Tax Case Digest

TAX CASE DIGEST SERIES OF 2019
Tax Case Digest on…

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COURT OF TAX APPEALS
DECISION HIGHLIGHTS
The final decision that Taxpayer, an electric cooperative, was assessed by the Bureau of Internal
Revenue (BIR) for alleged deficiency taxes for taxable year 2012. BIR issued a
is appealable before PAN and subsequently a Formal Letter of Demand (FLD). The taxpayer was able
the CTA is the Final to file a Protest but it was denied by BIR, prompting the former to file a Protest
Decision on Disputed before the CIR. The taxpayer received a Final Decision on Disputed Assessment
(FDDA) thereafter, so the taxpayer, without waiting for the decision of the CIR,
Assessment (FDDA).
filed its Petition for Review before the CTA. The BIR alleged the failure of the
Hence, failure to await taxpayer to wait for the decision of the CIR prior to filing the Petition for Review
the decision of the CIR is tantamount to premature filing. Hence, the CTA should dismiss the case for
in the administrative failure to exhaust administrative remedies.
level is not tantamount CTA ruled that it has jurisdiction over the case. The final decision of the CIR or
to premature filing so his authorized representative on disputed assessment that is appealable
long as the BIR already before this Court is the FDDA. Taxpayer received its FDDA and it timely filed its
Petition within the 30-day period from such receipt. The fact that the Taxpayer
issued the FDDA. failed to await the decision of the CIR prior to filing the Petition is of no moment
for what is crucial in conferring jurisdiction on this Court is the whole or partial
denial of the protest by the CIR or his authorized representative, which was
subsequently issued and received by the taxpayer prior to the filing of the
present Petition for Review. Hence, the Court acquired jurisdiction over the
case. (Agusan Del Norte Electric Cooperative Inc. vs. Commissioner of Internal
Revenue, CTA Case No. 9376, August 5, 2019)
Electric Cooperatives It was alleged that Taxpayer cannot claim perpetual tax exemption under PD
269 since exemption is merely for a period of thirty (30) years or until the
registered under NEA cooperative becomes completely free from indebtedness incurred from
are exempt from borrowing, whichever comes first. Hence, taxpayer is allegedly subject to
payment of income tax. income tax.
The Court ruled that PD 269 provides for the exemption from taxes, imposts,
duties and fees to electric cooperatives. The limit of 30-year period, mentioned
in PD 269, pertains to taxes other than income tax. Thus, considering that
petitioner is exempt from income tax by provision of the law, it is likewise
exempted from payment of MCIT, it being in the nature of an income tax.
(Agusan Del Norte Electric Cooperative Inc. vs. Commissioner of Internal
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DECISION HIGHLIGHTS
The LOA must be BIR issued a Letter of Authority (LOA) on October 22, 2012 to the taxpayer and
the same was served on January 14, 2013. It subsequently issued a PAN and
served to the taxpayer the taxpayer timely filed its Protest. However, BIR denied the same and issued
within thirty (30) days the corresponding FLD. Taxpayer then filed a Petition for Review challenging
from its date of the validity of the assessment on the ground that the tax audit was void for
failure of the BIR to serve the LOA within 30 days from issuance and to
issuance; otherwise, it
revalidate the same. The BIR claimed that the failure of the Revenue Officer to
becomes null and void, serve the LOA within 30 days from issuance does not affect the validity of an
unless revalidated. assessment and it only subjects the revenue officer concerned to
administrative sanctions. Hence, the LOA and the assessment are valid.
CTA ruled that for an audit and examination of books to be considered as

lawful, the same must be based on a valid LOA. It must be served or presented
to the concerned taxpayer within thirty (30) days from its date of issuance;
otherwise, it becomes null and void, unless revalidated. In this case, while the
subject LOA was issued on October 22, 2012, records reveal, however, that it
was served only on January 14, 2013, or eighty-four (84) days after the date of
its issuance. Thus, for failure of the concerned revenue officers to observe the
30-day mandatory period, the issued LOA has already become void. It was
already without force and effect when it was served on the taxpayer. Hence,
the subject tax assessment issued by the BIR is void. (Edmund U. Bermejo IV
vs. Commissioner of Internal Revenue, CTA Case No. 9310, August 5, 2019)
No law or regulation Taxpayer is engaged in the business of providing water and sewerage services
in the Subic Special Economic and Free Port Zone (SSEZ). It provided water and
required that the sewerage services to Olongapo City. The BIR assessed the taxpayer for
payments should be deficiency taxes when it considered the taxpayer's operations in Olongapo City
made in foreign as not entitled to the 5% preferential tax treatment (PTR). Taxpayer argued
that it is entitled to the 5% preferential tax treatment (PTR) since under the
currency before a Subic
law, rules and regulations, Olongapo City is part of the Subic Bay Special
Ecozone or Freeport Economic Zone (SSEZ) and outside of the customs territory. The BIR counter-
Enterprise can avail of argued that the PTR only apply if the services are paid in foreign currency
the 5% preferential tax inwardly remitted through the Bangko Sentral ng Pilipinas as provided under
RR No. 2-2005. Hence, since the taxpayer failed to comply with the condition,
rate. it is allegedly not entitled to the PTR.
The Tax Court held that the Subic Bay Freeport is a separate customs territory
consisting of the City of Olongapo and the municipality of Subic, Province of
Zambales, and the lands formerly occupied by the Subic Naval Base. Hence, its
income generated from Olongapo City should not be treated as income within
the Customs Territory and is subject to the 5% PTR. Also, the tax court ruled
that no law or regulation required that payments should be made in foreign
currency before a Subic Ecozone or Freeport Enterprise can avail of the 5%
preferential tax rate. Hence, the contention of BIR is incorrect. (Subic Water

