Thursday, 24 March 2016

Accounting Method by Court of Tax Appeals... EmelinoTMaestro.com


For the sale of goods or properties, the VAT is imposed upon the gross selling price which means that the VAT on the sale of goods or properties accrues upon the consummation of sale, whether or not the consideration was actually received already by the seller. On the other hand, in the sale of services, as in the instant case, the VAT is computed based on gross receipts as indicated in Section 108 (A). Therefore, the VAT on the sale of services accrues upon actual or constructive receipt of the consideration, whether or not the service has been rendered.
Considering that in a claim for issuance of a tax credit certificate attributable to zero-rated sales, what is to be closely scrutinized is its documentary substantiation, and since petitioner has not established by sufficient evidence its entitlement thereto, then its claim should be denied. The sales invoices and other commercial documents were not sufficient documentary proofs in lieu of what is mandated by the NIRC of 1997. Nippon Express (Philippines) Corporation v. Commissioner of Internal Revenue, C.T.A. EB No. 492 (C.T.A. Case No. 7429), December 15, 2009).... 

Wrong Venue, Forum and Person to File a Valid Protest...EmelinoTMaestro.com


Section 228 of the NIRC of 1997, as amended, expressly provides that the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals, within thirty (30) days from receipt of said decision, or from the lapse of one hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable. Or, in case the decision was rendered by a duly authorized representative of the Commissioner, the taxpayer may elevate his protest to the Commissioner, within thirty (30) days from the date of receipt of the final decision of the Commissioner’s duly authorized representative, in which case the latter’s decision shall not be considered final, executory and demandable, and the protest shall be decided by the Commissioner (Section 3.1.5 of Revenue Regulations 12-99).
Instead of appealing the Final Decision on Disputed Assessment dated October 16, 2003 to this court, or elevating its protest to the Commissioner, petitioner City of Makati filed another protest dated October 24, 2003 with Regional Director Adriano, praying for a recomputation of the Final Assessment Notice dated October 15, 2003, regarding the deficiency taxes for the taxable years 1999-2001. Evidently, petitioner availed of a wrong remedy before the wrong forum.
It cannot be argued by petitioner that its tax liabilities were already compromised. Records show that there was no formal compromise agreement that was executed by the parties, as petitioner’s offer for compromise was not approved by the National Evaluation Board. Pursuant to Section 204 of the NIRC of 1997, as amended, when the basic tax involved exceeds One Million Pesos (P1,000,000.00), or where the settlement offer is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board, composed of the Commissioner and four (4) Deputy Commissioners. City of Makati v. Commissioner of Internal Revenue, C.T.A. Case No. 7809, December 16, 2009 

Documents needed to be allowed as Zero-VAT sales

Section 106 (A)(2)(a)(1) of the Tax Code, in relation to Section 113(A) of the same Code and Section 4.108-1 of Revenue Regulations No. 7-95, any person claiming VAT zero-rated direct export sales must present at least three (3) types of documents, to wit:
  1. a)  Sales invoice as proof of sale of goods;
  2. b)  The export declaration and bill of lading or airway bill as proof of actual shipment of
    goods from the Philippines to the foreign country; and
  3. c)  Bank credit advice, certificate of bank remittance or any other document proving
    payment for the goods in acceptable foreign currency or its equivalent in goods and services.

Without the bills of lading or airway bills, the export declarations submitted by petitioner Marubeni are insufficient to prove there was actual shipment of petitioner’s goods from the Philippines to Tokyo, Japan. Likewise, petitioner failed to submit documents establishing the existence of its foreign currency payables to Marubeni Tokyo alleged to be offset with the proceeds of its export sales to the same.
Another essential condition for qualification to VAT zero-rating under Section 108 (B)(2) is that the recipient of such services is doing business outside the Philippines. Petitioner failed to substantiate the receipt of the foreign currency proceeds thereof with proper VAT official receipts and that its clients are non-resident foreign entities doing business outside the Philippines. Marubeni Philippines Corporation v. Commissioner of Internal Revenue, C.T.A. Case No. 7223, December 15, 2009 

Deficiency tax assessment is void from the beginning if it is supported by photocopied evidences.

The use of photocopies as evidences of deficiency tax assessments is fatal to the deficiency tax assessments for the photocopied evidences have no probative value and therefore, the deficiency tax assessment is void from the beginning...

The best evidence obtainable under Section 16 of NIRC 1977 (now Section 6, NIRC 1997), as amended, does not include mere photocopies of records/documents. Respondent Commissioner was in error when it anchored the subject tax assessments on a mere photocopy of the Receipt of Earnest Money; it being a mere scrap of paper and have no probative value.

Having disregarded the photocopy of the Receipt of Earnest Money, which was respondent’s basis of assessment, the Court used the zonal value of the subject real properties to compute petitioner’s deficiency income tax liability. Lucia Manotoc Macam v. Commissioner of Internal Revenue and Ramon Wifredo B. Pagarigan, C.T.A. Case No. 6601, December 15, 2009

Sales by a VAT taxpayer from the Customs Territory to a PEZA entity are considered export sales under Executive Order (EO) 226 and Revenue Memorandum Circular (RMC) 74-99.


Input VAT must be declared on domestic purchases of goods and services at the end of the corresponding taxable quarter where purchases of goods were consummated, as evidenced by VAT invoices and where purchases of services were paid, as evidenced by VAT official receipts.
Sales of goods, properties and services by a VAT-registered supplier from the Customs Territory to an ECOZONE enterprise shall be treated as export sales. If such sales are made by a VAT- registered supplier, they shall be subject to VAT at zero percent (0%).
Input VAT on domestic purchases of goods or properties shall be allowed as tax credit to the purchaser only upon consummation of the sale, which means upon issuance of the seller of the VAT sales invoice evidencing the sale of goods/properties. On the other hand, the input VAT on purchases of services shall be available as tax credit to the purchaser only upon the payment of the compensation or fee, i.e., upon issuance by the seller of the VAT official receipt for the payment for services performed to yet to be performed. Philex Mining Corporation v. Commissioner of Internal Revenue, C.T.A. Case No. 7587, December 8, 2009 

VAT returns prescribe or expire on a quarterly basis and not on a yearly basis... EmelinoTMaestro.com

For purposes of assessing and collecting deficiency VAT, it is important to note that VAT return prescribes or expires on a quarterly basis and will never be prescribed or expired together with the income tax and withholding tax returns. In this view, please read this Court of Tax Appeals' decision....EmelinoTMaestro.com:

It is imperative that sales invoices supporting the export sales must comply with the invoicing requirements under the law and regulations, i.e. they must be duly registered with the BIR and contain all the required information, such as (1) the imprinted word “zero- rated” and (2) the taxpayer’s TIN-VAT number.

