SUMMARY OF SIGNIFICANT CTA DECISIONS (DECEMBER 2011)

1. Petition for Review before the Court of Tax Appeals (CTA) for refund should befiled within thirty (30) days from the receipt of the decision of the Commissioner ofInternal Revenue (CIR) or upon the expiration of the one hundred twenty (120) days incase of inaction of the CIR.The taxpayer filed a judicial claim two (2) days after it filed its administrative claim for refundor tax credit for unutilized input Value-added tax (VAT). The CIR claims that the CTA has nojurisdiction to entertain the petition for failure to await the expiration of the 120-day periodprovided under Section 112(C) of the 1997 National Internal Revenue Code. (NIRC) Thetaxpayer is of the view that the two year-period prescriptive period applies to bothadministrative and judicial claims and that the 120 day-period in Section 112 of NIRC is onlydirectory and need not be complied when the 2-year prescriptive period is about to expire.The Court ruled that the petition was prematurely filed and the taxpayer lacks cause ofaction. Petition for Review before the CTA for refund should be filed within thirty (30) daysfrom the receipt of the decision of the CIR or upon the expiration of the one hundred twenty(120) days in case of inaction of the CIR. Thus, it failed to exhaust the administrative remedywhich is a condition precedent before taking judicial action. (Crescent Park 19-1 PropertyHoldings, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8057, December07, 20111)

2. Due process requires that the receipt of the Preliminary Assessment Notice(PAN) be proven by the prosecution for the accused to be held liable under Section255 of the NIRC.The taxpayer informed the Bureau of Internal Revenue (BIR) that it has decided topermanently close and cease operations effective September 2005. Tax Verification Noticewas issued by the BIR to verify supporting documents and pertinent records relative to thetaxpayers closure of business. The verification prompted the issuance of the assessment foralleged value-added tax (VAT) deficiency, which in turn, led to the filing of the case, againstaccused, as the alleged responsible officers of taxpayer. The accused asserted that they didnot receive the Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN).Since accused supposedly never received any of the assessment notices, no willfulnesscould be attributed as such and in fact they were not even aware of the legal and factualbases of the tax assessment. The Court ruled that due process requires that the receipt ofthe PAN be proven by the prosecution for the accused to be held liable under Section 255 ofNIRC. The accused should be acquitted because prosecution failed to prove beyondreasonable doubt the essential elements of the offense and also failed to show that the PANwas indeed personally received by the accused. Considering that the prosecution failed toprove that the PAN was received by the accused, the assessment made by the CIR is void.It is well-settled that a void assessment bears no fruit. Thus, no civil liability arises in thiscase. (People of the Philippines vs. Katherine M. Lim and Edelyn Coronacion, CTACrim. Case No.0-113, December 12, 2011)1 The same decision was made in Procter & Gamble Asia, PTE LTD vs. Commissioner of Internal Revenue, CTAEB Case No. 746, December 20, 2011; Hedcor Sibulan, Inc. vs. Commissioner of Internal Revenue, CTA Case No.7974, December 21, 2011; CE Luzon Geothermal Power Company, Inc. vs. Commissioner of Internal Revenue,CTA Case No. 7890, December 29, 2011

3. Two options to a taxpayer whose quarterly income tax payments in a giventaxable year exceeds its total income tax due: (1) filing a tax refund, either in the formof cash or tax credit certificate or (2) availing of a tax credit. Once the carry-overoption is taken, actually or constructively, it becomes irrevocable for that taxableperiod.A Petition for Review was filed for failure of the CIR to act on the taxpayers administrativeclaim seeking the refund or issuance of a tax credit certificate representing its unutilizedcreditable tax withheld for the taxable year 2007. The CIR argued that the refund cannot begranted because the taxpayer automatically carried over the said amount to its income taxreturn for the fiscal year ended March 31, 2008. The Court ruled that Section 76 of the NIRCprovides two options to a taxpayer whose quarterly income tax payments in a given taxableyear exceeds its total income tax due: (1) filing a tax refund, either in the form of cash or taxcredit certificate or (2) availing of a tax credit. Once the carry-over option is taken, actually orconstructively, it becomes irrevocable for that taxable period. Thus, the application for cashrefund or issuance of tax credit certificate of the taxpayer cannot be allowed. (UPSIManagement, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 7945,December 16, 20112).

4. There are two requirements for taxpayer to be liable for franchise tax: (1) it hasa franchise in the sense of a secondary or special franchise; and (2) it is exercisingits rights or privileges under this franchise within the territory of the local governmentunit concerned.The Provincial Treasurer assessed the taxpayer and demanded payment for franchise taxon its receipts from a customer. The taxpayer argued that it cannot be considered to beoperating or performing its privilege under its franchise within the Province of Bataanbecause although it has a substation in the said Province, its customer is in the City ofBalanga, which is outside the territorial jurisdiction of the Province. The Court ruled thatthere are only two requirements for taxpayer to be liable for franchise tax: (1) it has afranchise in the sense of a secondary or special franchise; and (2) it is exercising its rightsor privileges under this franchise within the territory of the local government unit concerned.While taxpayer has exercised its rights and privileges under its franchise within the Provinceof Bataan, including the City of Balanga in connection with its electrical transmissionfunction, nevertheless, the Province of Bataan is not authorized to impose franchise tax ontaxpayers gross receipts from its customer. The one authorized to impose such franchisetax is the City of Balanga. (National Transmission Corporation vs. Province of Bataan,CTA AC No. 78, December 16, 20113)

