiding the issue concerning the first waiver. Thus, the taxpayer is now estopped from impugning the validity of the waiver when it remained silent for a considerable period of time on that very issue it is now raising before the court. By executing the second waiver, it acquiesced to the validity of the first and cannot now take a contrary position to the detriment of the other party who relied on the same. Thus, the assessment was upheld. (Commissioner of Internal Revenue v. JVC (Philippines), Inc. CTA EB No. 1744 (CTA Case No. 8646) and JVC (Philippines), Inc. v. Commissioner of Internal Revenue, CTA EB No. 1746 (CTA Case No. 8646), October 14, 2019)
Interest and surcharge may be waived if taxpayer acted in good faith when it relied on prevailing court decisions and previous BIR issuances at the time of occurrence of the transaction subject to tax.
In this case, the CTA ruled in favor of the taxpayer and granted its claim for refund of interest and surcharge on the DST paid on inter-company loan transactions covered by inter-office memoranda.
While a DST is imposed even in the absence of a debt instrument, interest and surcharge may not, however, be imposed if the taxpayer relied on prevailing court decisions and previous BIR issuances to the effect that inter-company loans and advances covered by inter-office memoranda were not loan agreements subject to DST. (Commissioner of Internal Revenue v. South Premiere Power Corp., CTA EB No. 1898 (CTA Case No. 9337) and South Premiere Power Corp. v. Commissioner of Internal Revenue, CTA EB No. 1899 (CTA Case No. 9337), October 14, 2019)
The absence of due date on the FAN/FLD invalidates the assessment.
In this case, the CTA ruled that the absence of due date on the FAN/FLD invalidates the assessment. An assessment does not only include a computation of tax liabilities, it also includes a demand for payment within a period prescribed.
Here, there was no time or date of payment indicated in the FLD. Hence, the subject tax deficiency assessment against the taxpayer is void and bears no valid fruit. (Nationwide Health Systems Baguio, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9507, October 15, 2019)
RMC issued by the BIR such as RMC No. 17-2013 cannot be given retroactive application if it is prejudicial to the taxpayer.
The BIR assessed taxpayer for alleged deficiency excise taxes for taxable year 2014 when it is still exempt from excise tax, because the taxpayer was still under its recovery period. This exemption was also confirmed by the BIR in its BIR Ruling No. 10-2007 issued on May 4, 2007. On February 15, 2013, the BIR issued RMC No. 17-2013 which revoked BIR Ruling No. 10-2007, and thus, petitioner’s exemption from excise tax during its recovery period.
The CTA then ruled that RMC No. 17-2013 cannot be given retroactive application since it is prejudicial to the taxpayer. Any revocation, modification or reversal of any of the rulings promulgated by the BIR shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers.
However, in this case, the taxpayer failed to present evidence to prove that the imposition of excise tax was made during the recovery period. Thus, the assessment against it for deficiency excise tax was upheld. (Oceanagold (Philippines), Inc. v. Commissioner of Internal Revenue, CTA Case No. 9594, October 21, 2019)
Failure of the taxpayer to present any accounting records or receipts to substantiate his expenses relating to its transactions justifies the BIR making an assessment based on the Best Evidence Obtainable.
Based on Revenue Memorandum Circular No. 23-00, assessment of tax based on "Best Evidence Obtainable” is allowed if there is a showing that expenses have been incurred, but the exact amount thereof cannot be ascertained due to absence of documentary evidence. In such case, the BIR may disallow 50% of the taxpayer’s claimed deduction.
Here, the taxpayer was unable to present any accounting records or receipts to substantiate his expenses. Thus, the revenue officers were justified in making an assessment based on “Best Evidence Obtainable.” In this case, the CTA thus resolved to apply the said "50% Rule." (People of the Philippines v. Rex Chua Co Ho, CTA Crim. Case Nos. O-287, O-288, O-289, O-290, and O-291, October 21, 2019)
Failure to pay the correct amount of tax must be wilful before a person may be criminally charged under Section 255 of the Tax Code.