DECISION HIGHLIGHTS
and Sewerage Co., Inc. vs. Commissioner of Internal Revenue, CTA Case No.
9074, August 14, 2019)
Filing of application for Taxpayer entered into a merger with Mytel Mobility Solutions, Inc. (Mytel).
Subsequently, the unused input tax of Mytel was absorbed and utilized by
merger with the BIR is taxpayer. The BIR then issued an assessment for deficiency value-added tax
not a precondition (VAT) arising from the alleged utilization of unused input tax of Mytel. The BIR
before the surviving alleged that taxpayer failed to file any application for merger with the BIR thus
any benefits, e.g., transfer of input tax of the absorbed entity to the surviving
corporate taxpayer
entity cannot yet be availed of. A corresponding application for cancellation of
may use the unutilized registration should have also been filed with the BIR. Hence, for failure to fulfill
input tax of the the two important requisites, i.e., filing of the notice of merger and the notice
absorbed corporation. of cancellation with the BIR, the merger has no legal effect as far as acquiring
the unused input tax credits of the absorbed entity by the taxpayer.
The CTA held that the prior filing of an application for notice of merger and /or
notification of closure with the BIR is not a precondition for the utilization of
the unused input value-added tax (VAT) credits of the absorbed corporation.
The merger shall take effect upon issuance by the SEC of the Certificate of Filing
of the Articles and Plan of Merger and it also marks the moment when the
consequences of a merger take place. Upon the issuance of the Certificate, all
effects of the merger, such as transfer of rights, properties, etc. are
automatically transferred to the surviving entity. Hence, there is no need for
taxpayer to apply for application of merger with the BIR before utilizing the
unused input VAT. Likewise, the application for cancellation of registration
with the BIR pertains to the effects of a closure of a company from a tax
perspective and it is separate from the effects of a statutory merger resulting
to a dissolution of the absorbed company. (Commissioner of Internal Revenue
vs. MY Solid Technologies & Devices Corporation, CTA En Banc No. 1767 (CTA
Case No. 8854), August 9, 2019)
The 120-day period for The taxpayer claimed for VAT Refund with the BIR. On July 29, 2013, a LOA was
issued by the latter pursuant to Mandatory Audit-Claim and a separate LOA
the BIR to render a was issued the next day (July 30, 2013) authorizing another Revenue Officer to
decision from a VAT assist in the audit investigation and requesting for the submission of additional
refund claim should be documents. In the course of the examination, taxpayer submitted additional
documents in batches, where its last batch of documents was submitted on
counted from the lapse
October 14, 2014. Due to the CIR's inaction on its administrative claim for
of the 30-day period refund, taxpayer filed a Petition for Review before the CTA on March 13, 2015.
notice of BIR to submit The BIR challenged the timeliness of the filing of the Petition since the same
additional documents was made beyond the 120-day period counted from the issuance of the last
Letter of Authority dated July 30, 2013. The taxpayer on the other hand insisted
and not from the last that the reckoning period must be counted from October 14, 2014 or the last
date of actual day they submitted additional documents.

DECISION HIGHLIGHTS
submission of The CTA ruled and applied the doctrine in Pilipinas Total Gas case since the
claim for tax refund was filed prior to June 11, 2014 or the effectivity of RMC
documents. No. 54-2014. The taxpayer filed its administrative claim on June 25, 2013. Thus,
it had thirty (30) days from the time of filing of its administrative claim for tax
credit or refund to submit all the required supporting documents. If in the
course of the investigation, additional documents are required, the BIR must
inform taxpayer of the need to submit additional documents through a notice,
and it shall have thirty (30) days to comply. Upon completion of all required
documents, the 120-day period shall commence; but in all cases, all filings and
submissions must be completed within the two-year period Hence, the 120-
day period shall be counted thirty (30) days from July 30, 2013 when the BIR
issued a request for additional documents, or from August 29, 2013. Since the
Petition was filed only on March 13, 2015, the judicial claim was filed beyond
the prescriptive period. (Taisei Philippines Construction, Inc. vs. Commissioner
of Internal Revenue, CTA En Banc No. 1825 (CTA Case No. 9008), August 7,
2019)
Our Take NOTE: The VAT refund claim in this case pertains to taxable year 2012. Prior to
June 11, 2014 or the effectivity of RMC No. 54-2014, if the BIR required the
taxpayer to submit additional documents, the latter must submit the same
within thirty days.
The BIR has no valid The BIR issued an LOA and conducted an audit wherein taxpayer was allegedly
found liable for deficiency taxes. The taxpayer paid the assessed amount of the
authority to issue a BIR. The BIR, thereafter, issued a “second” LOA for Income Tax and VAT for the
second LOA after the same taxable period, with the BIR claiming "first LOA did not cover the Income
three (3)-year Tax and VAT issues on the sale of the property subject of the present case”.
Taxpayer claimed that the Assessment was issued or served upon it beyond the
prescriptive period had
three-year period provided by NIRC, as amended. The BIR argued that the 10-
expired. year period applies in this case since there was fraud when taxpayer
deliberately misclassified the sales pertaining to a sale of land as a capital asset
since the same was being leased and rented out as parking lot within two (2)
years, prior to its sale, making it a capital asset. Thus, the prescriptive period
applicable is 10 years instead of 3 years.
The CTA ruled that there was no fraud in this case that warrants the application
of the 10-year prescriptive period to assess the Taxpayer. Citing the case of
Philippine International Air Terminals Co., Inc. vs. Commissioner of Internal, the
CTA ruled that where the BIR had already made an initial assessment for
deficiency taxes in a taxable year, and the taxpayer paid the deficiency tax
assessed, the BIR has no valid authority to issue, after the three (3)-year
prescriptive period had expired, a second or third assessment for the same
taxable year. Here, the first LOA which the Taxpayer settled and the second