The earliest period involved in the present judicial claim for refund or tax credit is the 1st quarter of 2005. Considering that the last day for the 1st quarter of 2005 was March 31, 2005, it is from this date that the two-year prescriptive period commenced to run with respect to the administrative and judicial claim for refund, which means petitioner had until March 31, 2007. Since the claim for refund was filed only on April 25, 2007, the claim has prescribed. Daicolor Philippines, Incorporated v. One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center, C.T.A. Case No. 7629, December 3, 2009

Sunday, 6 March 2016

A final letter of demand and a letter by the Revenue District Officer do not constitute final decision appealable to the CTA absent the words “decision” and “appeal”.

On January 27, 2011, taxpayer received from the BIR Regional Director a Formal Letter of Demand (“FLD”) assessing it for deficiency taxes. On February 25, 2011, taxpayer filed a protest against the FLD. The protest was forwarded to the Revenue District Office (RDO) for appropriate action. On September 19, 2011, the RDO wrote the taxpayer that it was standing pat on the assessment although the same has been revised. On November 16, 2011, taxpayer filed a petition for review before the CTA. The Court ruled that the petition was prematurely filed, therefore the Court had no jurisdiction. The FLD is not a final decision appealable to the CTA. Even if the FLD were to be considered decisions, taxpayer would have only until February 26, 2011 to appeal to the CTA. The assessment would already have become final, executory and demandable. Neither was the RDO’s letter dated September 19, 2011 ripened into to an appealable decision. There is nothing in the RDO letter that conveys a sense of finality. The letter did not use the words “decision” and “appeal”. To qualify as decision on disputed assessments, the language or tenor must clearly, unequivocally, and indubitably convey the final determination on the disputed assessment. (Brixton Investment Corporation vs. Commissioner of Internal Revenue, CTA EB No. 1099, April 05, 2015)

There must first be a grant of letter of authority before an officer can conduct an examination or issue an assessment.

Taxpayer was issued an assessment by the Bureau of Internal Revenue, which was elevated to the CTA by the taxpayer. Upon the cross examination of the revenue officer by the taxpayer’s counsel, the examiner admitted that there was no letter of authority (LOA) issued by the BIR for the examination of the taxpayer that gave rise to the issuance of the assessment. Thus, the taxpayer raised in its memorandum that the assessment should be declared void considering that there was no LOA issued. The Court agreed with the taxpayer. Section 13 of the National Internal Revenue Code of 1997 requires the issuance of LOA. Thus, the assessment in the instant case is void having been issued without LOA. (Cebu Mitsumi, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8531, May 21, 2015)

VAT official receipts and not VAT invoices should be used to substantiate VAT zero- rated sale of services to non-residents.

In taxpayer’s claim for refund of input tax related to its zero-rated sale of services to its nonresident clients-affiliates, taxpayer presented invoices and proofs of inward remittances. The BIR, on the other hand, argued that the sale of services to non-resident clients must be supported by official receipts and not invoices. The Court agreed with the BIR. According to the Court, the taxpayer, being engaged in the sale of services in the Philippines is VATable on its gross receipts pursuant to Section 108 of the Tax Code, thus, must be supported by VAT official receipts. Under the law, a VAT invoice is necessary for every sale, barter or exchange of goods or properties, while VAT official receipt properly pertains to every lease of goods or properties, and for every sale, barter or exchange of services. Without proper VAT zero-rated official receipts, taxpayer’s reported sales of services cannot qualify for VAT zero-rating under Section 108(B)(2) in relation to Section 113(A)(2) and (B)(2)(c) of the Tax Code. Consequently, the input VAT allegedly attributable thereto cannot be refunded. (Galileo Asia, LLC-Philippine Branch v. Commissioner of Internal Revenue, CTA Case No. 8419, June 10, 2015)

Non-compliance with the prior application for tax treaty relief should not operate to divest entitlement to the tax treaty relief.

Taxpayer entered into an agreement with a corporation based in the United States. In the said agreement, taxpayer was granted the exclusive right to use the trademarks and other intellectual property rights of the US corporation. For the royalties paid based on the agreement, taxpayer had been withholding final withholding tax at the rate of 30%. Realizing that the royalty payment is entitled to a preferential tax rate of 10% under the Philippines – US Tax treaty, taxpayer filed for a refund of the excess withholding tax payments. The BIR argued, among others, that the taxpayer is not entitled to the preferential tax treaty rate since it failed to file an application for Tax Treaty Relief as required under RMO No. 72-10. Citing the case of Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue1 , the Court ruled that non-compliance with the prior application rule as required by RMO No. 1- 2000 (latest is RMO 72-10) should not operate to automatically divest entitlement to the tax treaty relief as it would constitute a violation of the duty required by good faith in complying with a treaty and would impair the value of the treaty. (Philip Morris Philippines Manufacturing, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8692, June 30, 2015)

Withholding of tax on purchases arises even if no payment has yet been made.

Pursuant to Section 2.57.4 of RR 2-98, a taxpayer is required to withhold tax when the income payment is paid or becomes payable, or the income payment is accrued or recorded as expense or asset, whichever is applicable in the taxpayer’s books, whichever comes first. If the taxpayer recorded its payments as expense, although they were not yet paid or payable, the obligation to withhold shall be within the last month of the return period in which payments were claimed as expense for tax purposes. Accordingly, it is not always the payment that necessitates the withholding of taxes on purchases. Even if payment is yet to occur, withholding shall be made once the obligation becomes demandable, or was accrued or claimed as expense for income tax purposes, whichever comes first. (Social Security System vs. Alfredo V. Misajon, CTA Case No. 8564, June 24, 2015)

Friday, 4 March 2016

EmelinoTMaestro Profile and Picture

EmelinoTMaestro.com says! 
To eradicate the mental, physical, emotional and financial inequalities, we, the people, should eliminate our ignorance at once. Ignorance is an intentional failure to enrich self with justly knowhow. Also, it is a disability to apply what is right correctly, and equally, to unlearn what is wrong immediately. To move faster, we must accept 'ignorance' not only as a disability but significantly, a disease that eats us inside out.

Who is ETM? 
ETM stands for EMELINO T MAESTRO where the initial ‘T’ means ‘tax’. Biro lang!. T stands for Tolentino. He wrote more than 30 books in the field of taxation; is the Father of Tax Accounting or Tax Accounting Guru to others. A professional tax-lecturer to GMA-7, ABS-CBN, Wyeth, Yokohama, Department of Trade and Industry and many more. Founder of the School for Taxation Professionals, ETM Tax Agent Office, Auditor Ng Bayan -Ombudsman’s accredited Corruption Prevention Unit, and Tax Accountant Society.