In order to sustain a conviction for willfully failing to pay the correct tax under Section 255 of the Tax Code, the following elements must be established beyond reasonable doubt:
1. Accused are required under the Tax Code or its rules or regulations to pay any tax;
2. Accused failed to pay the required tax at the time required by law or rules and regulations; and
3. Accused’s failure to pay the required tax at the time required by law or rules and regulations is willful.
Here, accused Delgado, the CEO of the taxpayer, is a responsible officer of the taxpayer who is required to pay tax. It has also been sufficiently established that the taxpayer failed to pay the correct amount of deficiency income tax and VAT within the time prescribed in the assessment notices. However, the failure to pay such taxes were not willful because the prosecution failed to prove taxpayer’s receipt of the assessment notices.
Since the third element of the crime was not met, accused Delgado was acquitted. (People of the Philippines v. Jose Eduardo C. Delgado Delbros, Inc. CBW 124 District, 888 Delbros Avenue, Pascor Drive, Parañaque City, Case O-660, October 23, 2019)
The CTA has jurisdiction to review the Commissioner of Internal Revenue’s (CIR) denial of taxpayer’s offer of compromis.
In this case, the CTA held that it has the power to review the CIR’s denial of the taxpayer’s offer of compromise. Such authority arises from its power to review other matters arising under the Tax Code or other laws administered by the BIR.
Accordingly, the CIR’s discretionary authority to enter into a compromise agreement is not absolute. It thereof is subject to the determination of the CTA, whether the same is “within the parameters set by the law.” In case he abuses his discretion, the CTA may correct such abuse if the matter is appealed to it. (Commissioner of Internal Revenue v. United Coconut Planters Bank, Case EB 1943, October 22, 2019)
The jurisdiction of the CTA over criminal cases under the Tax Code is limited to claims amounting to at least P1 million, exclusive of charges and penalties, as provided by law. An assessment is not necessary to enforce collection of taxes through judicial action.
In cases arising from violations of the Tax Code, the CTA ruled that its jurisdiction is limited to criminal offenses where the principal amount of taxes and fees claimed, is at least P1 million, exclusive of charges and penalties, as provided by law, such as in this case. Hence, the CTA properly assumed jurisdiction over this case.
The taxpayers were properly accorded the constitutional right to due process even though there was only a two-day difference between the date of issuance of the Letter of Authority and the filing of the complaint. In ruling this, the CTA held that the BIR can exercise various options for the collection of taxes, such as (a) summary administrative remedies, precipitated by the issuance of a valid assessment, or (b) judicial action, whether through a civil or criminal action. In this case, the BIR enforced collection through the second mode. In exercising the right to enforce the collection of taxes through judicial action, an assessment is not necessary.
Here, the accused was also found criminally liable for attempting to evade or defeat taxes. They were liable to pay the tax but willfully evaded or defeated the payment thereof. The continuous and deliberate non-recognition of the acquired assets, cash outflow, and incurred loans as liabilities are clear indications of a scheme attempting to understate income and to evade or defeat the proper payment of tax. Accused’s denial and alleged reliance on the expertise of their accountant to determine what should or should not be reflected in the income tax return and financial statements is a willful act to delegate the performance of the legal duty to, tantamount to “deliberate ignorance” or “conscious avoidance” to ensure the accuracy of the information reflected in such documents. (Kingsam Express Incorporation and Samuel S. Santos v. Commissioner of Internal Revenue, CTA EB Crim. No. 054 (CTA Crim. Case Nos. O-522, O-523, O-525, & O-554), October 24, 2019)
Copyright © 2019 by Du-Baladad and Associates (BDB Law). All rights reserved. No part of this issue covered by this copyright may be produced and/or used in any form or by any means – graphic, electronic and mechanical without the written permission of the publisher.