DECISION HIGHLIGHTS
LOA covered the same taxable year 2007. Thus, the taxpayer should not have
been assessed again for taxable year 2007. (The Professional Services, Inc. vs.
Commissioner of Internal Revenue, CTA Case No. 9502, August 13, 2019)
The law does not BIR argued that the taxpayer’s input value-added tax (VAT) is not attributable
to valid zero-rated sales because the law itself does not state that all input
require that the input taxes of a VAT-registered person whose sales are zero-rated are refundable.
taxes subject of a claim BIR alleged further that what is refundable are “creditable input taxes" that are
for refund be directly “attributable” or must come from purchases of goods that form part of the
finished product of the taxpayer or it must be directly used in the chain of
attributable to zero-
production. The connection between the purchases and the finished product
rated sales or is "concrete" and not "imaginary" or "remote”. Here, the taxpayer allegedly
effectively zero-rated failed to prove that there is direct connection of the purchases or input tax to
sales. Hence, no need the finished product whose sale is zero-rated.
to prove that there is The CTA ruled that the NIRC, as amended, does not require that the input taxes
direct connection of the subject of a claim refund be directly attributable to zero-rated sales or
purchases or input tax effectively zero-rated sales. Input taxes that bears a direct or indirect
connection with a taxpayer's zero-rated sales satisfies the requirement of the
to the finished product law. Also, it allows the allocation of input taxes in case the same cannot be
whose sale is zero- directly and entirely attributed to any of the sales. The term "input tax" means
rated. the value-added tax due from or paid by a VAT-registered person in the course
of his trade or business on importation of goods or local purchase of goods or
services, including lease or use of property, from a VAT-registered person.
Thus, the law did not limit input taxes to those purchases that only form part
of the finished product of the taxpayer. Thus, the contention of the BIR is
erroneous. (Rio Tuba Nickel Mining Corporation vs. Commissioner of Internal
The requirement that Taxpayer imported various cigarette and alcohol products for use in its
international flights. It was assessed by the BIR for excise taxes and the
an administrative claim taxpayer paid under protest. It subsequently filed a claim for refund with the
be filed prior to a CIR and on the same date, filed a Petition for Review with the CTA. The BIR
judicial claim is not alleged that the filing of the Petition was premature for the taxpayer failed to
await the decision of the CIR before filing its judicial claim.
complied if both claims
were filed on the same The CTA ruled that law does not require the CIR to act upon the administrative
date. claim before claimant can file its judicial claim for refund. Section 229, as
worded, only requires that an administrative claim be filed prior to the judicial
claim. The primary purpose that an administrative claim be filed prior to the
judicial claim is to serve as a notice of warning to the CIR that court action
would follow unless the tax alleged to have been collected erroneously or
illegally is refunded, was defeated. Failure to seek relief initially at the
administrative level would result in dismissal of the judicial claim for refund