Where ETM stands? 
Similar to “Kapamilya” of ABS-CBN, “Kapuso” of GMA-7 and “Kapatid” of TV5, ETM believes that although businesspeople, for the rest of their lives, will compete everyday with one another, it cannot be set aside that these people when it comes to taxation are brothers and sisters. Wherever they go either in a foreign land or within the archipelagos of the Republic of the Philippines, still, they carry with them a name that attracts the attention of and really excites any government - the surname ‘TAXPAYER.’ Therefore, for their best interests, the name ‘Kataxpayer’ or Katax, for short, comes in and may mean ‘a community that helps and assists one another in complying with the laws of this Republic.
To tax more, the BIR employs the Tax-evasion Assault, Benchmarking, Letter of Authority, Letter Notice, Oplan Kandado, Tax Mapping, Surveillance, Subpoena Duces Tecum and Assessment Notice. These tactics and techniques are not only too detrimental and damaging to our livelihood but also to our mental and physical health. Definitely, they are contrary to the BIR’s written claims that these enforcement activities are necessary to establish a harmonious relationship and maintain a continual partnership with us.

Some schools and universities’ personnel, and importantly, some BIR officials are so reluctant to accept that the standards and principles such as the Philippine Financial Reporting Standards (PFRS) and Philippine Standards on Auditing (PSA) are inferior to the obligations created by our laws. Romancing with these standards and principles, they deliberately failed and still fail to teach and spread the true and correct means in complying with the said laws. They are too complacent that what they produced and will be producing in their campuses and training rooms would match the requirements of the taxpaying public.

Furthermore, we have been the victims and preys of misrepresentation or deceitful-advertising that is (1) all CPAs can compute the amount of taxes correctly, (2) all lawyers can interpret accurately, (3) all graduates can deliver useful reports and recommendations immediately, and (4) all BIR officials have the mental prowess and courage to help and assist first the a needy taxpayer before a civil/criminal penalty shall be slapped against him. Because of these misconceptions that these misrepresentations bring, the graft and corruption platforms are actively tolerated and the worst of all, they are knowingly encouraged.

Experiences.
When I was a freshly graduate from Pamantasan ng Lungsod ng Maynila (PLM), I learnt early enough that to get employed immediately is only just a dream. Because my competitors (1) are from prestigious schools, (2) have either a latin honour or came from the top of his class, and (3) already passed the Board exams, I ended up as a clerk cum messenger in a governmental agency receiving a 37.50 pesos/day job when the daily minimum wage is already 64 pesos.

This scenario never changed since then. Majority of the graduating students may find themselves in a less desirable job. Many also from those who graduated last year still have to find a fairly paying job. 

I cannot forget what the former Vice-President Salvador ‘Doy’ Laurel has said to a batch of graduating students long, ‘Kung pagpapatung-patungin ang librong pinabasa sa inyo, test papers na sinagutan ninyo at school projects na nilahukan ninyo, siguro aabot ito hanggang second floor ng PICC. Ang masakit nito ay katiting na katiting lang sa napag-aralan ninyo ang magagamit ninyo sa inyong hanapbuhay o totoong buhay.”

What he said is still true today. 

The schools had taught us well the ability to think BUT IT DID NOT TEACH US HOW TO THINK AND ACT LEGALLY. 

We are in a society where the superiority of our laws is overwhelming and encompassing. Our acts must always within their parameters else we would either be fined, imprisoned or deported. The laws makes us civilised Filipinos, and, without them, we are nothing but just ‘criminals’ or ‘fugitives’.

The employers’ and clients' problems today arise from their ignorance of the Bureau of Internal Revenue’s rules and regulations. If we would only take a moment to study the cause and effect of their failure to comply therewith, we might find yourself in their priority or premium list.
Every employer would like to know that the would-be employee or consultant had already and seriously immersed himself into the laws governing BIR’s plans and strategies. When he sees that you had already undergone special seminar/course/training in the said issues, the chances of being employed and getting the desired pay is within your reach. Voluntarily arming self with true and correct knowledge that is TAXATION may be seen by an employer as a substantial cash savings for him because he would no longer shell out cash for a tax training/seminar.

Saying so, it is better to advertise to your potential employers and clients that (1) YOU KNOW THE LAW and (2) YOU CAN USE THE LAW EITHER TO SOLVE HIS PROBLEMS OR PREVENT A POSSIBLE PROBLEM TO OCCUR.

What is a CAMPUS TO CONFERENCE PROGRAM? It is systematic approach in increasing the corporate/business value of a would-be employee or Taxation Professional by way of aligning his knowledge and knowhow in solving the chronic and operational problems of his potential employer or client.


To be considered as an EmelinoTMaestro.com scholars, please email your letter of intent and CV at go@taxaccountingguru.com

Your Choices:
1. Taxation Professional
2. Tax Accounting Bookkeeper
3. CPA On Demand
4. General Business Agent

Thursday, 3 March 2016

The government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time.


On January 21, 2009, taxpayer received a Formal Letter of Demand and Audit Result/Assessment Notice, both dated January 09, 2009, assessing it for deficiency expanded withholding tax the taxable year 2005 (covering the period June 2004 to May 2005). Taxpayer protested the assessment arguing, among others, that the period to assess had prescribed under Section 203 of the NIRC of 1997. Taxpayer received a Preliminary Collection Letter on March 23, 2010. Thus, it filed a petition for review with the CTA on April 22, 2010.
The CTA cancelled the assessment on the ground of prescription. According to the Court, there is nothing in the PAN, FLD, Assessment Notice, and the Preliminary Collection Letter that would hint the non-application of the three-year prescriptive period for purposes of assessment. There is no indication that taxpayer filed a false return, or a fraudulent return with intent to evade tax, or failed to file a return. The BIR therefore 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 petitioner’s internal revenue taxes. Based in the evidence presented, the last EWT Return for the taxable period June 2004 to May 2005 was filed by taxpayer on June 10, 2005. Counting three years from June 10, 2005, the BIR had until June 10, 2008, at the latest, to issue an assessment for deficiency EWT for the taxable period June 2004 to May 2005. However, record reveals that the FLD and the FAN were issued only on January 9, 2009 or seven (7) months late reckoned from June 10, 2008, the last day for issuing an assessment covering the May 2005 EWT.
Significantly, there were no attending circumstances that would prevent the BIR from issuing an assessment and collecting the tax due within the period prescribed by law. Petitioner did not request for a re-investigation nor did it execute a waiver of the Statue of Limitations. Evidently, the assessment issued on January 9, 2009 or after June 10, 2008 had prescribed effectively barring the collection of alleged tax deficiency. (Hermano San Miguel Febres Cordero Medical Education Foundation (De Lasalle Health Sciences Institute), Inc. vs. Commissioner of Internal Revenue Joel L. Tan-Torres, CTA Case No. 8095, December 18, 2013) 

An accused is not liable for the civil liability for unpaid taxes of the corporate taxpayer.


