Weekly Tax Updates[February 18-22, 2019]

PRESIDENT VETOES PORTION OF THE TAX AMNESTY LAW OF 2019

Other Relevant Tax Updates for This Week:

UPDATES ON THE PASSAGE OF TAX AMNESTY
SUPREME COURT (SC) DIGEST ON EXTENT OF VAT EXEMPTION OF COOPERATIVES
COURT OF TAX APPEALS (CTA) DIGESTS
TAX & BUSINESS-RELATED NEWS FROM FEBRUARY 16-18
TAX & BUSINESS RELATED NEWS FROM FEBRUARY 11-15

I. UPDATES ON THE PASSAGE OF TAX AMNESTY

Last February 14, the President signed Republic Act No. 11213 or the Tax Amnesty Act of 2019. He vetoed a portion of the general amnesty. Among the vetoed provisions are:

Lifting of bank secrecy laws
Setting the legal framework for the automatic exchange of information mechanisms
Application of estate time amnesty at every stage of the transfer instead of one-time settlement of estates
Presumption of correctness of estate tax amnesty returns

Vetoed provisions on Nos. 1 and 2 involve compliance with international standards on exchange of information, and other safeguards against those who abuse by declaring untruthful assets or net worth.

Vetoed provision on No. 3 involves one-time settlement of estate amnesty for every stage of transfer without penalties as against the original coverage of multiple unsettled estates.

On the presumption of correctness of estate tax amnesty returns, the vetoed provisions would enable the government to verify tax declarations.

In effect, the Tax Amnesty is left with the following features:

Amnesty on Estate Tax
Tax Amnesty on Delinquencies
Confidentiality of Tax Amnesty Returns and SALN
Penalties on exchange and unlawful divulgence of information
Creation of Information Management System
Creation of Congressional Oversight Committee

Department of Finance (DOF) has expressed support for the passage of the Tax Amnesty Act of 2019, but pointed out that President Duterte is still encouraging Congress to pass a general amnesty law with provisions on lifting of bank secrecy for fraud cases, automatic exchange of information, and safeguards to ensure that asset or net worth declarations are truthful.

After the veto exercise, the bill is returned to the originating House with an explanation on why it was vetoed. The House can either accept the veto or override it with a 2/3 majority vote, after which it is essentially approved and takes effect 15 days after the publication.

If you wish to get a copy of the complete text of vetoed provisions, please e-mail us at taxseminars@dmdcpa.com.ph.

II. SUPREME COURT (SC) DIGEST ON EXTENT OF VAT EXEMPTION OF COOPERATIVES

[COOPERATIVE & ITS MEMBERS’ RESPECTIVE ROLE MUST NOT BE TREATED AS SEPARATE & DISTINCT] [WITHDRAWAL OF REFINED SUGAR DOES NOT GIVE RISE TO IMPOSITION OF VAT BUT SUBSEQUENT SALE THEREOF] [COOPERATIVE IS THE PRODUCER IF IT IS THE TILLER OF LAND OWNED OR LEASES AND/OR INCURS COST OF AGRICULTURAL PRODUCTION & REFINING PROCESS] [COOPERATIVES SALE OF SUGAR IN ORIGINAL OR PROCESSED FORM TO MEMBERS ARE VAT EXEMPT]