DECISION HIGHLIGHTS
once it is elevated to the Court of Tax Appeals (CTA). In this case, the taxpayer
failed to establish that prior to the judicial claim for refund, administrative
claims for refund were in fact filed with the respondent CIR. There is non-
compliance considering that both the administrative claim and the judicial
claim for refund was simultaneously filed on August 22, 2016. The primary
purpose of filing an administrative claim prior to the judicial claim was defeated
in this case. Hence, the Petition was prematurely filed by the taxpayer in the
instant case. (Philippine Airlines, Inc. vs. Commissioner of Internal Revenue,
CTA Case No. 9435, August 8, 2019)
Receipt of the FLD prior Taxpayer received a FLD from the BIR for all internal revenue taxes allegedly
due for taxable year 2010. It received a PAN thereafter, and an amended FLD
to the receipt of PAN did (AFLD) covering the same tax period with no substantial difference as to the
not violate the right to once originally issued. The taxpayer then alleged that the service of PAN
due process when a should precede the FLD and that the BIR violated its right to due process when
the PAN was belatedly served. It further alleged that the issuance of the AFLD
subsequent AFLD was
was merely an afterthought and was meant to cover up BIR's mistake in
received by the serving the original FLD earlier than the PAN. Hence, the deficiency tax
taxpayer. assessments should be cancelled due to lack of factual and legal bases.
The Court held that the BIR did not violate the right to due process of the
taxpayer. The latter received the requisite assessment notices from the BIR
and was given the opportunity to contest the assessment. Although the PAN
was belatedly received by the taxpayer, records show that it was issued on
August 15, 2013. The original FLD and the AFLD were issued on September 25,
2013 and January 13, 2014, respectively. The issuance of PAN preceded the
issuance of AFLD. Thus, the BIR substantially complied with the due process
requirements provided by law when the taxpayer was accorded its right to be
informed of its deficiency tax assessment, and the right to dispute the same.
It is erroneous for the taxpayer to reckon the date of issuance of the subject
tax assessments on September 25, 2013, considering that the same had been
effectively superseded and supplanted with the subsequent issuance of the
AFLD on January 13, 2014. (Cagayan De Oro Doctors, Inc. (Madonna and
Child Hospital) vs. Commissioner of Internal Revenue, CTA Case No. 9260,
August 5, 2019)
There must be a Taxpayer is the proprietor of JG Builders. Various notices were sent by the BIR
through registered mail to JG Builders and to the taxpayer, however, the BIR
"disputed assessment" did not receive any reply. Hence, the administrative process of collection was
that is seasonably initiated by the BIR. The taxpayer challenged the validity of the assessments
elevated to the CTA alleging, amongst others, that the assessment notices are void because the it
was served to a wrong address, hence, she never received the same.
before it can take
cognizance of a case.

DECISION HIGHLIGHTS
The CTA dismissed the case for lack of jurisdiction. The law mandates that
there must be a "disputed assessment" that is seasonably elevated to this
Court for review. An assessment becomes a disputed assessment after a
taxpayer has validly filed its protest to the assessment in the administrative
level. The Protest must be compliant with the requirements of the law and
regulations which include, among others, that the protest must be filed within
thirty (30) days from receipt of the assessment. Hence, there can be no
disputed assessment without a valid protest being filed by the taxpayer to
dispute the findings in the assessment. Here, the subject assessments did not
become "disputed assessment" since the taxpayer failed to dispute and
protest the assessment issued by the BIR. Taxpayer set a letter for
reconsideration after the lapse of 194 days, hence, it was filed out of time.
(Jovita G. Panopio vs. Commissioner of Internal Revenue, CTA Case No. 9464,
August 6, 2019)
In allegations of fraud The BIR assessed the taxpayer for deficiency taxes. The Taxpayer alleged that
the benefits of the Rulings extend to taxpayer as agent of BDO and that the 3-
in the filing of returns, year prescriptive period has already lapsed for the BIR to validly assess the
the same must be duly alleged deficiency taxes. The BIR on the other hand alleged that the failure of
proven that there was taxpayer to to file the Withholding Tax Remittance Return and the
Documentary Stamp Tax Return for the said transaction is tantamount to fraud
willful neglect to file
and intent to evade payment of taxes. Hence, the 10-year prescriptive period
the required tax return. applies.
The CTA held that in allegations of fraud, the same must be duly proven that
there was willful neglect to file the required tax return. In this case, although
the taxpayer failed to report receipts in an amount exceeding thirty percent
(30%) of that declared per return, such is a mere presumption. The BIR merely
relied only on the third-party information sources that were not verified by the
revenue officers who conducted the examination or assessment. Considering
that there was no fraud that warrants the application of the 10-year
prescriptive period in this case, the assessment is void for the FAN being issued
beyond the 3-year period to assess. (First Global Corporation, BYO vs.
Honorable Kim Henares, in her capacity as the Commissioner of the Bureau of
Internal Revenue, CTA Case Nos. 9172, 9212 and 9242, August 6, 2019)
The decisions of the CIR The BIR in this case alleged that the taxpayer failed to file its protest on the FAN
within the time provided for by the NIRC, as amended. Since taxpayer admitted
over disputed having received the FLD/FAN on January 10, 2011, it had the opportunity until
assessments are February 9, 2011, within which to file a valid protest on the assessment.
separate and However, it allegedly failed to file said protest within such period. The taxpayer
on the other hand, argued that the Letter of Authority is invalid for the failure
independent from his
of the revenue officer to finish the audit within 120 days. There was a re-
decisions over "other

