Weekly Tax Update [September 5, 2023]

[THE 10-YEAR PRESCRIPTIVE PERIOD SHALL APPLY IF THERE IS PRIMA FACIE EVIDENCE OF FALSITY OF RETURNS FILED] [A MERE REFERRAL LETTER & A MOA ISSUED BY AN RDO DO NOT & COULD NOT CONFER AUTHORITY TO REVENUE OFFICER]

Petitioner Zenorex Marketing Corporation filed a Petition for Review praying for the reversal of the Decision rendered by the Respondent Commissioner of Internal Revenue (CIR) upholding the deficiency tax assessments. The Petitioner argued that the Respondent has only three (3) years within which to assess a taxpayer. Likewise, the Respondent’s right to assess the Expanded Withholding Tax (EWT) and Withholding Tax on Compensation (WTC) for January to November 2007 has already prescribed since the Final Assessment Notice (FAN) was issued only on 14 January 2011. On the other hand, the Respondent countered that the withholding tax assessments are not internal revenue taxes and are in the nature of penalty, hence, the same are imprescriptible. Further, even assuming that the withholding tax assessments are subject to prescription, the subject assessments have not yet prescribed since what applies here is the 10-year prescriptive period for failure of the Petitioner to report its proper expenses and compensation subject withholding taxes in an amount exceeding 30%. In ruling, the Court held that internal revenue taxes include EWT and WTC, hence, assessments, therefore, are also subject to prescription. Here, there is prima facie evidence of false returns because of substantial under-declaration of income payments subject to withholding taxes, which the Petitioner failed to refute. Hence, the 10-year prescriptive period will apply. Consequently, the issuance of the FAN was well within the Respondent’s period to assess. However, notwithstanding the Petitioner’s failure to raise as an issue, the Court finds it necessary to determine whether the Revenue Officers (ROs) who examined the Petitioner were duly authorized to do so. Here, the ROs who continued the audit of the Petitioner were not authorized by a duly issued Letter of Authority (LOA). They merely relied on their authority from the Referral Letter and Memorandum of Assignment (MOA) executed by their Revenue District Officer (RDO), who is not authorized to issue LOAs. Thus, notwithstanding the Court’s findings that the deficiency EWT and WTC assessments have not prescribed, the Court cannot allow the assessment and the subsequent collection of said deficiency taxes for being VOID. Consequently, the Petition was GRANTED. [ZENOREX MARKETING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10175, JULY 10, 2023]

[PROSECUTION IS BURDENED TO PROVE CORPUS DELICTI BEYOND REASONABLE DOUBT] [REASSIGNMENT OF EXAMINATION TO NEW REVENUE OFFICERS NECESSITATES THE ISSUANCE OF A NEW LOA]

Petitioner People of the Philippines filed a Petition for Review assailing the CTA 1^st Division’s earlier Resolutions dismissing the criminal case against the Respondent Jemma Lamces (Lamces) on the grounds of insufficiency of evidence. Petitioner argued that there is no longer any need to prove the position of Lamces as Treasurer of Respondent Great Domestic Insurance Company of the Philippines as such fact was admitted by her in her Pre-Trial Brief and, thus, she may be held liable under Sections 253(d) and 256 of the Tax Code, as amended. Respondent Lamces countered that the Judicial Affidavits of the Petitioner’s witnesses failed to name her as a responsible officer of the Accused Corporation and did not specify the names of the responsible officers. Also, the Respondent stated that the Petitioner was unable to prove that the failure to pay tax was willful on her part. In ruling, jurisprudence already enumerated the elements that must be established by the Prosecution to secure the conviction of the Accused Corporation and the responsible officers for violation of Section 255 in relation to Sections 253(d) and 256 of the Tax Code, as amended. Here, the Prosecution failed to prove the first element, which requires that the corporate taxpayer was liable to pay tax under Tax Code, because of the following: (1) question on the identity of the Accused Corporation since there is a discrepancy between the name of the corporation that was audited and assessed by the BIR and the name of the corporation that was indicted in court; and (2) void assessment due to the absence of a Letter of Authority authorizing the new Revenue Officers. Such failure of the Prosecution also extinguished the civil liability arising from the crime. Consequently, the Petition was DENIED. [PEOPLE OF THE PHILIPPINES VS. GREAT DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, MAR S. LOPEZ, JEMMA L. LAMCES & MARCELESA F. SARTO, CTA EN BANC CRIMINAL NO. 094, JULY 10, 2023]