Petitioner Commissioner of Internal Revenue filed a Petition for Review on Certiorari seeing the reversal of the decision of CTA En Banc pronouncing the Respondent Negros Consolidated Farmers Multi-Purpose Cooperative (COFA) as a VAT exempt entity and entitled to refund of VAT paid in advance for the withdrawal of refined sugar. The Respondent is engaged in the processing and milling of the sugarcane delivered by its farmer-members. The refined sugar was then released from the sugar mill upon issuance of Authorization Allowing the Released of Refined Sugar (AARRS) and no amount of VAT was paid in advance, not until 2009 when the BIR required the taxpayer to pay the corresponding VAT. As a result of the implementation, the Petitioner questioned the identity of the Respondent as the actual producer of the refined sugar despite holding of Certificate of Tax Exemption and BIR Ruling dated 1999 and 2003, respectively. The Petitioner contends that the Respondent failed to present evidence to prove that the refined sugar withdrawn from the sugar mills were actually produced by the latter through its registered members. Likewise, the VAT exemption given to cooperative under law pertains only to the sale of the sugar but not the withdrawal of the sugar from the refinery. In ruling, the Supreme Court ruled that the Respondent is a VAT-exempt agricultural cooperative and exemption on payment of VAT on sales made by agricultural cooperatives to members or to non-members necessary includes exemption from the payment of “advance VAT” upon withdrawal of the refined sugar from the sugar mill. In the final appreciation, the Court ruled that the Respondent is a cooperative in good standing and duly registered with the CDA and is the producer of the sugar. As a logical and necessary consequence then of its established VAT exemption, the Respondent is exempted from the payment of advance VAT since VAT is a transaction tax imposed on sales, barters, exchanges of goods or property and on the performance of services, the withdrawal from the sugar refinery by the cooperative is not incident which gives rise to the imposition of VAT, but the subsequent sale of the sugar, if the former is the case the withdrawal of the refined sugar gives rises to the obligation to pay the VAT on the would-be sale. Finally, with regard to the Petitioner’s contentions that Respondent failed to submit complete documentary requirements and therefore fatal to the claim for tax refund, the Court finds it sufficient that the Respondent was a previous recipient and holder of Certificates of Tax Exemption issued by the Petitioner, and issuance of thereof presupposes that the cooperative submitted to the BIR the complete documentary requirements. The Petition for Review is DENIED. The Decision and Resolution of the CTA En Banc to refund the VAT paid in advance for the withdrawal of the refined sugar are AFFIRMED and UPHELD. [COMMISSIONER OF INTERNAL REVENUE VS. NEGROS CONSOLIDATED FARMERS MULTI-PURPOSE COOPERATIVE, G.R. NO. 212735, JANUARY 4, 2019]

If you wish to get a copy of complete text, please e-mail us.

III. COURT OF TAX APPEALS (CTA) DIGESTS

Proof Of Competent Evidence On Service Of Assessment Notices Incumbent Upon The Bir; Failure Of The Bir To Prove By Competent Evidence The Actual Service & Receipt Of Formal Assessment Notice (Fan) Results To Void Assessment
Absence Of Preliminary Assessment Notice (Pan) Renders Any Assessment Made By The Bir Nugatory
Disallowance Of Input Vat Due To Alterations & Out-Of-Period Claim
Requisites For A Successful Input Vat Refund Arising From Zero-Rated Sales
Bir Assessment Cancelled Due To Absence Of Letter Of Authority (Loa); Cta Is Not Precluded From Ruling On Issues Not Included In The Stipulation Of Facts
A Cta Decision Partially Granting The Claim For Refund Or Issuance Of Tax Credit Certificates (Tcc); On Refund Of Input Vat, Taxpayer Must Comply With Requisites To Prove His Entitlement Thereto
Change In The Corporate Name Does Not Make A New Corporation; Refund Of Capital Gains Tax (Cgt) Pursuant To Rp-Netherlands Tax Treaty Granted
Where The Bir Has Come Out With A Naked Assessment Such That It Is Without Foundation Or Character, The Determination Of The Tax Due Is Without Rational Basis
Expenses Are Still Not Deductible When Payment Of Expanded Withholding Tax (Ewt) Is Done After Receipt Of Final Decision On Disputed Assessment (Fdda); Failure To Show That Service Charge Is Distributed To Its Employees Renders It Vatable
Fan Cancelled Due To Premature Issuance Before The Expiration Of The 15-Day Period From Receipt Of Pan; Pagcor, Its Contractees & Licensees Remain Exempt From The Payment Of Corporate Income Tax Since The Law Is Clear That Said Exemption Inures Also To Their Benefit
Fraud Is Not Presumed, It Must Be Proved By Clear & Convincing Evidence; A Mere Entry Of Wrong Information In The Tax Returns Due To Mistake, Carelessness Or Ignorance Without Intent To Evade Tax Does Not Constitute False Return
Imposition Of Income Tax By Local Government Unit (Lgu) Are Prohibited Except When Imposed On Banks & Other Financial Institutions