DECISION HIGHLIGHTS
matters" arising under assignment of the undertaking to a new Revenue Officer (RO), and the same
done by mere internal indorsement hence the assessments are void for lack of
the NIRC. Thus, the fact authority of the examining RO.
that the taxpayer failed
to Protest the FAN is The RO who continued the audit and the examination has no authority to
conduct the same, in the absence of the issuance of a new LOA specifically
not important if the
naming the new RO. Any re-assignment of cases requires the issuance of a new
latter questions the LOA, its fatal infirmity is further highlighted by the fact that it was signed and
validity of the issued by the RDO only and not by the Revenue Regional Director. Thus, the
imposition of taxes Court ruled in favor of the Taxpayer. (Commissioner of Internal Revenue vs.
Royal Class Trading and Transport Corporation, CTA En Banc No. 1832 (CTA
Case No. 8844), July 29, 2019)
Although ICPA is a Taxpayer sought the refund of its unutilized input VAT arising from its zero-
rated sales/receipts for taxable year 2011. The CTA Division partly denied the
commissioned officer of Petition for failure to substantiate the claims of the taxpayer. taxpayer alleged
the court, it is the that the CTA's outright non-reliance on the report of the court-commissioned
responsibility of the independent CPA (ICPA) and the denial of taxpayer's right to present additional
documents amount to denial its right to due process. Also, the taxpayer further
taxpayer to coordinate
alleged that it should not be bound by mistake on the representation of the
with ICPA and ensure commissioned ICPA that all the necessary documents had been photocopied
that the ICPA's report and submitted to the Court since the ICPA is an officer of the Court completely
comply with the Court's independent of the taxpayer.
requirements. The CTA en banc ruled that the opportunity to be heard is the essence of the
right to due process. Hence, as long as a party is given the opportunity to
defend his interests in due course, the said right is not violated. The taxpayer
in this case was given several opportunities to prove its refund case during the
trial and even during the filing of the motion for reconsideration. Likewise,
although ICPA is a commissioned officer of the court it is the responsibility of
the taxpayer to coordinate with ICPA and ensure that the ICPA's report comply
with the Court's requirements. Hence, it is still the duty of the taxpayer to
ensure the sufficiency of the evidence it presented during the trial of the case,
especially when it filed its formal offer of evidence and rested its case. Thus,
taxpayer’s right to due process was not violated. (Commissioner of Internal
Revenue vs. Toledo Power Co., CTA En Banc Nos. 1778 and 1780, August 15,
2019)

DECISION HIGHLIGHTS
Only documents duly On March 27, 2014, taxpayer filed its administrative claim for refund or
issuance of TCC for its alleged unutilized/unclaimed excess input VAT for the
identified by a four quarters of TY 2012. On August 22, 2014, taxpayer filed before the CTA a
competent witness and Petition for Review.
formally offered in
The CTA denied the claim for refund of the taxpayer ruling that the taxpayer
evidence will merit
failed to prove that it is a VAT-registered entity. To prove that it is a VAT-
admission for the registered taxpayer, the taxpayer offered in evidence a certified true copy of
consideration and BIR Certificate of Registration. However, since the taxpayer failed to have it
evaluation by the identified by any of its witnesses, it was denied admission. The said BIR
Certificate of Registration was not admitted since it was not identified by a
Court. competent witness during the trial on the merits. It does not even appear in
any of the Judicial Affidavits executed and identified by the taxpayer's
witnesses, precisely it is not found in the minutes of the proceedings during
which petitioner's witnesses were presented on the witness stand. (Nokia
(Philippines), Inc., vs. Commissioner of Internal Revenue, CTA EB No. 1824
(CTA Case No. 8876), August 16, 2019)
DISSENTING OPINION (J. Del Rosario): BIR Certificate of Registration, being a

public document, is admissible in evidence notwithstanding that it was not
identified by any of taxpayer’s witnesses during the trial. A public document is
admissible in evidence even without further proof of its due execution and
genuineness. The said document is self-authenticating and thus, petitioner is
not actually required to have it identified by its witness to prove its
genuineness and due execution.
No amount of ICPA Taxpayer filed a letter addressed to BIR Excise LT Audit Division I seeking for
the recovery of excise taxes paid on its removals of copper and excise taxes
examination would paid dore bars. Without the decision of the BIR on its claim for refund or the
matter without the issuance of a TCC, the taxpayer filed a Petition for Review with the CTA.
recommendation of the
The CTA denied the claim for refund of the taxpayer ruling that, assuming that
Director of the MGB
the claimed excise taxes were paid within the 5-year recovery period, the Court
and approval of the could not grant taxpayer’s claim for failure to comply with the requisites set
Sec. of the DENR of the forth in DAO No. 99-56, particularly, the provision listing the expenses and
expenses and capital capital expenditures to be considered as recoverable pre-operating expenses.
This is on the fact that the taxpayer did not submit to the Court the pertinent
expenditures of the supporting documents and work programs to ascertain the date when the
taxpayer to be recovery period should be reckoned from. Thus, the Court in Division find that
considered it as the taxpayer failed to present evidence to prove that the imposition of excise
tax was made during the recovery period.
recoverable pre-
operating expenses.