The issue in this case is whether the accused, in his capacity as President of Pic N’ Pac Mart Inc., should be held liable for the civil liability arising from the assessment of Pic N’ Pac Mart Inc.
Here, the CTA En Banc ruled in the negative. According to the CTA, when a corporation is charged for violation of the provisions of the Tax Code, and, subsequently, found liable thereon, the penalty of imprisonment is lodged upon its responsible officers by virtue of section 253(d) of the Tax Code. However, such is not the case in the imposition of payment of deficiency tax in the form of a civil action instituted in the criminal action. The liability of the corporation is itself the very obligation covered by the assessment addressed to the very corporate taxpayer and not to the accused. Moreover, it must be stressed that the actual taxpayer in this case is Pic N’ Pac Mart Inc., which is a corporate entity separate from the incorporators. The one required by the Tax Code to pay the tax is the corporation, and it merely acts through its officers. The assessment is against the corporate entity in connection with its tax liability to the government, and not the accused. Hence, the accused is exonerated. (People of the Philippines vs. Wong Yan Tak, CTA EB Crim. Case No. 024, December 18, 2013)
  

The 120-30 days period under Section 112 of the NIRC are mandatory and jurisdictional. Failure of the taxpayer to file its claim for refund within the said periods is fatal to his claim.


This case involves a claim for refund of alleged excess and unutilized input VAT for the periods covering July 1, 2008 to September 30, 2008 and October 1, 2008 to December 31, 2008 in the amount of P115,242,046.55. On December 9, 2009, the taxpayer filed an application with the BIR for the refund of this alleged excess and unutilized input tax. Due to inaction of the BIR, it filed a petition for review with the CTA on December 29, 2010.
The petition was dismissed for lack of jurisdiction due to the failure of the taxpayer to observe the 120-30 day periods provided under Section 112 of the NIRC. Citing the cases of CIR vs. Aichi Forging Company of Asia, Inc.1 and CIR vs. San Roque2, the Supreme Court said that the 120-30 days period are mandatory and jurisdictional. Hence, the claim of the petitioner for refund should be disallowed. (Procter & Gamble Asia, PTE LTD vs. Commissioner of Internal Revenue, CTA EB No. 973, Promulgated December 9, 2013) 

Section 6 of RA 9334 cannot be considered as an express repeal of the exemptions granted under PAL’s franchise because it fails to specifically identify PD 1590 as one of the acts intended to be repealed.

Philippine Airlines Inc. (“PAL”) was granted a franchise to operate air transport services domestically and internationally by virtue of PD. No. 1590 on January 11, 1978. On January 1, 2005, RA No. 9334 otherwise known as “An Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco Products, Amending certain sections of the NIRC”, was enacted. Pursuant to RA No. 9334, and despite the exemption granted to PAL by its franchise under PD. No. 1590, PAL was subjected to excise tax due on its importation of various commissary supplies used in its international flights. PAL paid under protest the said excise taxes.
The CTA en banc ruled that the phrase under section 6 of RA 9334 which states that “the provisions of any special or general law to the contrary notwithstanding” cannot

be considered as an express repeal of the exemptions granted under PAL’s franchise because it fails to specifically identify PD 1590 as one of the acts intended to be repealed. Also, noteworthy is the fact that PD 1590 is a special law, which governs the franchise of PAL. Between the provisions under PD 1590 as against the provisions under the NIRC of 1997, as amended by RA 9334, which is a general law, the former necessarily prevails. This is in accordance with the rule that on a specific matter, the special law shall prevail over the general law, which shall be resorted to only to supply deficiencies in the former. In view on the foregoing and considering the CIR’s failure to prove that the exemption granted to PAL under PD 1590 was already repealed by RA 9334, PAL’s claim for refund must be granted. (Commissioner of Internal Revenue & Commissioner of Customs vs Philippine Airlines Inc (PAL), CTA EB No. 944, December 9, 2013) 

Section 135(a) of the 1997 NIRC refers to the tax exemption granted to international air carriers and not to the seller or manufacturers of petroleum products.

Taxpayer is engaged, among others, in the business of manufacturing, processing, treating and refining petroleum for the purpose of producing marketable products and by products and the subsequent sale thereof. Taxpayer also imports finished Jet A-1 fuel primarily for the purpose of sale and delivery to foreign and domestic air carriers and other customers. Consequently, taxpayer paid excise taxes for the importation of Jet A-1 fuel. Taxpayer posits that the excise taxes on imported Jet A-1 fuel sold to international carriers is exempt from tax pursuant to Section 135 of the NIRC. According to the taxpayer, this partakes the nature of erroneously or illegally collected tax. Thus, it filed a claim for refund.
According to the Court, one of the requisites in a claim for refund is that there must be an erroneous or illegal collection of tax or penalty collected without authority or sum excessively or wrongfully collected. The taxes paid on Jet A-1 fuel sold to international air carriers cannot be considered erroneously or illegally paid as taxpayer is statutorily liable to pay said excise tax. (Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue, CTA Case No. 7871, December 3, 2013) 

There is neither law nor jurisprudence that states that the taxpayer’s failure to fill up the entry in the “Creditable Tax Withheld” column in Schedule 1 of the Annual Income Tax Return would be fatal to a claim for refund.

In this claim for refund of unutilized creditable withholding taxes, the BIR questioned, among others, the taxpayer’s compliance of the requirement that he income upon which the taxes were withheld were included in the return of the recipient, on the ground that the creditable tax withheld column in schedule 1 of the annual ITR was not filled-up.
The CTA en banc ruled that there is neither law nor jurisprudence that states that the taxpayer’s failure to fill up the entry in the “Creditable Tax Withheld” column in Schedule 1 of the Annual ITR would be fatal to a claim for refund. What Section 2.58.3 of RR No. 2-98 and the applicable jurisprudence require is that the taxpayer be able to declare as part of its gross income in the Annual Income Tax Return the
income payment from which the withholding was made. Further, failure on the part of a taxpayer to make an entry in the “Creditable Tax Withheld” column found in page 2 of the Annual Income Tax Return, specifically Schedule 1 or the “Schedule of Sales/Revenues/Receipts/Fess” is not a sufficient basis to conclude that the taxpayer failed to comply with the requirement that “income upon which the taxes were withheld were included in the return of the recipient” when the taxpayer has offered other evidence to establish its compliance with this requirement. The claim for refund was granted. (Commissioner of Internal Revenue vs. Sonoma Services Inc., CTA EB No. 931, December 11, 2013) 

Failure to fill up the entry in the “Creditable Tax Withheld” column in Schedule 1, page 2 of the Annual Income Tax Return is fatal to a claim for refund of creditable withholding tax.

The fact that the “Creditable Tax Withheld” portion of the Annual Income Tax Return of the taxpayer which was left blank should not be taken lightly. It is well settled that much credence is imbued in the Annual Income Tax Return. The taxpayer asserts the truth and correctness in the declarations made therein, explicitly stating that the same are made under the penalties of perjury. Such declaration is made pursuant to the provisions of Section 267 of the NIRC.
Applying this provision to the instant case, taxpayer’s failure to fill up the “Creditable Tax Withheld” portion, coupled by the inability of the pieces of evidence submitted to prove that the income subjected to the claimed unutilized creditable withholding tax was declared as part of its gross income, is fatal to a claim for issuance of TCC on the unutilized creditable withholding tax. (Orix Auto Leasing Corporation vs. Commissioner of Internal Revenue, CTA EB Case No. 1016, December 9, 2013) 

Taxpayer is entitled to a refund of the 2% tax erroneously remitted to the BIR.