[PROOF OF COMPETENT EVIDENCE ON SERVICE OF ASSESSMENT NOTICES INCUMBENT UPON THE BIR] [FAILURE OF THE BIR TO PROVE BY COMPETENT EVIDENCE THE ACTUAL SERVICE & RECEIPT OF FAN RESULTS TO VOID ASSESSMENT]

Petitioner Xylem Water Systems International, Inc. filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue. Several issues were raised but the Court instead resolved to set aside other factual issues citing the allegation that no FAN and/or Final Letter of Demand (FLD) were received by the Petitioner. In the course of the trial, the Respondent contested that he duly issued the FAN and FLD citing a Letter from the Revenue Region Office informing the Petitioner that said FAN has already been sent to Petitioner. However, the Court is not persuaded with the foregoing evidence submitted citing the Supreme Court decided case of Barcelona Roxas Securities, Inc. where it is incumbent upon the BIR to prove by competent evidence that an assessment notice was indeed received by the taxpayer in case of the latter’s denial. Accordingly, service made through registered mail is proved by the registry receipt issued by the mailing office and an affidavit of the person mailing of facts pursuant to Section 13 of Rule 13 of the 1997 Rules on Civil Procedure. Absent one or the other, or worse both, there is no proof of service. Notwithstanding the presentation made by the Respondent of a certified photocopy of the registry return receipt, it was found out that no affidavit of the person mailing the same was presented. Moreover, it was not established whether the signature on the registry return receipt indeed belongs to the Petitioner’s authorized representative. Clearly, Respondent failed to prove that assessment notice had been actually served and received to the Petitioner or its duly authorized agent leading to the cancellation of the assessment. Thus, the Court GRANTED the Petition resulting in the CANCELLATION of assessment. [XYLEM WATER SYSTEMS INTERNATIONAL, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8901, JANUARY 31, 2019]

[ABSENCE OF PAN RENDERS ANY ASSESSMENT MADE BY THE BIR NUGATORY]

Petitioner Manila Medical Services, Inc. filed a Petition for Review seeking the nullification and cancellation of the Warrant of Distraint and/or Levy (WDL) as well as assessment notices on the grounds of violation of its right to due process and prescription of the assessment. Petitioner contends that it did not receive the PAN and FAN before receiving the WDL, thus, making the assessment null and void. Further, it argues that the waiver executed has a number of infirmities and that the assessment already prescribed. Respondent, on the other hand, argues that the PAN and FAN were both validly issued. Upon careful perusal of pieces of evidence and facts presented by both parties, the Court noted that there is nothing in the BIR records which indicates that the original PAN was actually served and received by the Petitioner or its authorized representative. Further, the Respondent failed to formally offer the PAN, FAN, and FLD. The Court clarified that failure to comply with the notice requirements prescribed under the Tax Code is tantamount to denial of due process. Thus, the absence of a PAN renders any assessment made nugatory and to proceed with tax collection without first establishing a valid assessment is a violation of the cardinal principle in an administrative investigation. In light of all the foregoing facts, the Court finds that there is no sufficient evidence to prove that Petitioner actually received the PAN and FAN in compliance with due process for a valid tax assessment. Accordingly, the assessment is declared null and void for having been issued in violation of due process. The Petition for Review is GRANTED and the assessment notices, as well as WDL, are CANCELLED and SET-ASIDE. [MANILA MEDICAL SERVICES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8867, JANUARY 30, 2019]

[DISALLOWANCE OF INPUT VAT DUE TO ALTERATIONS & OUT-OF-PERIOD CLAIM]