DECISION HIGHLIGHTS
However, taxpayer avers that its pre-operating expenses have been examined
and validated by independent CPAs twice. Nevertheless, DAO No. 99-56
requires that petitioner's pre-operating expenses be approved by the Secretary
of the DENR upon recommendation of the Director of the Mines and
Geosciences Bureau (MGB). No amount of ICPA examination would matter
without such recommendation and approval. Hence, the Court En Banc denied
the claim for failure to submit the necessary supporting documents. (Oceana
Gold (Philippines), Inc. vs Commissioner of Internal Revenue, CTA EB No. 1904
(CTA Case Nos. 8995 & 9034), August 16, 2019)
NOTE: In the instant case, the Court also pass upon to rule that where the issue
Our Take involved is characterized as a pure question of law, the doctrine of exhaustion
of administrative remedies does not apply. Here, the taxpayer failed to file an
appeal with the Secretary of Finance on its question on the validity or
constitutionality of an RMC before going to the Court. The reason for this is
because an appeal to an administrative officer involving pure questions of law
would be an exercise in futility as issues of law cannot be resolved by
administrative agencies with finality. At best, the resolution of administrative
authorities on these issues is merely tentative.
Like PAGCOR, its This is an Omnibus Motion for Reconsideration filed by the taxpayer. It argues
that the Court sweepingly concluded that any income from junket gaming
contractees and operations is subject to corporate income tax. According to the taxpayer the
licensees shall likewise Court's reliance on RMC No. 13-2013 is misplaced and glaringly inconsistent
pay corporate income with the provisions under Section 13(2) (a) and (b) of P.D. No. 1869.
tax for income derived
The CTA ruled that taxpayer's argument that it is exempt from corporate
from such “other income tax pursuant to Section 13 of P.D. No. 1869, insofar as its income from
related services”. its junket gaming operations under the Junket Agreement and the Supplement
to Junket Agreement both entered into with PAGCOR is concerned, is without
legal basis. It is without a doubt that, like PAGCOR, its contractees and licensees
shall likewise pay corporate income tax for income derived from such "other
related services", including income from junket operations, considering that
Section 14(5) of P.D. No. 1869 is clear that any income that may be realized
from these related services shall not be included as part of the income for the
purpose of applying the franchise tax, but the same shall be considered as a
separate income and shall be subject to income tax. (Prime Investment Korea,
Inc. vs Commissioner of Internal Revenue, CTA CASE NO. 9573, August 20,
2019)

CTA
DECISION HIGHLIGHTS
Dividend income is The City of Makati assessed the taxpayer for deficiency local business tax (LBT)
at the rate of 20% of 1% of its gross receipts in accordance with the provision
excluded from gross of Revised Makati Revenue Code (RMRC), thereby categorizing the taxpayer as
receipts for purposes of holding company, as an owner or operator of banks and other financial
imposition of LBT. institutions. The City of Makati argues that the taxpayer’s dividend income
constitutes taxable gross receipts which may be subjected to LBT. The taxpayer
admits that it is a holding company, however, contends should not be taxed as
a financial institution under the provisions of RMRC.
The Regional Trial Court (RTC) cancelled the assessment finding that Makati
City erroneously imposed LBT on taxpayer’s dividend income. Makati City
elevated the case to the CTA. The CTA ruled that the City of Makati's taxing
power does not extend to the levy of income tax, except when levied on banks
and other financial institutions under Section 143(f) of the 1991 LGC. The
dividends and interests of the taxpayer in this case, which are considered part
of its passive income, are therefore not subject to the city's taxing power,
unless the taxpayer is a bank or other financial institution, the imposition of
LBT on its dividend income is erroneous. (Makati City and the City Treasurer
of Makati City vs Metro Pacific Tollways Development Corporation, CTA EB
NO. 1754 (CTA AC Case No. 172), August 27, 2019)
In disputed Taxpayer was assessed by the BIR for calendar year 2007 covering deficiency
income tax, value-added tax, expanded withholding tax and withholding tax on
assessments, taxpayer compensation. When the case reached the CTA, BIR argues that subject
had the option to assessments had become final, executory, and demandable by reason of the
either file a petition for failure of the taxpayer to timely file its Petition for Review pursuant to the
provisions of Section 228 of the National Internal Revenue Code ("NIRC") of
review with the Court a
1997, as amended.
quo within thirty (30)
days after the The CTA ruled that in the present case where there was inaction on a disputed
expiration of the 180- assessment, taxpayer chose the second option under Section 228 of the NIRC
of 1997, as amended. It opted to await the final decision on the protested
day period or wait for assessment. On September 03, 2013, taxpayer received the Final Decision
the final decision of the dated August 28, 2013 signed by the Regional Director. Accordingly, taxpayer
Commissioner of timely filed a "Petition for Review on October 03, 2013, preventing the
assessment from becoming final, executory and demandable. (Commissioner
Internal Revenue on of Internal Revenue vs. Rieckermann Philippines, Inc, CTA EB No.1855 (CTA
the disputed Case No. 8715)
assessment, even after
the expiration of the
180-day period fixed by
law.