Taxpayer is a PEZA-registered entity. As such, it is liable to pay 5% tax on gross income. For the year 2009, the computed 5% tax on gross income were all remitted to the BIR. Realizing that the 2% of the 5% tax should have been paid to the city government, taxpayer applied for a refund of the 2%. 

The Court ruled that under Republic Act No. 8478 (Special Economic Zone Act of 1995), the five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: (a) Three percent (3%) to the National Government; and (b) Two percent (2%) shall be directly remitted by the business establishments to the treasurer’s office of the municipality or city where the enterprise is located. Clearly, the law shows that there shall be at least two separate payments: one to the BIR for the 3% share of the National Government, and a separate payment covering 2% for the local government units. In this case, it is apparent from the returns and the payment forms that taxpayer remitted the full 5% tax to the BIR, including interest payments when petitioner amended the return. Thus, the court is convinced that with the circumstances in the present case, taxpayer is entitled to a refund or to be issued a Tax Credit Certificate. (Acquire Pacific Philippines Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8465, December 31, 2013) 

In order to enjoy the incentives granted under the PEZA Law, a taxpayer must prove that its declared income was related to the conduct of its registered trade or business.


Taxpayer is a non-pioneer Information Technology locator enterprise registered as an Ecozone IT Enterprise by virtue of tis Philippine Economic Zone Authority Amended Certificate of Registration. As a PEZA-registered enterprise, it is entitled to four years income tax holiday (ITH) incentive, and upon the expiration of the ITH incentive, it shall be entitled to the 5% gross income tax incentive. However, for the first four years from the start of its operations, it mistakenly paid the 5% gross income tax. Realizing that it paid the 5% gross income tax when it should have been exempt for the first four years by virtue of its ITH incentive, it filed a claim for refund. It presented its income tax return showing the payment of the 5% tax on gross income.
The claim for refund was denied. According to the Court, to enjoy the incentives granted under the PEZA Law, the relevant income must be effectively related to the conduct of the registered trade or business. An effectively related income is that income derived from the business activity in which the corporation is engaged in; for an income may also be received that may not be directly connected or related to the registered business activity. The taxpayer must establish, among others, that its income relating to the subject tax refund was actually gained or received in relation to its registered operations. Taxpayer failed to do so. The annual income tax return only constitutes prima facie evidence of the facts stated therein. It does not, however, distinguish whether the income declared was derived from taxpayer’s registered activity or not. (Sutherland Global Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case EB No. 916, December 2, 2013.) 

VAT on Sugar (BIR)

A recent issuance by the Bureau of Internal Revenue (BIR) has caused a lot of consternation in the taxpaying public (well, at least in the sugar industry). I am referring to Revenue Regulations (RR) No.13-2008, which consolidated the regulations on the advance value-added tax (VAT) on the sale of refined sugar.
Two provisions appear to be the root of the controversy: the requirement for the payment of advance VAT before the withdrawal of sugar from the mill or refinery, and the conditions imposed on sugar cooperatives before they are deemed exempt from the payment of advance VAT.
The main argument advanced by those opposed to the payment and collection of advance VAT is the lack of basis in the Tax Code for such collection, nor any provision that allows the collection of an advance VAT. They also argue that the advance VAT imposed on the sugar industry is discriminatory since it is not applied to other producers.
The Tax Code empowers the secretary of finance to promulgate all needed rules for the effective enforcement of the provisions of the tax law. It also grants the commissioner the power to prescribe additional requirements for tax administration and enforcement. This rule-making power has always been described as a delegated power which may not be used to expand or enlarge the scope of the law they are supposed to enforce.
The interpretation of the rule-making power can be as broad as to include the determination by the commissioner and the secretary of finance of the manner in which the intent of the law is most efficiently implemented. In this case, they have determined that VAT collected in advance will be the most efficient manner of implementing the imposition of VAT on the sale of sugar withdrawn from the refinery or mill. Thus, the revenue regulation does not create a new tax, it merely provides for the manner and the time of collection of the VAT. It should be noted that advance VAT has been in our tax system as early as 1989 with the BIR issuing several regulations on the topic. Furthermore, it is not only the sugar industry that is subjected to advance VAT, the same being collected on flour, as well.

The second issue that has earned the ire of the sugar industry is the addition of certain conditions before a cooperative can be exempted from the payment of advance VAT. The Tax Code provides for an outright exemption from VAT for sales by agricultural cooperatives. However, a careful reading of the new regulations reveals that not all withdrawals by an agricultural cooperative will be entitled to the exemption from the payment of advance VAT.
The rules are summarized as follows: The withdrawal of refined sugar by the agricultural cooperative, which is the agricultural producer of the sugar cane, for sale to members is not subject to advance VAT. Sale to nonmembers shall not be subject to advance VAT only if the cooperative is the agricultural producer of the sugar cane.
On the other hand, sales by a registered cooperative to another agricultural cooperative are not subject to advance VAT only if the seller-cooperative is the producer of the sugar. If the seller-cooperative is not an agricultural producer but merely purchases the sugar cane or the raw sugar from planter-members, or the raw sugar is transferred to the cooperative through assignment, the sale of the resulting refined sugar to another agricultural cooperative shall be subject to advance VAT before withdrawal of the refined sugar from the refinery is allowed.
To determine the entitlement to the exemption from advance VAT, it is important to determine when a cooperative is the producer of the sugar. A cooperative is said to be the producer of the sugar if it is the tiller of the land it owns or leases, incurs cost of agricultural production of the sugar and produces the sugar cane to be refined.
Thus, RR 13-2008 succinctly summarizes that “withdrawal of refined sugar by a cooperative which is not the agricultural producer of the sugar cane shall, in all instances, be subject to advance payment of VAT.”
RR 13-2008 also provides for the filing of various information returns which will enable the BIR to keep track of withdrawals from refineries and mills, as well as the procedure for securing the certificate of advance payment of VAT, which will facilitate the withdrawal of sugar from the refinery or mill. The BIR has made it more difficult to withdraw sugar from various mills and refineries, but it has made it easier for itself to collect VAT on the sugar industry. (Atty N M Recolizado)

A vessel is not subject to forfeiture if it is engaged as a duly authorized common carrier and as such carrier it is not chartered or leased.