Petitioner 3M Philippines Corporation filed Petitions for Review seeking for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue. Several issues were raised but the bulk of the assessment is on the deficiency VAT assessment which mostly pertains to disallowance of input VAT and deficiency withholding tax on compensation assessment. In resolving the case, the Court considered the argument of the Petitioner that the right of the Respondent to assess has already lapsed since the assessment was issued beyond the three-year prescriptive period, thereby cancelling the disallowed input VAT pertaining to 1^st to 3^rd Quarter. However, for the 4^th Quarter, the Court affirmed the findings on disallowance of input VAT since the supporting invoices and receipts are not compliant with the strict invoicing requirements set by Revenue Regulations No. 16-2005. As noted, there are official receipts and invoices with alterations, appended information with counter-signatures, out-of-period claim input VAT, and absence of support. On the deficiency withholding tax on compensation, the Petitioner argued that the figures used by the Respondent are inclusive of mandatory contributions as well as de minimis which are not subjected to withholding tax. However, the Court noted that the amount used by the Respondent was already net of the enumerated items. In the light of the foregoing, the Court PARTIALLY GRANTED the Petition for Review resulting in the PARTIAL CANCELLATION of the assessment. [3M PHILIPPINES, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO’S. 9213 & 9214 JANUARY 30, 2019]

[REQUISITES FOR A SUCCESSFUL INPUT VAT REFUND ARISING FROM ZERO-RATED SALES]

The Petitioner Maxima Machineries, Inc. filed a Petition for Review seeking for refund or issuance of Tax Credit Certificate on its unutilized input VAT arising from zero-rated sales. In resolving the case, the Court discussed the criteria that a claimant-taxpayer must satisfy in order to be entitled to refund of unutilized input VAT attributable to zero-rated sales. Accordingly, the claims should be filed within the prescribed period, there must be zero-rated sales, the input VAT should be incurred or paid, the input VAT should be attributable to zero-rated sales, and that the input VAT should not be applied against any output VAT liability. In the appreciation of support, it was noted that some input VAT arising from zero-rated sales were disallowed due to failure to support the transactions with proof that some of its customers are PEZA/Ecozone and SBMA/CDC registered. Likewise, some input VAT were also disallowed as the supporting invoices and receipts are not compliant with the strict invoicing requirements set by Revenue Regulations No. 16-2005, as amended. After considering the foregoing, the Court noted that the Petitioner has a net output VAT payable resulting in the DENIAL of the Petition for Review. [MAXIMA MACHINERIES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9210, JANUARY 30, 2019]

[BIR ASSESSMENT CANCELLED DUE TO ABSENCE OF LOA] [CTA IS NOT PRECLUDED FROM RULING ON ISSUES NOT INCLUDED IN THE STIPULATION OF FACTS]

Petitioner Enjay Hotels, Inc. filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue. The Petitioner contends that the assessment has already prescribed and that the waivers executed suffer numerous infirmities such as the absence of written notarized authority on the part of the person who signed the waiver and out-of-period waivers thereby making the waivers invalid. Moreover, the Petitioner argues that even assuming that the deficiency tax assessments were issued within the prescriptive period, the same has no factual and legal bases. Respondent, on the other hand, argues that the right to assess Petitioner has not yet prescribed and that the subject assessments are made in accordance with law, hence, the Petitioner should be held liable for deficiency taxes. The Court emphasized that its authority to decide a case is not limited on ruling based on facts specifically stipulated by the parties, but it can also rule on other facts or information which may solve the issues in question. Accordingly, upon a careful investigation of the records, it was revealed that the Respondent lacks the authority to examine the books of the Petitioner since the new Revenue Officers assigned through a Memorandum of Assignment is different from the original Revenue Officers as originally authorized in the Letter of Authority. The Court stressed that the Respondent or his authorized representative may authorize the examination of any taxpayer through a Letter of Authority. In the absence of such authority, the assessment is null and void. The Petition for Review is GRANTED and the assessment is CANCELLED and SET ASIDE. [ENJAY HOTELS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9273, JANUARY 24, 2019]

[A CTA DECISION PARTIALLY GRANTING THE CLAIM FOR REFUND OR ISSUANCE OF TCC] [ON REFUND OF INPUT VAT, TAXPAYER MUST COMPLY WITH REQUISITES TO PROVE HIS ENTITLEMENT THERETO]