DECISION HIGHLIGHTS
Allegation of abuse, The taxpayer filed a Petition for Review against the ruling of the Court in
Division denying its claim for refund or the issuance of tax credit certificate
arbitrariness, or notwithstanding its support to the claim by competent evidence. The taxpayer
capriciousness argues that the amount of VAT on the following sales invoices, official receipts,
committed by the Court and transaction receipts were shown as a separate item therein, hence, a fact
that the VAT was actually paid.
in Division is necessary
for the disturbance the The CTA En Banc ruled that the Court in Division already found that said
factual findings of the invoices and official receipts had failed to comply with the substantiation
Court in Division. requirements because either the VAT was not separately indicated therein or
that the transactions were supported only by a statement of account or a
transaction receipt and not by valid VAT invoices and official receipts. Thus, this
Court a quo will not disturb the factual findings of the Court in Division absent
any allegation of abuse, arbitrariness, or capriciousness committed by the said
court against the taxpayer. (Commissioner of Internal Revenue vs Mindanao II
Geothermal Partnership, CTA EB NO. 1768 and 1770 (CTA Case Nos. 7899,
7942 & 7960), August 30, 2019)
Transfer of shares is The corporation is being assessed of tax on transfer of real property ownership
under Section 135 of the Local Government Code (LGC) because of the sale of
not a transfer of real shares of stock of the corporation resulting to change of ownership and name
property ownership of the corporation.
contemplated under
The CTA En Banc ruled the transfer of shares is not a transfer of real property
Section 135 of the LGC.
ownership under Section 135 of the LGC. Clearly, shares are equities and, by
definition, not real properties under the contemplation of Section 135 in
relation to Article 415 of the Civil Code. Furthermore, with respect to the
corporate assets of the corporation, no conveyance transpired between one
person to another, which would have had a real property tax consequence.
While there was evidence to prove the conveyance of shares, no evidence was
uncovered for the alleged conveyance of the corporate assets subject to
Section 135. The legal title to the machineries and buildings remained in the
same owner, under these indirect shareholders (Province of Pangasinan &
Marilou E. Utanes in her Capacity as the Provincial Treasurer of Pangasinan
vs Team Sual Corporation, CTA EB NO. 1883 (CTA AC No. 173), August 30,
2019)

DECISION HIGHLIGHTS
Imported goods that The taxpayer is claiming tax refund or issuance of tax credit certificate on the
erroneously paid VAT to the Bureau of Customs (BOC) on its importations of
remain in the special petroleum products into the Subic Bay Freeport Zone sold to duly registered
economic zones or re- locators of Clark Development Corporation and Philippine Economic Zone
exported to another Authority. On the other hand, the BIR contends that Section 3 of RR No. 2-2012
provides that no claim for refund shall be granted unless it is properly shown
foreign jurisdiction,
to the satisfaction of the BIR that petroleum products imported have been sold
shall continue to be to a duly registered locator and have been utilized in the registered activity/
tax-free. operation of the locator, or that such have been sold and have been used for
international shipping or air transport operations, or that the entities to which
the said goods were sold are statutorily zero-rated for VAT.
The CTA ruled that Republic Act (RA) No. 7227, otherwise known as the "Bases
Conversion and Development Act of 1992" grants tax exemption privileges in
the special economic zones because the law considers them as separate
customs territories, which means that such jurisdictions are, by legal fiction,
foreign territories. Thus, RR No. 2-2012 directly contravenes the tax
exemptions granted to the taxpayer under RA No. 7227, as amended by RA No.
9400. Since RR No. 2-2012 is of no force and effect, BIR’s imposition of VAT on
the taxpayer’s importation of diesel is without valid basis. Hence, the VAT
payment made by taxpayer on the importation of diesel is erroneous and illegal
and should be refunded. (PTT Philippines Trading Corporation vs
Commissioner of Customs and Commissioner of Internal Revenue, CTA Case
No. 9132, August 29, 2019)
Service by the BIR of The BIR contends that the PAN and FAN sent through mail to taxpayer’s old
address should be deemed valid as the taxpayer failed to notify in writing the
assessment notices to a RDOs having jurisdiction over its old and new business locations, as well as the
taxpayer's old address BIR computer center as required in Section 11 of RR No. 12-85.
despite having earlier
The CTA En Banc ruled that in BPI case (G.R. No. 135446, September 3, 2003),
knowledge about its
the Supreme Court invalidated the assessment issued by the BIR against a
new address is no valid taxpayer for sending the assessment notice to its old address, despite previous
notice for purposes of knowledge of its new principal place of business. In the BPI case, the
tax assessment. assessment was nullified though it was not shown that the taxpayer therein
notified in writing the BIR offices enumerated in Section 11 of RR No. 12-85 of
its change of address. The quintessence of the said case-law is that service by
the BIR of assessment notices to a taxpayer's old address despite having earlier
knowledge about its new address is no valid notice for purposes of tax
assessment. Succinctly stated, when the BIR acquires information of a
taxpayer's new address, notices should be sent to that address alone, lest the
assessment shall be invalid and without force and effect. (Commissioner of
Internal Revenue vs Daewoo Engineering & Construction Company Limited,
CTA EB NO. 1799 (CTA Case No. 8829), August 29, 2019)

