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CTA CASES DECEMBER 2009

Refund of input VAT on capital goodsFor purposes of claiming refund or issuance of tax credit of unutilized input VATarising from purchases of capital goods, the goods and services purchased by thetaxpayer must fall under the denition of capital goods or properties. !nder"ection #.$%&'$(b) of ** %+'-, the term capital goods or properties is dened asgoods or properties ith estimated useful life greater than one year and hich aretreated as depreciable assets under "ection /(f), used directly or indirectly in theproduction or sale of taxable goods or services.

The "upreme 0ourt ("0) upheld the regulations hen it laid don the folloingre1uisites for purchases of goods and services to be considered as capital goods orproperties2 (a) useful life of goods or properties must exceed one year3 (b) thegoods or properties are treated as depreciable asset3 (c) the goods or propertiesmust be used directly or indirectly in the production or sale of taxable goods andservices.

To support its claim that the goods and services purchased 1ualify as capital goods,the taxpayer submitted its account vouchers, hich listed the goods purchasedunder inventory accounts. The taxpayer4s senior accountant also testied that thesub5ect goods and services ere treated as capital goods in the general ledger andaccounting records. The "0 held that the account vouchers presented by thetaxpayer conrm that the purchases are held as inventory items but not as capitalgoods since they ere recorded under inventory accounts, instead of depreciableassets accounts.

6oreover, as explained by the "0, a general ledger is a record of a business entity4saccounts, hich ma7e up its nancial statements. The information contained in thegeneral ledger is gathered from source documents such as account vouchers,purchase orders and sales invoices. 8n case of variance beteen the sourcedocuments and the general ledger, the former is preferred. 9ence, for failure toestablish that the goods and services it purchased are classied as capital goods,the taxpayer4s claim for refund of unutilized input VAT as denied. (KepcoPhilippines Corporation v. Commissioner of Internal Revenue, GR No. 1793!,"ecem#er 1$, %&&9'

VAT refund on zero-rated sales involving osetting arrangements8n claims for refund or issuance of tax credit certicate of unutilized excess inputVAT on purchase of goods and services directly attributable and:or allocable to ataxpayer4s zero'rated sale, the taxpayer'refund claimant must prove, among others,

that its sales of goods and services 1ualify for VAT zero rating.

8n the case of export sales that are paid for in acceptable foreign currency andaccounted for in accordance ith the rules of the ;"

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document proving payment for the goods in acceptable foreign currency or itse1uivalent in goods and services.

9oever, in case the proceeds of export sales are partially o>set against thepayable to a foreign parent or a?liated company, and partially inardly remittedand accounted for in accordance ith rules and regulations of the ;"setting arrangements as prescribed under *evenue6emorandum 0ircular @o. #/'%, to it2 (a) import documents that create liabilityaccounts in favor of the foreign parent or a?liated company3 (b) other contractsith the foreign or a?liated company that brought about the liabilities, hich areo>set against receivables from export sales3 (c) evidence of proceeds of loans, incase the claimant received loans or advances from the foreign company3 (d)documents or correspondence on the o>setting arrangement3 and (e) conrmationof the o>setting arrangements by the heads of the business organizations.

Thus, in the absence of proof shoing ho much of a taxpayer4s export sales areo>set against its payable to its parent company and ho much of its exportproceeds are inardly remitted and accounted for in accordance ith the ;"< rulesand regulations, its export sales cannot be classied as zero'rated sales. 9ence, itsclaim for refund or issuance of T00 on its unutilized input VAT on its alleged exportsales is denied. (aru#eni Philippines Corporation v. Commissioner of InternalRevenue, C)* Case No. 7%%3, "ecem#er 1, %&&9'

Excise tax on rubbing alcoholA rubbing alcohol containing +% percent ethyl alcohol by volume, hich ismanufactured using denatured alcohol as its chief ingredient, is exempt from excisetax imposed under "ection $#$ of the Tax 0ode. "ection $#$ sub5ects to excise taxmedicinal preparations that use distilled spirits as chief ingredient. The term spiritsor distilled spirits is dened as the substance 7non as ethyl alcohol, ethanol orspirits of ine, including all dilutions, purications and mixtures thereof, fromhatever source, by hatever process produced.