ASSESSMENT SHOULD NOT BE BASED ON PRESUMPTION BUT ON FACTS

Petitioner Julio R. De Quinto filed a Verified Petition praying for the issuance of a Temporary Restraining Order (TRO) and/or preliminary injunction to enjoin the Respondent Bureau of Internal Revenue (BIR) from implementing the assailed Warrant of Distraint and/or Levy (WDL) and to nullify the deficiency tax liabilities. Petitioner argued that the subject assessment for the taxable year 2011, which was allegedly the result of a computerized matching conducted by the BIR from the information/data provided by 3^rd party sources under a Letter Notice (LN), has no basis at all, thus, it should be declared null and void. In ruling, based on the records of the case, after the Petitioner protested the information in the LN, the Revenue Officer (RO) did not secure the required sworn statement from the 3^rd party sources but merely relied on the notation in the confirmation letters that failure to respond to such letter shall mean that the information therein will be “assumed to be true and correct.” If only they had validated from Petron, a 3^rd Party, it would have come to their knowledge that the Petitioner has no more transactions with Petron in the year 2011. Considering that the assessments contained in the LN were not fully validated either from the 3^rd party sources or from the Petitioner’s accounting records, such assessments were not based on facts but merely on presumptions. Thus, the assessment was null and void. Hence, the Verified Petition was GRANTED. [JULIO R. DE QUINTO VS. BUREAU OF INTERNAL REVENUE, THRU REVENUE DISTRICT OFFICES NO. 04 MANDALUYONG CITY AND 07, QUEZON CITY, CTA CASE NO. 9623, JULY 4, 2023]

[AS A RULE, NO ARREST, SEARCH & SEIZURE CAN BE MADE WITHOUT A VALID WARRANT ISSUED BY A COMPETENT JUDICIAL AUTHORITY] [A MISSION ORDER IS NOT EQUIVALENT TO A VALID SEARCH WARRANT ISSUED BY THE COURT]

Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking reversal of the CTA 1^st Division’s earlier Decision and Resolution ordering the Petitioner to return the seized articles and issue to Respondent GB Global Exprez, Inc. the required Permit to Operate. Petitioner maintained that he did not violate the Respondent’s right to due process and its right against unreasonable searches and seizures because Section 171 of the Tax Code, as amended, does not require any warrant or order from the Court for Revenue Officers’ searches and seizures of articles subject to tax. The Respondent countered that its right to due process was violated when the Petitioner issued the undated Mission Order without particularly describing the things to be searched and seized on its business premises. In ruling, the Court held that the right against unreasonable searches and seizures is a matter of constitutional dictum. There must be a warrant issued by a judge and premised on a finding of probable cause before a search can be effected. However, there are exceptions, but none is present here. The BIR Strike Team had sufficient time to obtain a search warrant. However, instead of securing the necessary search and seizure warrant in 2018 and February 2020, when the BIR already noticed the alleged illegal activities and complaint letters were sent to their office, the BIR opted to issue a Mission Order and conducted the search, seizure, and business closure on the Respondent two (2) days after receiving the Anonymous Letter on July 27, 2020. Assuming arguendo that a valid search warrant is not required, and the Mission Order was validly issued under Section 171 of the Tax Code, the conduct of search, seizure, and closure would still be void given the infirmities surrounding the implementation of the Mission Order. Thus, the Respondent’s failure to register cigarette brands warrants only the revocation of its Permit to Operate and the assessment and collection of excise taxes. The BIR Strike Team, undoubtedly, exceeded the penalty for such a violation when it seized the Respondent’s equipment, raw materials, and finished products and closed its business and manufacturing plant operation. Consequently, the Petition was DENIED, and the earlier Decision and Resolution were AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. GB GLOBAL EXPREZ, INC., CTA EN BANC CASE NO. 2583, JUNE 22, 2023]

[FAILURE TO FILE A PROTEST LETTER ON TIME RENDERS THE FLD/FAN FINAL, EXECUTORY & DEMANDABLE] [INVALIDITY OF FDDA DOES NOT AFFECT THE VALIDITY OF FAN]

Petitioner Commission on Elections (COMELEC) filed a Petition for Review seeking to reverse the Respondent Commissioner of Internal Revenue (CIR)’s Decision sustaining the alleged deficiency tax assessment. Petitioner argued that contrary to the claim of the Respondent, the supposed Formal Letter of Demand/Final Assessment Notice (FLD/FAN) did not become final as it was not properly served to the Petitioner. In ruling, a perusal of records revealed that the FLD/FAN attached to the Petition bears the rubber stamp of COMELEC Finance Service Department, Jai Conde, who received the FLD/FAN and was stationed in the said Department.  Further, Petitioner did not raise as an issue the propriety of the service of FLD/FAN in its protest letters. The Petitioner even expressed its sincerest apologies for its admitted delay in responding to the FLD/FAN. Considering that Petitioner’s protest letters were filed beyond the 30-day period prescribed by Section 228 of the Tax Code, as amended, the FLD/FAN became final, executory, and demandable. On the other hand, even though not raised as an issue, the Details of Discrepancies attached to the Final Decision on Disputed Assessment (FDDA) merely reiterated or copied verbatim what is indicated in the Details of Discrepancies attached to the subject FLD. The Court emphasized that the concerned taxpayer must be fully apprised of the factual and legal bases of the assessments and must not be left unaware of how the Respondent or his authorized representative appreciated the refutations, explanations, or defenses raised by the Petitioner in connection with the assessments. Thus, the FDDA is invalid. However, jurisprudence provides that the invalidity of the FDDA does not affect the validity of the final assessment. Hence, the assessment in the FLD stands and its validity is not affected by the invalidity of the FDDA. Consequently, the Petition was DENIED. [COMMISSION ON ELECTIONS VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10245, JUNE 2, 2023]