5. The requirements for claim for refund of excess unutilized creditablewithholding tax at source are: (1) the claim is filed with the Commissioner of InternalRevenue (CIR) within the two-year period from the date of payment of the tax; (2) it isshown on the return of the recipient that the income payment received was declaredas part of the gross income; and (3) the fact of withholding is established by a copy of

2 The decision cited the cases of Paseo Realty and Development Corporation vs. Court of Appeals, Court of TaxAppeals and Commissioner of Internal Revenue G.R. No. 119286. October 13, 2004; Philam AssetManagement, Inc. vs. Commissioner of Internal Revenue, G.R. Nos. 156637/162004. December 14, 2005; ShellServices international Sendirian Berhad vs. Commissioner of Internal Revenue, C.T.A. EB CASE NO. 196. October30, 2007.3 The decision cited the case of National Power Corporation vs. City of Cabanatuan, G.R. No. 149110, April 9,2003.

a statement duly issued by the payor (withholding agent) to the payee showing theamount paid and the amount of the tax withheld therefrom.The instant case involves a claim for refund of taxpayer's alleged unutilized creditable taxwithheld for taxable year ending December 31, 2007. Due to the inaction on its claim forrefund, the taxpayer filed a petition for review before the CTA. The Court ruled that thetaxpayer complied with all the requirements for claim for refund of excess creditablewithholding tax at source. As to the first requisite/condition, the reckoning of the two-yearprescriptive period for filing a claim for refund of excess creditable withholding tax (CWT) orquarterly income tax payment starts from the date of filing of the Annual Income Tax Returnbecause it is only from this time that the refund is ascertained. Petitioner electronically filedits original Annual Income Tax Return for taxable year 2007 on April 14, 2008. Counting fromthis date, petitioner had until April 14, 2010 within which to file its claim for refund bothadministratively and judicially. Thus, petitioner's administrative claim, filed on October 21,2009, and the instant Petition for Review, filed on April 13, 2010, fall within the two-yearprescriptive period provided under Sections 204(C) and 229 of the NIRC of 1997, asamended. (Philippine Realty and Holdings Corporation vs. Commissioner of InternalRevenue, CTA Case No. 8070, December 20, 2011)

6. The Court ruled that the term "complete documents" referred to under Section112 of the National Internal Revenue Code (NIRC) of 1997, as amended, should beconstrued as those documents necessary to support the legal basis of taxpayer'sapplication for input VAT refund/credit as may be determined by the taxpayer bearingin mind that the "burden of proving entitlement to refund lies with the claimant".The taxpayer filed an administrative claim for refund of its unutilized input VAT for the fourquarters of taxable year 2002 with the Bureau Internal Revenue (BIR). Due to BIRs inactionand to suspend the two-year prescriptive period under the NIRC of 1997, as amended, andRevenue Regulations No. 7-95, taxpayer filed a Petition for Review on April 22, 2004. TheCIR argued that the law requires the submission of complete documents in support of theapplication filed with the BIR before the 120-day audit period shall apply, and before thetaxpayer could avail of judicial remedies as provided for in the law. The CIR asserted thattaxpayer merely submitted five (5) classes of documents in the administrative proceedings.CIR also asserted that the administrative claim was correctly denied by inaction due to itsfailure to submit complete documents as required. The Court ruled that the term "completedocuments" referred to under Section 112 of the NIRC of 1997, as amended, should beconstrued as those documents necessary to support the legal basis of taxpayer's applicationfor input VAT refund/credit as may be determined by the taxpayer bearing in mind that the"burden of proving entitlement to a refund lies with the claimant." Hence, the determinationof what constitutes as complete documents should not be left at the sole discretion of theCIR. Otherwise, a taxpayer would be practically placed at the mercy of the CIR which mayrequire production of documents that a taxpayer cannot submit. (Commissioner of InternalRevenue vs. Mirant Navotas Corporation, CTA Case No. 6960, December 20, 20114)

4 The decision cited the cases of Silicon Philippines, Inc. (Formerly INTEL PHILIPPINES MANUFACTURING, INC.)vs. Commissioner Internal Revenue, G.R. No. 172378, January 17, 2011; Commissioner of Internal Revenue v.First Express Pawnshop Company, Inc., G.R. Nos. 172045-46, June 16, 2009

7. The Waiver of Statute of Limitations must indicate the date of execution by thetaxpayer and the date of acceptance by the Commissioner of Internal Revenue (CIR)to be valid and effective as prescribed by RMO No. 20-90.The taxpayer, through its Controller, executed two "Waivers of the Defense of Prescription"under the Statute of Limitations of the National Internal Revenue Code (NIRC). Thesedocuments were accepted by Revenue District Officer, who failed to indicate his date ofacceptance. The Court ruled that the waivers were defective and could not validly extend theoriginal three-year prescriptive period wherein the CIR may assess the taxpayer. The date ofacceptance must be indicated to determine whether the waiver was validly accepted beforethe expiration of the original three-year period. If the acceptance was made beyond theprescriptive period, the waiver is defective and cannot validly extend the original three-yearperiod for the respondent to issue an assessment. (East Asia Power ResourcesCorporation vs. Commissioner of Internal Revenue, CTA Case No. 7956, December 26,2011)