The Petitioner, AIG Shared Services Corporation (Philippines) filed a Petition for Review seeking the refund or issuance of TCC on the alleged excess and unutilized Input VAT from local purchases of goods and services attributable to its zero-rated sales for the fiscal year 2013 in the amount of Php 67,976,449.16. In the resolution, the Court emphasized the requisites to prove the entitlement of the taxpayer. Accordingly, it is important to prove that the taxpayer is VAT-registered; that the taxpayer is engaged in zero-rated or effectively zero-rated sales; that the input taxes were incurred or paid; that the input taxes are not transitional input taxes; that the input taxes were not applied against any output VAT liability; that the applicable foreign currency exchange proceeds have been duly accounted for in accordance with the BSP rules and regulations; that when there are zero-rated, taxable and exempt sales, the input VAT must be properly allocated; and that claim is filed within two (2) years after the close of the taxable quarter when such sales were made. Of the aforementioned requisites, the Court ruled that the Petitioner failed to prove that all non-resident foreign corporations are doing business outside the Philippines. Furthermore, the Court disallowed portion of input VAT for the reasons, namely: (1) failure to properly substantiate the claim; (2) alterations on computer-generated receipts and invoices without countersignature of the issuer; (3) invoices and official receipts with incorrect TIN or incorrectly supplied TIN of taxpayer; (4) VAT amount was not separately indicated in invoices and receipts; (5) overclaimed input VAT. Based on the foregoing, the Petition for Review is PARTIALLY GRANTED. Consequently the Respondent is ordered to REFUND or ISSUE A TAX CREDIT CERTIFICATE in the adjusted amount of Php 14,077,169.64. [AIG SHARED SERVICES CORPORATION (PHILIPPINES), FORMERLY CHARTIS TECHNOLOGY & OPERATIONS MANAGEMENT CORPORATION (PHILIPPINES)] VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9100, JANUARY 24, 2019]

[CHANGE IN THE CORPORATE NAME DOES NOT MAKE A NEW CORPORATION] [REFUND OF CGT PURSUANT TO RP-NETHERLANDS TAX TREATY GRANTED]

The Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking the reversal of the earlier decision of the Court in Division granting the refund of erroneously paid CGT in favor of the Respondent OCE HOLDING B.V. The refund initiated is pursuant to the Deed of Transfer executed by the Respondent involving shares of stocks of OCE Business Services Philippines, Inc. Notwithstanding the application for relief from double taxation filed, the Respondent paid CGT. Subsequently, the BIR issued a Certification stating that the sale or transfer is not subject to CGT pursuant to Article 14 of the Philippines-Netherland Tax Treaty. As a result the Respondent filed an administrative claim for refund. However, the Petitioner argued that the Respondent failed to prove that it is entitled to the claim for refund since the Certification does not state the amount of CGT the Respondent is not subject to when the said amount was already determinable at the time the Certification was issued. Likewise, the Certification states that the name of the seller is OCE N .V. and not OCE Holding B.V. and that the only document presented by Respondent is a Certificate from Civil-Law Notary. The Respondent, on the other hand, countered that these are one and the same entities. In the appreciation, the Court concluded that since the said sale or transfer of shares of stock is not subject to CGT, it is of no importance whether the above-mentioned Certification states the exact amount of the CGT to which the Respondent is exempted to pay. As regards the different names indicated in the Certification, the Court ruled that the Respondent was able to prove that OCE Holding B.V. and OCE N.V. are one and the same entity. As held in Javier Sons vs. Hon. Court of Appeal “a change in the corporate name does not make a new corporation, whether effected by a special act or under general law.” The Petition for Review is DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. OCE HOLDING B.V. CTA EN BANC CASE NO. 1644, JANUARY 23, 2019]

[WHERE THE BIR HAS COME OUT WITH A NAKED ASSESSMENT SUCH THAT IT IS WITHOUT FOUNDATION OR CHARACTER, THE DETERMINATION OF THE TAX DUE IS WITHOUT RATIONAL BASIS]