8n the preparation of the rubbing alcohol, denatured alcohol (ethyl alcohol mixedith methyl salicylate and menthol as denaturants) as used as a ra material:chief ingredient. 9ence, the ;8* classied the rubbing alcohol as a medicinalpreparation sub5ect to excise tax under "ection $#$ of the Tax 0ode. 9oever, the0TA held that pursuant to "ection $# of the Tax 0ode, domestic denatured alcohol,hen suitably denatured and rendered unt for oral inta7e, is exempt from excisetax prescribed under "ection $#$ of the Tax 0ode. According to the 0TA, theclassication of denatured alcohol is distinct from ethyl alcohol, hether diluted,puried and mixed thereof, from hatever source, and by hatever processproduced. Thus, it is only hen the denatured alcohol is reprocessed to ma7e it tfor oral inta7e does the same become sub5ect to excise tax. (InternationalPharmaceuticals, Inc. v. +IR Commissioner ilian -efti an /lvira 0era, -eaRevenue /ecutive *ssistant )2 /cise ar4e )apa5ers, C)* Case No. 773!,"ecem#er 11, %&&9'

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RPT on G! propertiesThe Bovernment "ervice 8nsurance "ystem (B"8") is liable for the real property tax(*ect and ithdre the tax exemption privileges including the *

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8n administrative proceedings such as the cancellation of the registration of a

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to appeal the decision to the 0TA. 9ence, the 0TA held that the petition for revieas led out of time since it as led after % days from the denial by the ;8* of itsprotest by FEEA. (8ishealth Cannin4 Corporation v. Commissioner of InternalRevenue, GR 1793$3, :anuar5 %1, %&1&'

%o &'T on interest paid on cooperative member(s deposits

The "0 ruled that cooperatives are not re1uired to ithhold the /%J nalithholding tax (FKT) on the interest income paid on savings and time deposits oftheir members. This reversed the earlier decision by the 0TA and the 0TA en banc,hich held that the interest income paid by cooperatives falls under the phrasesimilar arrangements under "ection /#(;)($) of the @8*0, and thus, should besub5ected to /%J FKT.

The "upreme 0ourt ("0) a?rmed the interpretation by the ;8* in its previous rulingsthat the /%J FKT under "ection /#(;)($) and "ection /+(E)($) covers only interestincome from currency ban7 deposits and deposit substitutes. "ince cooperatives arenot ban7s, they are not re1uired to impose the /%J FKT on interest paid on thesavings and time deposits of their members. The "0 ac7noledged that similar

interpretation by the ;8* in earlier rulings is in perfect harmony ith the0onstitution and existing las.

6oreover, the "0 held that the legislative intent to give cooperatives preferentialtax treatment is apparent under Articles &$ and &/ of *epublic Act (*A) &=(0ooperative 0ode of the

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and compromise penalties for late payment of its creditable ithholding taxes.(Commissioner of Internal Revenue v. Paci;c Plans, Inc., C)* /+ &%, :anuar5 !,%&1&'

'aiver of irrevocabilit) rule for dissolving corporations!nder "ection +& of the Tax 0ode, once the taxpayer has exercised the option to

carry over and apply its excess 1uarter income tax against its income tax due forthe taxable 1uarters of the succeeding taxable years, such option is irrevocable forthat taxable year and no application for cash refund or issuance of a tax creditcerticate shall be alloed. 9oever, here the corporation permanently ceases itsoperation before full utilization of the tax credits that it opted to carry over, suchcorporation may then be alloed to claim the refund of its remaining excess taxcredits provided that it les its administrative and 5udicial claim for refund to yearsfrom the ling of the nal ad5ustment return. 8n such a case, the irrevocability ruleceases to apply.