M/T Jacob 1, towing barge “Cheryl Ann”, containing used oil from the Republic of Palau, entered the port of Surigao. Both vessels were detained by the Philippine Coast Guard upon an information that said tugboat/barge contained prohibited cargoes (used oil). In a subsequent endorsements by the Undersecretary of Finance and the Commissioner of Customs, the M/T Jacob 1 was ordered released while Cheryl Ann was ordered forfeited in favor of the government. When the case was elevated to the Court of Tax Appeals, Cheryl Ann was also ordered to be immediately released. According to the Court, the barge Cheryl Ann is a mere accessory of the principal M/T Jacob 1. This being the case, the ruling accorded MT Jacob 1 should be similarly accorded to barge Cheryl Ann. The barge Cheryl Ann, while physically tied up with M/T Jacob 1, is subject to the latter’s movement and direction, hence, cannot control its own destination. When M/T Jacob 1 was ordered released, it is all the more the accessory barge should also be released, as it was merely following the principal tugboat. Also, pursuant to Section 2530 of the Tariff and Customs Code of the Philippines, the mere carrying or holding on board of smuggled articles shall subject the vessel to forfeiture. However, the vessel is not subject to forfeiture if it is engaged as duly authorized common carrier and as such carrier it is not chartered or leased. The fact established is that the barge is a common carrier. The presence of the charter agreement did not concert the vessel into a private carrier. (The Commissioner of Customs and the Undersecretary of Finance vs. Gold Mark Sea Carriers, Inc., CTA EB No. 825, December 24, 2012) 

Shipment declared as used truck replacement parts when in truth and in fact contains sportage and galloper constitutes smuggling.


Accused was convicted for violation of Section 3601, in relation to Section 2530, paragraph f, l(3), (4), and (5) of the Tariff and Customs Code of the Philippines (“TCCP”). Section 3601 of the TCCP provides the acts which constitute smuggling. Smuggling is committed by any person who:
  1. a)  Fraudulently imports or brings into the Philippines an article contrary to law;
  2. b)  Assists in so doing any article contrary to law; or
  3. c)  Receives, conceals, buys, sells, or in any manner facilitate the transportation, concealment or sale of such goods after importation, knowing the same to have been imported contrary to law.
The commission of smuggling through the first type transpired when the shipments of 3x40 container vans were declared to contain “Used Truck Replacement Parts”, when in truth and in fact, the shipment contained fifteen units of Sportage and Galloper. (People of the Philippines vs. Roel Paquit Sayson, CTA Crim Case No. o-094, December 12, 2012) 

The operator of the North Expressway falls within the classification of a contractor subject to local business tax based on its gross receipts.


The taxpayer was granted by the government the concession to finance, design, rehabilitate, operate and maintain the North Luzon Expressway (NLEX). For maintaining and operating the NLEX, taxpayer charges toll fees on its users. The Municipality of Guiguinto, Bulacan assessed the taxpayer for local business tax on its toll plazas located in Tabang and Santa Rita and the district office in Santa Rita. The basis of the assessment is the gross revenue. The Court agreed that the toll plazas in Tabang and Santa Rita and the district office are considered branches liable to local business taxes. However, the Court cancelled the assessment on the ground that the basis is erroneous. According to the Court, since the business of the taxpayer is to maintain and operate NLEX for a fee, it falls within the classification of a “contractor” defined under Section 131(h) of the Local Government Code (“LGC”). As such, its liability as a contractor should be computed on the basis of Section 143(e) of the LGC, which imposes tax based on gross receipts. Accordingly, the Court cancelled the assessment which was based on gross revenue for lack of legal mooring. (Manila North Tollways Corporation vs. The Municipality of Guiguinto Bulacan, CTA AC No. 82, December 03, 2012) 

In a claim for refund of creditable withholding tax, the taxpayer must show convincing proof that the income upon which the taxes were withheld was included in the return of the taxpayer.


The taxpayer must satisfy the following requirements in order to be entitled to a refund or issuance of TCC for excess/unapplied creditable withholding taxes:
  1. The claim for refund was filed within the two-year prescriptive period as provided under Section 204 (C), in relation to Section 229 of the NIRC of 1997, as amended;
  2. The fact of withholding is 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; and
  3. The income upon which the taxes were withheld was included in the return of the recipient.
In this case, to satisfy the third requisite, the Court ruled that based on the annual income tax return, audited financial statements, and income statements, the Court cannot determine whether the gross income payments per creditable withholding tax certificates formed part of the gross income reported in the income tax return. The taxpayer should have presented additional supporting documents such as official receipts, sales invoices, detailed general ledger, sales register, reconciliation schedules or any other document whereby the income payments related to the claimed CWT can be traced and confirmed as forming part of the income reflected in the annual income tax return. (Winebrenner & Iňigo Insurance Brokers, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8277, December 19, 2012) 

The premature filing of taxpayer’s claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as not jurisdiction is acquired by the Court.


On March 29, 2010, taxpayer filed its administrative claim for refund of unutilized input VAT for the first quarter of the taxable year 2008. The following day, March 30, 2010, it filed its judicial claim for refund with the CTA. Citing the case of Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc. (G.R. No. 184823, October 6, 2010), the Court emphasized the mandatory requirement to observe the 120-30 day period provided under Section 112(C) of the 1997 NIRC, prior to instituting a judicial claim before the CTA. As taxpayer did not wait for the lapse of the 120-day period before filing the judicial claim, the said filing is premature. The premature filing of taxpayer’s claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as not jurisdiction is acquired by the Court. (Hedcor Sibulan, Inc. vs. Commissioner of Internal Revenue, CTA EB Case No. 890, December 06, 2012) 

The erroneous carry-over of excess creditable withholding tax from previous the previous year would not result to deficiency income tax assessment if the carry-over will not result to a tax benefit.


The annual income tax return of the taxpayer for the taxable year 2005 showed an excess tax payment (due to unutilized creditable withholding taxes) of P11,278,451.98. When the taxpayer prepared its income tax return for the year 2006, it reflected a prior year’s excess credit of P12,785,038, instead of the P11,278,451.98. After calculating its income tax due for the year 2006 and crediting the carried-over credit from prior year of P12,785,038 as well as the taxes withheld for the year, the 2006 income tax return showed excess income tax payment of P9,489,869.80. The BIR assessed taxpayer for the erroneous carry-over of the difference of P1,506,576 (P12,785,038 – P11,278,451.98). The Court disagreed with the assessment saying that had the taxpayer been able to declared in its 2006 ITR the prior year’s excess credit of P11,278,461.95, instead of P12,785,035, it would still have overpayment of P7,983,293.75. The Court also noted that the tax benefit derived from the erroneous carry-over redounded to the benefit of the succeeding year 2007, which is beyond the scope of the 2006 assessment. Since the benefit will be in 2007, at most, it may only be assessed in 2007. Assessing taxpayer for the year 2006 is not proper. (Waterfront Cebu City Hotel and Casino, Inc. vs. Commissioner of Internal Revenue, C.T.A. Case No. 8005, December 12, 2012) 

The act of lending money cannot be considered as an act of lending in the course of his trade or business, hence, interest income is not VATable.