DECISION HIGHLIGHTS
The bare invocation of The taxpayer in its Motion for Reconsideration avers that a strict application of
the rules can be relaxed in the interest of justice. Allegedly, a strict application
"the interest of of the rules would have an effect of making valid an assessment, which should
substantial justice" is have been voided in the first place, and the same would indubitably result to
not a magic wand that the deprivation of taxpayer’s right to property because it will then be held
liable to pay the amount stated on the subject assessment
will automatically
compel this Court to The CTA En Banc ruled that the bare invocation of "the interest of substantial
suspend procedural justice" is not a magic wand that will automatically compel this Court to
rules set forth in the suspend procedural rules. Procedural rules are not to be belittled or dismissed
simply because their non-observance may have resulted in prejudice to a
Revised Rules of Court party's substantive rights. Like all rules, they are required to be followed except
of Tax Appeals and Sec. only for the most persuasive of reasons when they may be relaxed to relieve a
2 of RA 1125 (An Act litigant of an injustice not commensurate with the decree of his
thoughtlessness in not complying with the procedure prescribed. (Nanox
Creating the Court of Philippines, Inc. vs Commissioner of Internal Revenue, CTA EB No. 1629 (CTA
Tax Appeals). Case No. 8433) August 28, 2019)
Non-compliance with The taxpayer filed a Petition for Review against the decision of the Court in
Division dismissing the Petition for lack of jurisdiction. The taxpayer insists that
the mandatory period the Petition was timely filed within thirty (30) days counted from June 30, 2014
of 120+30 days is fatal or the date when it was notified by BIR revenue officers of the issuance of RMC
to its claim for refund No. 54-2014 which denied all pending VAT refund claims. Thus, allegedly it had
until July 30, 2014 to file the Petition.
on the ground of
prescription. The CTA En Banc ruled that the pronouncements made in RMC No. 54-2014
applies to administrative cases filed after June 11, 2014 only. It must be noted,
however, that in the instant case, all administrative claims for refund were filed
prior to June 11, 2014, the date of issuance of RMC No. 54-14 and as such, what
is applicable to the instant case is 120+30 days rule. Thus, the taxpayer’s non-
compliance with the mandatory period of 120+30 days is fatal to its claim for
refund on the ground of prescription. Accordingly, the Court in Division has no
jurisdiction over the taxpayer’s judicial claim for refund. (Ibex Philippines, Inc.
vs Commissioner of Internal Revenue, CTA EB No. 1850 (CTA Case No. 8849)
August 28, 2019)
The issuance of a new The taxpayer received a copy of the FLD with the FAN finding it liable for
deficiency Income Tax, Value-Added Tax, Withholding Tax on Compensation,
LOA in cases of Expanded Withholding Tax, Final Withholding Tax, VAT Withholding,
reassignment or Documentary Stamp Tax and the corresponding penalties. Here, the Court
transfer of the questioned the authority of the Revenue Officers who conducted the audit,
though this was not raised as an issue by the parties.
investigator is
mandatory

DECISION HIGHLIGHTS
The CTA ruled that RMO No. 43-90, specifically requires the issuance of a new
LOA in cases of reassignment or transfer of the investigating Revenue Officer
(RO) to another revenue office. On this regard, the Court has already ruled that
the issuance of a new LOA in cases of reassignment or transfer of the
investigator is mandatory. Here, the absence of a new LOA naming the new
ROs rendered them without authority to continue the examination/audit of
taxpayer’s internal revenue tax liability for TY 2009. (FPIP Property Developers
and Management Corporation vs Commissioner of Internal Revenue, CTA
Case No. 8980, August 28, 2019)
SEPARATE CONCURRING OPINION (J. Ringpis-Liban): Notwithstanding the

absence of a new letter of authority issued to the newly assigned revenue
officers the same may be given an authority to continue the audit and
examination of the taxpayer’s books and other accounting records by way of a
Revalidation Notice or Memorandum of Reassignment or any letter in this case.
This may validly done under the provisions of NIRC – Sections 6, 7 & 10 – and
the laws on agency under the Civil Code.

THE BDB TEAM OUR EXPERTS
BENEDICTA DU-BALADAD
Founding Partner, Chair & CEO
T: +63 2 403 2001 loc. 300
dick.du-baladad@bdblaw.com.ph
FULVIO D. DAWILAN RODEL C. UNCIANO

Managing Partner Partner
T: +63 2 403 2001 loc. 310 IRWIN C. NIDEA, JR. T: +63 2 403 2001 loc. 140
fulvio.dawilan@bdblaw.com.ph Senior Partner rodel.unciano@bdblaw.com.ph
T: +63 2 403 2001 loc. 330
irwin.c.nideajr@bdblaw.com.ph
DISCLAIMER: The contents of this Insights are summaries of selected issuances from various government agencies, Court 16
decisions and articles written by our experts. They are intended for guidance only and as such should not be regarded as a
substitute for professional advice.

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TAX CASE DIGEST SERIES OF 2019

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CTA ruled that for an audit and examination of books to be considered as

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DISSENTING OPINION (J. Del Rosario): BIR Certificate of Registration, being a

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SEPARATE CONCURRING OPINION (J. Ringpis-Liban): Notwithstanding the

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FULVIO D. DAWILAN RODEL C. UNCIANO

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