Petitioner Ayala Property Management Corporation filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue on deficiency income tax and VAT. On findings on unaccounted income as a result of third-party matching as well as findings of disallowance of excess tax credit without indicating the basis of disallowance, the Petitioner argued that the same lacks factual and legal bases since it is presumptuous for failure of the Respondent to further verify and validate the accuracy. The Court agreed that where the BIR has come out with a naked assessment such that it is without foundation or character, the determination of the tax due is without rational basis. On the disallowance of CWT due to timing difference on the claim, the Petitioner declared the CWT in its income tax return for the year 2008 and is duly supported by BIR Forms No. 2307. Petitioner argued that the Respondent disregarded that the withholding agent is the agent of the BIR and since the CWTs were only issued in 2009, the Petitioner had no opportunity to use them earlier (i.e 2008). Further, the Petitioner asserted that the disallowance of the use of CWT would constitute double taxation, notwithstanding the full knowledge that the same certificate represents income tax already collected in advance from the Petitioner. Since the income payment was declared as part of its gross income and the fact of withholding is clearly established which is supported by BIR Forms No. 2307, the same shall be given due course and may validly claim tax credits for the year 2009 pursuant to Section 2.58.3(8) of RR No. 02-98. Based on the foregoing, the Court GRANTED the Petition for Review resulting in the CANCELLATION of the assessment. [AYALA PROPERTY MANAGEMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9298, JANUARY 21, 2019]

[EXPENSES ARE STILL NOT DEDUCTIBLE WHEN PAYMENT OF EWT IS DONE AFTER RECEIPT OF FDDA] [FAILURE TO SHOW THAT SERVICE CHARGE IS DISTRIBUTED TO ITS EMPLOYEES RENDERS IT VATABLE]

Petitioner Hotel Specialist (Tagaytay) Inc. filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue on Income Tax, VAT, Withholding Tax on Compensation (WTC), and EWT. On Income Tax and EWT assessments, the Petitioner asserts that the item referring to “disallowed expenses due to non-withholding” should be cancelled pursuant to Section 6 of Revenue Regulations (RR) No. 14-2002 which provides that the disallowed expenses, due to non-withholding, will be allowed as deduction from gross income when the corresponding withholding tax and penalties have already been paid. In ruling, the Court ruled that pursuant to Section 2.58.5 of RR No. 2-98, as amended by RR No. 14-2002, it is clear that a deduction is allowed even when no tax was withheld only when the corresponding deficiency withholding taxes were paid at the time of the audit/investigation or reinvestigation/reconsideration. Thus, Petitioner’s payment after the receipt of Final Decision on Disputed Assessment cannot be considered as paid at the time of the audit/investigation or reinvestigation/reconsideration. On VAT findings, the Respondent argues that service charges collected by hotels must be subjected to VAT. However, the Petitioner maintains otherwise and argues that only 15% of the service charges it collected should be subjected to VAT. The Petitioner submits that the share of the employees in the service charges, which is 85% of the total amount collected, is not considered as gross receipts subject to VAT since such amount was merely held in trust for purposes of distributing to the employees pursuant to the Labor Code. Notwithstanding this legal rationale, the Court finds that the Petitioner failed to adduce sufficient evidence to support its claim that the whole amount of service charges it collected indeed pertains to service charges and tips distributed to its employees. Without adequate proof to overturn the Respondent’s findings, the Court deems it proper not to disturb the same. The Petition for Review is PARTIALLY GRANTED and the assessment issued by Respondent is AFFIRMED WITH MODIFICATION. [HOTEL SPECIALIST (TAGAYTAY), INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9349, JANUARY 18, 2019]

[FAN CANCELLED DUE TO PREMATURE ISSUANCE BEFORE THE EXPIRATION OF THE 15-DAY PERIOD FROM RECEIPT OF PAN] [PAGCOR, ITS CONTRACTEES & LICENSEES REMAIN EXEMPT FROM THE PAYMENT OF CORPORATE INCOME TAX SINCE THE LAW IS CLEAR THAT SAID EXEMPTION INURES ALSO TO THEIR BENEFIT]