Accordingly, in order to exclude the company from the application of theirrevocability rule and therefore allo it to refund its remaining tax credits, the 0TA

re1uires that the company sho it has indeed ceased its operations. 8t must thusamend its articles of incorporation to shorten its corporate term pursuant to the0orporation 0ode of the

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The "upreme 0ourt ("0) held that creditable VAT ithheld should be treated asadvance payment for the taxpayerrefund claimant4s VAT liability payable and,therefore, the di>erence should be treated as the taxpayer4s overpaid taxes. 0iting0itiban7 @.A. v. 0ourt of Appeals, hich dealt ith excessive income taxes ithheldbut considered applicable by the "0, the 0ourt held that tax ithheld, hile

collected legally, became untenable and too7 on the nature of erroneously collectedtaxes.

8t as, hoever, claried by the "0 that its ruling only refers to the creditable VATithheld imposed previously under "ection $$# of the Tax 0ode. After theamendment by *A +, the amount ithheld under "ection $$# ill no betreated as a nal VAT and ill thus no longer be under the creditable ithholdingtax system. (Commissioner of Internal Revenue v. Ironcon +uilers an"evelopment Corporation, GR 16&&$%, 8e#ruar5 6, %&1&'

Tax on o+ine international carriersAn oLine international carrier selling passage documents through an independent

sales agent in the

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The "0 held that the activity is instead sub5ect only to the amusement tax under *A+$&%, otherise 7non as the Docal Bovernment 0ode (DB0) of $$. According tothe "0, although it as the national government that imposed the amusementtaxes on operators and proprietors of theaters under the @8*0 of $, this poer toimpose tax on amusement has been transferred to, and remains exclusively ith,the local government units (DB!s).

The "0 pointed out that the legislature never intended to impose VAT on operatorsor proprietors of cinema:theater houses, hich are already covered by theamusement tax under the DB0. 8t also stressed that levying the $%J VAT, in additionto the %J amusement tax imposed by "ection $#% of the DB0, ould impose anunreasonable burden on operators or proprietors of cinema:theater houses,resulting in in5ustice since persons taxed under the @8*0 of $+ ould be in abetter position than those taxed under the DB0 of $$. 9ence, in the absence ofany provision of la imposing VAT on the gross receipts of cinema:theater operatorsor proprietors derived from admission tic7ets, the "0 upheld the cancellation of thedeciency VAT assessment issued against the taxpayer. (Commissioner of InternalRevenue v. 2 Prime -olin4s Inc., an 8irst *sia Realt5 "evelopment Corporation,

GR 163&, 8e#ruar5 %!, %&1&'

CTA CASES MARCH 2010

!ncidental transaction for VAT purposes!nder "ection $%- of the @8*0 of $+, VAT is imposed on a sale or transactionentered into by a person in the course of any trade or business. A transaction ischaracterized as having been entered into by a person in the course of trade orbusiness if it is2 (a) regularly conducted, and (/) underta7en in pursuit of acommercial or economic activity. Transactions that are made incidental to the

pursuit of a commercial activity are considered as entered into in the course oftrade or business, and are sub5ect to the $/J VAT.

8n carrying out its business, a poer generating company ac1uired a motor vehiclethat formed part of its assets used in its business operations. Khen the motorvehicle as already fully depreciated, the company sold the motor vehicle, hich isconsidered a one'time sale transaction. The 0ourt of Tax Appeals (0TA) held that thesale of the company4s fully depreciated motor vehicle is considered an incidentaltransaction since the vehicle as purchased and used in the furtherance of thecompany4s business. 9ence, the sale should be sub5ect to the $/J VAT. (inanao IIGeothermal Partnership v. Commissioner of Internal Revenue, C)* /+ No. 13 reC)* Case Nos. 7%%7, 7%67, an 7317, arch 1&, %&1&'

$ontesting a real propert) tax assessment

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the case re1uires the presentation and evaluation of evidence. therise, theappeal to the court ill be considered premature and not yet ripe for 5udicialdetermination.