Taxpayer was assessed by the BIR for deficiency VAT on the interest income earned by the taxpayer from lending money to Intertrade Credit Corporation (ICC). The BIR anchored its position in the case of Lapanday Foods Corporation vs. CIR1, where the Court ruled that interest on loans extended to affiliates is subject to VAT. In ruling in favor of the taxpayer, the Court ruled that in order for a person to be liable to VAT, he or she must sell, barter, exchange or lease goods or properties, renders service, or import goods, in the ordinary course of business or trade. The term “in the course of trade or business”, as provided by Section 105 of the NIRC of 1997, connotes “regular conduct or pursuit of commercial or an economic activity, including transactions incidental thereto. In this case, taxpayer’s act of lending money to ICC, where he is a director and stockholder cannot be considered as an act of lending in the course of his trade or business. His act of lending to ICC was not done in the ordinary course of his business or trade but merely an isolated transaction in order to help the company in its provincial expansion considering that, at that time, it was just starting and was having difficulties in getting and applying for loans from banks. The act of lending was a one-time assistance in his capacity as stockholder. The said act cannot be considered as incidental to business of taxpayer since he is registered as an engineer and his business is trading motor cycle parts and accessories, which has no connection in any way to lending activities. (Thomas C. Ongtenco vs. CIR, CTA Case No. 8190, December 12, 2012) 

Waiver of Statute of Limitations (BIR)

The following are defects in the Waiver of the Statute of Limitation executed by the taxpayer:
  1. a)  The waiver was executed by an officer without any written notarized authority from the board of directors of the taxpayer.
  2. b)  The waiver failed to indicate the date of acceptance by the BIR. The date of acceptance is a requisite for determining whether the waiver was validly perfected before the expiration of the original three-year period.
  3. c)  The taxpayer was furnished a copy of the waiver only on a date beyond the three-year prescriptive period to assess. The requirement to furnish taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement.
  4. d)  The waiver was not signed by the duly authorized representative of the BIR. RMO 20-90 provides that for tax cases involving more than P1 million, the revenue officer authorized to sign the waiver is only the Commissioner. While RDAO 05-01 delegates the authority to sign and accept the waiver, however, for large taxpayers cases, it is the Assistant Commissioner of Internal Revenue for the large taxpayers service who is authorized to sign and accept the waiver. The OIC – Head of Revenue Executive Assistant of the Large Taxpayers Service being not the duly authorized representative named in RDAO 05-01 to sign and accept the waiver, then said waiver cannot be considered to have been validly accepted by the BIR. (Ajinomoto Corporation vs. Commissioner of Internal Revenue, C.T.A. Case No. 7877, December 11, 2012) 

Waivers of the statute of limitations that did not comply with the requirements of Revenue Memorandum Order No. 20-90 and Revenue Delegation Authority Order No. 05- 01 have no binding effect on the taxpayer.


To extend the prescriptive period for the BIR to assess taxpayer’s tax liabilities, the BIR requested the taxpayer to execute a series of waivers of the statute of limitations. But the Court declared the waivers executed by the taxpayer as defective for the following reasons, among others: (1) the signatory signed the waivers without any notarized written authority from the taxpayer’s Board of Directors; (2) the respective dates of their acceptance by the BIR were not indicated in the waivers. The waivers, being defective, have no binding effect on the taxpayer. (Next Mobile, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 7965, December 11, 2012) 

Payment of management and consultancy fees to a foreign corporation without a permanent establishment in the Philippines is not subject to withholding taxes.


The taxpayer was assessed for deficiency final withholding taxes on management and consultancy fees paid to a foreign corporation based in Spain. The same fee was disallowed as deduction for income tax purposes for failure to withhold. The Court agreed with the taxpayer that the said management and consultancy fee is not subject to withholding tax, considering that the recipient of the income is a resident of Barcelona, Spain. In this case, the Court applied Article 7 and Article 5 of the Philippines – Spain Tax Treaty, and held that in the absence of a permanent establishment in the Philippines, the fees are not subject to tax in the Philippines. (Penn Philippines, Inc. vs. Commissioner of Internal Revenue, C.T.A. Case No. 7686, December 11, 2012)  

In an assessment for income tax, adding back the net loss carry over (NOLCO) in the year of loss to arrive at the adjusted taxable income is erroneous.


In arriving at the adjusted taxable income for the year 2003, the BIR added back the net operating loss carry-over (NOLCO) incurred in the same year. This is to recapture the tax benefit purportedly realized by the taxpayer in carrying this amount to the succeeding taxable year. The Court did not agree with this assessment. According to the Court, the BIR failed to prove that the taxpayer used its 2003 NOLCO in the succeeding year. Granting that the taxpayer actually deducted the 2003 net loss as NOLCO in the succeeding year 2004 and the said deduction is not proper as the taxpayer did not incur a net loss, the same can only be the subject of assessment, when it was claimed as deduction in the year 2004 and not in the year 2003. Hence, adding back the net loss to the taxpayer’s taxable income for 2003 is erroneous. (Philippine Aerospace Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 7830, December 11, 2012) 

An undeclared income cannot be imputed from an alleged unaccounted expenses.


Among the assessments made by the BIR against the taxpayer is an alleged undeclared income from an alleged unaccounted expenses. In arriving at the alleged unaccounted expenses, the BIR compared the expenses for rent, professional fee and brokerage as reflected in the taxpayer’s income tax return (ITR) and financial statements (FS) with the same types of expenses subjected to withholding taxes as reported in the taxpayer’s alphabetical list (aplhalist). Since the amounts per alphalist were higher than the amounts per ITR/FS, the BIR inferred that there was undeclared income. In ruling against the BIR, the Court noted that the imputation of alleged undeclared income is based on a mere presumption that since there were undeclared expanses, there were likewise undeclared income corresponding to these expenses. Even if these alleged unaccounted expenses are to be considered as income, the same may be offset by recording the equivalent payments as expenses. Hence, no taxable income will result from the said transactions. (Philippine Aerospace Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 7830, December 11, 2012) 

To be subject to expanded withholding tax, the income payment must be one of the items enumerated in the withholding tax regulations and must have been made to a person residing in the Philippines.


The assessment for expanded withholding tax (“EWT”) against the taxpayer includes an assessment for 2% EWT on freight, insurance and others based on Bureau of Customs (BOC) data. In ordering the cancellation of the assessment, the Court said that payments for freight and insurance in connection with importations are not among those which are subject to the 2% EWT. The said income payment of taxpayer was not made to any of the contractors mentioned in paragraph (E) of Section 2.57.2 of Revenue Regulations (RR) 2-98. In addition, the payments were made to entities not residing in the Philippines. Considering that the suppliers/payees are not residents of the Philippines, income payments to them are not subject to the EWT at 2% under Section 2.57.2 of RR 2-98, especially under paragraphs (M) and (N) which require that the pertinent supplier must be “local/resident”. (Isuzu Philippines Corporation vs. CIR, CTA Case No. 8025, December 11, 2012) 

Taxpayer’s failure to file a petition for review with the CTA within the statutory period renders the disputed assessment final, executory and demandable.