Petitioner Highland Gaming Corporation filed a Petition for Review seeking the cancellation of the Preliminary Collection Letter (PCL) issued by the Respondent Commissioner of Internal Revenue. Petitioner argues that the CTA has jurisdiction over the instant case as the demand letter for payment may be considered a decision on a disputed assessment. Further, the Petitioner contends that the FAN issued is void since the Respondent failed to observe due process and issued the FAN before the 15-day period to protest the PAN lapse. Further, Petitioner having a contractual relationship with PAGCOR exempts it from all taxes as long as the 5% franchise tax in lieu of all taxes is paid. Respondent counters that the CTA has no jurisdiction over the case since the filing of the Petition is beyond the 180-day period. Moreover, if Petitioner opted to await the Final Decision on Disputed Assessment (FDDA), the instant petition is filed prematurely considering the absence of a final decision of the Respondent denying its protest. The Court, however, agrees with the contention of the Petitioner that instead of receiving an FDDA, the PCL received may be considered as final action/decision of the Respondent since the final demand letter reiterating the immediate payment of deficiency tax is tantamount to a denial of the Petitioners request for reconsideration. Further, the Court also agrees with the Petitioner that the FAN/FLD is void for failure of the Respondent to observe due course when the FAN/FLD was issued two (2) days after the receipt of PAN. It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. Needless to say, a void assessment bears no valid fruit. Nevertheless, even granting that the FAN/FLD is valid, the Court finds the same without basis since being a franchise grantee of PAGCOR, Petitioner is likewise exempt from payment of taxes since the law is clear that the said exemption inures to their benefit. It has been the Courts consistent ruling, where the law speaks a clear and categorical language, there is no occasion for interpretation; there is only room for application. The Petition for Review is GRANTED resulting to the CANCELLATION of the assessment. [HIGHLAND GAMING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8730, JANUARY 17, 2019]

[FRAUD IS NOT PRESUMED, IT MUST BE PROVED BY CLEAR & CONVINCING EVIDENCE] [A MERE ENTRY OF WRONG INFORMATION IN THE TAX RETURNS DUE TO MISTAKE, CARELESSNESS OR IGNORANCE WITHOUT INTENT TO EVADE TAX DOES NOT CONSTITUTE FALSE RETURN]

Petitioner United Church of Christ in the Philippines filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue for the taxable year 2010. Petitioner contends that the FAN is null and void as it was issued beyond the 3-year prescriptive period. Likewise, the 50% surcharge for fraudulent return should not be imposed which connotes that the filed return was neither false nor fraudulent to warrant the application of the 10-year prescription period. Further, the Petitioner argues that the 10% preferential rate imposed upon the income of non-profit hospitals is not applicable since the hospital is tax-exempt. Respondent counters that the hospital is not tax-exempt thus should be subjected to the 10% preferential rate, since tax exemptions are determined by the purpose for which an entity is organized and operated, not by ownership. Further, Respondent argues that the 10-year prescription period applies since the Petitioner made it appear that the hospital is tax-exempt when it was not which then proves that the tax return filed is either false or fraudulent. The Court ruled that fraud is not presumed. It must be proved by clear and convincing evidence. Further, perusal of the records shows that there is nothing in the FAN and FLD that suggests or hints a finding of fraud and/or falsity in the return. Petitioner was not even imposed 50% surcharge for such infraction instead only a 25% penalty was imposed in the Assessment Notices. In other words, Respondent failed to prove by clear and convincing evidence that Petitioner committed fraud. Furthermore, a mere entry of wrong information in the tax returns due to mistake, carelessness, or ignorance, without intent to evade tax does not constitute a false return. The Petition for Review is GRANTED due to Respondent’s failure to demonstrate clearly that the Petitioner filed a fraudulent return. Consequently, the assessment is CANCELLED and WITHDRAWN. [UNITED CHURCH OF CHRIST IN THE PHILIPPINES VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9134, JANUARY 15, 2019]

[IMPOSITION OF INCOME TAX BY LGU ARE PROHIBITED EXCEPT WHEN IMPOSED ON BANKS & OTHER FINANCIAL INSTITUTIONS]