The 0TA en banc dismissed the petition of a poer company that claimedexemption from real property tax imposed on its machineries and e1uipment, due

to its failure to exhaust the administrative remedy of appealing the assessment tothe D;AA and 0;AA pursuant to "ection //& and // of the DB0. The 0TA en bancheld that although cases raising purely legal 1uestions may be excused fromexhausting administrative remedies before going to the courts (Ty vs. Trampe, B*@%. $$+-++, Eecember $, $-), the legal 1uestions raised by the taxpayer re1uireproof of facts to prove its claim for exemption (Figuerres vs. 0ourt of Appeals, et. Al.,B* @o. $$$+/, 6arch /-, $). According to the 0TA en banc the taxpayer raisesa 1uestion on the legality of the *

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facilities used in the generation of electricity. 8t is thus necessary that a companysee7ing refund of its unutilized input VAT attributable to its revenues from poergeneration present proof that it as registered and authorized by the H*0 tooperate facilities used in the generation of electricity in order for its sales to 1ualifyfor VAT zero'rating.

For failure to submit its H*0 registration and certicate of compliance, thegeneration company4s sales of generated poer cannot 1ualify for VAT zero'ratingunder the H

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properly documented in the administrative proceedings. 0TA en banc, hoever,held that the alleged nonsubmission of complete documents at the administrativelevel does not bar the court from receiving evidence, evaluating and appreciatingthe materiality, relevancy, probative value and su?ciency of taxpayer4s claim forrefund considering that the ;8* did not state and identify hat documents thetaxpayer failed to submit to arrant their denial.

The 0TA en banc further held that the 0ommissioner of 8nternal *evenue (08*) failedto controvert the documentary and testimonial evidence presented by the taxpayer.According to the 0TA en banc, the ;8* neither presented evidence nor expressedopposition before submitting the case to the 0ourt for its resolution. After athorough examination of the documentary and testimonial evidence, the 0TA enbanc found the evidence su?cient to act on the taxpayer4s claim for tax refund .(Commissioner of Internal Revenue v. 2an Ro>ue Poer Corporation, C)* /+ No.%3 re C)* Case No. 7173, *pril 1, %&1&'

Prior !TA" ruling re.uired for availing of tax treat) reliefThe "upreme 0ourt4s ("0) minute resolutions in the case of 6irant airs Eivision(8TAE) ruling prior to availing of a preferential tax rate C cannot be consideredbinding precedents, according to the 0TA. @onetheless, the 0TA maintained that there1uirement for application for tax treaty relief before a taxpayer can avail of thepreferential tax treatment under ectof la, and they benet from the presumption of validity and constitutionalityen5oyed by statutes. As pointed out by the 0TA, the re1uirement for priorapplication of 8TAE ruling under *6 $'%% is intended to avoid the conse1uences ofany erroneous interpretation and:or application of tax treaty provisions. According

to the 0TA, this re1uirement is in accord ith the strict construction of taxexemptions.

The 0TA held that *6 $'%% uses the term shall, hich is a ord of command,and one hich has alays and must be given compulsory meaning, and is generallyimperative or mandatory. This is contrary to the vie that the application for treatyrelief ith 8TAE is not mandatory. Thus, for failure to obtain an 8TAE ruling, a poercompany4s claim for refund of nal ithholding taxes paid to the ;8* in excess ofthe treaty rate as denied by the 0TA. (Commissioner of Internal Revenue v. C+KPoer Compan5 imite, C)* /+ Nos. $!9 an $9$ re C)* Case Nos. !!99, !66$,an 71!!, arch %9, %&1&'

CTA CASES MAY 2010

Prescriptive period for refund of "T loaded on imprinting machineA ban7 authorized by the ;8* to operate and use an online documentary stampmetering machine (E" imprinting machine) may le a claim for issuance of taxcredit certicate or refund for its alleged erroneous payments of E"T. Theapplication should be led ithin to years rec7oned from the date of the ling of

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its E"T declaration under ;8* Form @o. /%%%, and not from the date appearing onthe documentary stamp imprinted through the E" imprinting machine.