The BIR issued Formal Letter of Demand (“FLD”) and Final Assessment Notice (“FAN”), all dated March 31, 2006, assessing the taxpayer for deficiency expanded withholding tax and VAT for the taxable year 2002. Taxpayer received the said FLD and FAN on April 10, 2006. The taxpayer manifested its willingness to pay a portion of the assessment but protested the rest of the assessment, specifically the VAT assessment on the alleged disposition of its property and equipment. On November 22, 2006, a Preliminary Collection Letter was signed and issued by the Revenue District Officer (“RDO”) for the collection of taxpayer’s internal revenue tax liabilities. On December 21, 2006, a Final Notice Before Seizure signed by the RDO was issued against the taxpayer, which the latter received on January 4, 2007.

In a letter dated January 15, 2007, the taxpayer wrote the RDO requesting that the case be referred back to BIR Region No. 13. On January 29, 2007, a Warrant of Distraint and/or Levy signed by the RDO was issued against the taxpayer , which was received by the latter on February 21, 2007. After several exchanges of communication, the BIR proceeded with the auction sale of taxpayer’s M/V Philippine Dream. On October 31, 2007, taxpayer filed a petition for review with the CTA, with a prayer for the issuance of TRO and/or Preliminary Injunction, which the Court treated as motion to suspend collection of taxes. One of the issues resolved by the Court was whether the assessment in question has become final and executory. In ruling that the assessment has become final and executory, the Court noted that a Preliminary Collection Letter was issued by the RDO on November 22, 2006. However, the records do not show that the same was received by the taxpayer. However, the taxpayer received a Final Notice Before Seizure on January 4, 2007. The Court treated this as the final decision on disputed assessment. Although the tenor of the Final Notice Before Seizure signified a character of finality which is tantamount to denial of taxpayer’s protest, the taxpayer failed to file an appeal to the CTA within 30 days upon receipt. Considering that it was only on October 31, 2007 that taxpayer filed a petition for review with the CTA, the final decision on disputed assessment had become final, executory and demandable. (Philippine Dream Company, Inc. vs. Bureau of Internal Revenue, CTA Case No. 7700, December 06, 2012)

The Waiver of Statute of Limitations must indicate the date of execution by the taxpayer and the date of acceptance by the Commissioner of Internal Revenue (CIR) to be valid and effective as prescribed by RMO No. 20-90.


The taxpayer, through its Controller, executed two "Waivers of the Defense of Prescription" under the Statute of Limitations of the National Internal Revenue Code (NIRC). These documents were accepted by Revenue District Officer, who failed to indicate his date of acceptance. The Court ruled that the waivers were defective and could not validly extend the original three-year prescriptive period wherein the CIR may assess the taxpayer. The date of acceptance must be indicated to determine whether the waiver was validly accepted before the expiration of the original three-year period. If the acceptance was made beyond the prescriptive period, the waiver is defective and cannot validly extend the original three-year period for the respondent to issue an assessment. (East Asia Power Resources Corporation vs. Commissioner of Internal Revenue, CTA Case No. 7956, December 26, 2011) 

The Court ruled that the term "complete documents" referred to under Section 112 of the National Internal Revenue Code (NIRC) of 1997, as amended, should be construed as those documents necessary to support the legal basis of taxpayer's application for input VAT refund/credit as may be determined by the taxpayer bearing in mind that the "burden of proving entitlement to refund lies with the claimant"


The taxpayer filed an administrative claim for refund of its unutilized input VAT for the four quarters of taxable year 2002 with the Bureau Internal Revenue (BIR). Due to BIR’s inaction and to suspend the two-year prescriptive period under the NIRC of 1997, as amended, and Revenue Regulations No. 7-95, taxpayer filed a Petition for Review on April 22, 2004. The CIR argued that the law requires the submission of complete documents in support of the application filed with the BIR before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law. The CIR asserted that taxpayer merely submitted five (5) classes of documents in the administrative proceedings. CIR also asserted that the administrative claim was correctly denied by inaction due to its failure to submit complete documents as required. The Court ruled that the term "complete documents" referred to under Section 112 of the NIRC of 1997, as amended, should be construed as those documents necessary to support the legal basis of taxpayer's application for input VAT refund/credit as may be determined by the taxpayer bearing in mind that the "burden of proving entitlement to a refund lies with the claimant." Hence, the determination of what constitutes as complete documents should not be left at the sole discretion of the CIR. Otherwise, a taxpayer would be practically placed at the mercy of the CIR which may require production of documents that a taxpayer cannot submit. (Commissioner of Internal Revenue vs. Mirant Navotas Corporation, CTA Case No. 6960, December 20, 20114

The requirements for claim for refund of excess unutilized creditable withholding tax at source are: (1) the claim is filed with the Commissioner of Internal Revenue (CIR) within the two-year period from the date of payment of the tax; (2) it is shown on the return of the recipient that the income payment received was declared as part of the gross income; and (3) the fact of withholding is 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 the tax withheld therefrom.


The instant case involves a claim for refund of taxpayer's alleged unutilized creditable tax withheld for taxable year ending December 31, 2007. Due to the inaction on its claim for refund, the taxpayer filed a petition for review before the CTA. The Court ruled that the taxpayer complied with all the requirements for claim for refund of excess creditable withholding tax at source. As to the first requisite/condition, the reckoning of the two-year prescriptive period for filing a claim for refund of excess creditable withholding tax (CWT) or quarterly income tax payment starts from the date of filing of the Annual Income Tax Return because it is only from this time that the refund is ascertained. Petitioner electronically filed its original Annual Income Tax Return for taxable year 2007 on April 14, 2008. Counting from this date, petitioner had until April 14, 2010 within which to file its claim for refund both administratively and judicially. Thus, petitioner's administrative claim, filed on October 21, 2009, and the instant Petition for Review, filed on April 13, 2010, fall within the two-year prescriptive period provided under Sections 204(C) and 229 of the NIRC of 1997, as amended. (Philippine Realty and Holdings Corporation vs. Commissioner of Internal Revenue, CTA Case No. 8070, December 20, 2011) 

There are two requirements for taxpayer to be liable for franchise tax: (1) it has a “franchise” in the sense of a secondary or special franchise; and (2) it is exercising its rights or privileges under this franchise within the territory of the local government unit concerned.


The Provincial Treasurer assessed the taxpayer and demanded payment for franchise tax on its receipts from a customer. The taxpayer argued that it cannot be considered to be operating or performing its privilege under its franchise within the Province of Bataan because although it has a substation in the said Province, its customer is in the City of Balanga, which is outside the territorial jurisdiction of the Province. The Court ruled that there are only two requirements for taxpayer to be liable for franchise tax: (1) it has a “franchise” in the sense of a secondary or special franchise; and (2) it is exercising its rights or privileges under this franchise within the territory of the local government unit concerned. While taxpayer has exercised its rights and privileges under its franchise within the Province of Bataan, including the City of Balanga in connection with its electrical transmission function, nevertheless, the Province of Bataan is not authorized to impose franchise tax on taxpayer’s gross receipts from its customer. The one authorized to impose such franchise tax is the City of Balanga. (National Transmission Corporation vs. Province of Bataan, CTA AC No. 78, December 16, 20113