The Petitioner, Bella Linda N. Tanjili in her official capacity acting as the City Treasurer, filed a Petition for Review seeking the reversal of the earlier decision of the Court in Division which ruled that the Respondent Fernandez Holdings Inc. should be refunded of the erroneously collected tax representing 0.55% Local Business Taxes (LBT) for the first and second quarters of 2011. The Petitioner insists that the Respondent is a non-bank financial intermediary by virtue of its investments and money placements in a corporation. Further, its Amended Articles of Incorporation (AOI) is broad enough to catch all the descriptive functions of a non-bank financial intermediary. In defense, the Respondent counters that nothing in its AOI indicates that it falls under the category, thus, should not be subject to LBT. Further, it argues that receipt of dividends and interest is not a business activity but an isolated transaction that is not subject to LBT. In resolving the case, the Court initially determined whether the Respondent was indeed a non-bank financial institution so that its dividends and interest income are subject to local business tax. Accordingly, in order to be considered as a non-bank financial intermediary, it should be authorized by the Bangko Sentral ng Pilipinas (BSP) to perform such functions. Likewise, it must perform its functions on a regular and recurring basis, not on an isolated basis. Upon further verification, it appears that no sufficient evidence can prove that the Respondent is indeed a non-bank financial intermediary nor it has engaged in the activities of a financial institution. Further, there is no indication that it was authorized by BSP to perform quasi-banking functions. Likewise, the Court was not convinced that the stated primary purpose of the Respondent in its AOI is broad enough to catch all the descriptive functions of a financial intermediary. Mere allegations without hard evidence are not equivalent to proof. Hence, the Petition for Review was DENIED. [CITY OF DAVAO & BELLA LINDA N. TANJILI, IN HER OFFICIAL CAPACITY AS CITY TREASURER OF DAVAO CITY VS. FERNANDEZ HOLDINGS INC, CTA EN BANC CASE NO. 1708, JANUARY 15, 2019]

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III. COURT OF TAX APPEALS (CTA) DIGESTS

Proof Of Competent Evidence On Service Of Assessment Notices Incumbent Upon The Bir; Failure Of The Bir To Prove By Competent Evidence The Actual Service & Receipt Of Formal Assessment Notice (Fan) Results To Void Assessment
Absence Of Preliminary Assessment Notice (Pan) Renders Any Assessment Made By The Bir Nugatory
Disallowance Of Input Vat Due To Alterations & Out-Of-Period Claim
Requisites For A Successful Input Vat Refund Arising From Zero-Rated Sales
Bir Assessment Cancelled Due To Absence Of Letter Of Authority (Loa); Cta Is Not Precluded From Ruling On Issues Not Included In The Stipulation Of Facts
A Cta Decision Partially Granting The Claim For Refund Or Issuance Of Tax Credit Certificates (Tcc); On Refund Of Input Vat, Taxpayer Must Comply With Requisites To Prove His Entitlement Thereto
Change In The Corporate Name Does Not Make A New Corporation; Refund Of Capital Gains Tax (Cgt) Pursuant To Rp-Netherlands Tax Treaty Granted
Where The Bir Has Come Out With A Naked Assessment Such That It Is Without Foundation Or Character, The Determination Of The Tax Due Is Without Rational Basis
Expenses Are Still Not Deductible When Payment Of Expanded Withholding Tax (Ewt) Is Done After Receipt Of Final Decision On Disputed Assessment (Fdda); Failure To Show That Service Charge Is Distributed To Its Employees Renders It Vatable
Fan Cancelled Due To Premature Issuance Before The Expiration Of The 15-Day Period From Receipt Of Pan; Pagcor, Its Contractees & Licensees Remain Exempt From The Payment Of Corporate Income Tax Since The Law Is Clear That Said Exemption Inures Also To Their Benefit
Fraud Is Not Presumed, It Must Be Proved By Clear & Convincing Evidence; A Mere Entry Of Wrong Information In The Tax Returns Due To Mistake, Carelessness Or Ignorance Without Intent To Evade Tax Does Not Constitute False Return
Imposition Of Income Tax By Local Government Unit (Lgu) Are Prohibited Except When Imposed On Banks & Other Financial Institutions