As provided under "ection /%% (A) and (;) of the Tax 0ode, any person liable to payE"T upon any document sub5ect to tax should le the re1uired tax return (E"T Form/%%%) ithin $% days after the close of the month hen the taxable document as

made, signed, issued, accepted or transferred. The tax should be paid at the sametime the return is led.

This due date, hoever, does not apply in case the E"T is imprinted through a E"imprinting machine. !nder "ection /%%(E) of the Tax 0ode, the E"T may be paideither through purchase and actual a?xture, or by imprinting the stamp on thetaxable document through a documentary stamp imprinting machine.

As implemented by "ection -. of *evenue *egulations @o. (**) %-'+, the E"Tdeclaration (;8* Form /%%%) for persons authorized to use the E"T imprintingmachine should be led each time the documentary stamp is purchased for loadingor reloading on the machine.

The 0ourt of Tax Appeals (0TA) held that insofar as the taxpayers using E"imprinting machines are concerned, the E"T is deemed paid upon purchase forloading or reloading of documentary stamps. 8t follos that for said taxpayers, theto'year prescriptive period for taxpayers claiming refund of E"T should commencefrom the date of ling of ;8* Form /%%%, and not on the date that appears on theE"T imprinted through the E" imprinting machine. (Philippine +an= ofCommunications v. Commissioner of Internal Revenue, a5 13, %&1&'

Reiteration of PA% in &A%Audit ndings in the preliminary assessment notice (

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documents submitted by the taxpayer. The di>erence in the appreciation by the ;8*of the taxpayer4s supporting documents leading to the assessment of the taxpayer4sdeciency taxes does not violate due process. (*von Proucts anufacturin4, Inc. v.Commissioner of Internal Revenue, a5 13, %&1&'

Proper execution of *aiver of statute of limitations

To protect the taxpayer from unreasonable investigation and from indeniteissuances of assessment, "ection /% of the Tax 0ode provides a period of threeyears ithin hich the ;8* may issue an assessment for internal revenue taxes. Thisperiod is rec7oned from the last day prescribed by la for the ling of a return orfrom the day hen the return as led, hichever is later.

The taxpayer may, hoever, stipulate in riting the extension of the period ofassessment by a ritten agreement executed prior to the lapse of the periodprescribed by la, and by subse1uent ritten agreements before the expiration ofthe period previously agreed upon, in conformity ith "ection /// of the Tax 0ode,and in con5unction ith *evenue 6emorandum rder (*6) /%'%, hich providesfor the procedures for executing a valid aiver of statute of limitations.

8n the instant case, the ;8* and the taxpayer executed ritten aivers of thestatute of limitations. The 0TA found that the taxpayer had not received a copy ofthe aiver signed by the ;8* representative, hich is one of the re1uirementsimposed under *6 /%'% that should be strictly folloed by any revenue o?cial inexecuting a valid aiver. According to the 0TA, this inrmity has the e>ect ofma7ing the aiver invalid and ine>ective. The 0TA cited the case of

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The "0 ruled that the ;8* cannot hide behind the doctrine of estoppel to cover itsfailure to comply ith *evenue 6emorandum rder (*6) /%'% and *evenueEelegation Authority rder (*EA) %-' %$ hen it executed the aiver.

9aving caused the defects in the aiver, the "0 maintained that the ;8* must su>erthe conse1uence, and not shift the burden to the taxpayer. As such, considering

that the aiver is deemed incomplete and defective for failure to comply ith there1uisites under *6 /%'%, the three'year prescriptive period as not extended,and therefore it continued to run. 0onse1uently, the "0 concluded that theassessments issued by the ;8* ere beyond the three'year period and eredeemed void. (Commissioner of Internal Revenue v. Kuos etal Corporation, GR176&67, a5 , %&1&'

!nput VAT invoicing re.uirementsThe VAT invoices or receipts supporting a claim for input tax must contain there1uired information to be considered VAT invoices under contemplation of themandatory invoicing re1uirements, as provided under "ections $$ and /+ of the

Tax 0ode. therise, the VAT component of the purchase cannot be claimed as

input tax.

Aside from ma7ing it mandatory for a VAT'registered person to issue an invoice orreceipt for every sales transaction, "ection $$(A) of the Tax 0ode also re1uires saidperson to reMect the information that the seller is a VATregistered person, folloedby the tax identication number (T8@) and the total amount that the purchaser paidor is obligated to pay to the seller ith the indication that such amount includes theVAT. All this is in addition to the information re1uired under "ection /+ of the Tax0ode.

The information referred to under "ection /+ of the Tax 0ode pertains to thefolloing2 the name, business style, if any, and address of the purchaser, customer

or client, and here the purchaser is a VAT'registered person. 8n addition thereto,the invoice or receipt shall further sho the T8@ of the purchaser.

8n the taxpayer4s claim for input tax, the supporting invoices or receipts that itsubmitted ere undated, hile others did not contain the address and T8@ of thepurchaser. The 0TA held that the taxpayer4s alleged input VAT on purchases, hichare supported by such defective invoices or receipts, should be disalloed forviolation of the invoicing re1uirements under the Tax 0ode. As maintained by the0TA, full compliance ith the invoicing re1uirements is mandatory and the failure onthe part of the taxpayer to comply ith the invoicing re1uirements is fatal to itsclaim for recognition of its input tax credits. (Nesic Philippines, Inc. v. Commissionerof Internal Revenue, a5 !, %&1&'

$'T on car rental pa)ments8ncome payments made by a taxpayer to a car rental company are covered by"ection /.-+./(H)(#)(e) of ** /'=, hich sub5ects income payments made totransportation contractors to $J (no /J) creditable ithholding tax (0KT).

The said "ection imposes a $J (no /J) 0KT on gross payment made totransportation contractors, hich include common carriers for the carriage of goods

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and merchandise of hatever 7ind by land, air or ater, here the gross paymentsby the payor to the same payee amounts to at least

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There is a to'year prescriptive period for applying for refund or issuance of taxcredit certicate of excess or unapplied creditable ithholding tax (0KT) under"ection /%# of the Tax 0ode. 8n addition, "ection /.-=.(;) of *evenue *egulations@o. (**) /'= re1uires that a taxpayer claiming refund of excess or unapplied 0KTmust sho on the return that the income payment sub5ected to the ithholding taxas declared as part of its gross income. The taxpayer should also establish the fact

of ithholding by submitting a copy of the ithholding tax statement (;8* Form/%+) issued by the payor:buyer (ithholding agent) in the name of the taxpayer aspayee, shoing the amount paid and the amount of tax ithheld.

8n the instant case, the payee:seller too7 charge of deducting the amount ofithholding tax from the payment he received and remitting the same to the ;8*.9ence, to prove the fact of ithholding of 0KT, the taxpayer:refund claimantpresented ;8* Form $&%& (ithholding tax remittance return), hich it led relativeto the sale of its real property. The 0TA held that the ;8* Form $&%& presented bythe taxpayer, although it indicated the name of the payor, the income paymentbasis of the tax ithheld, the amount of tax ithheld and the nature of the tax paid,does not su?ce because it did not emanate from the payor. The 0TA explained that

the document that may be accepted as evidence to establish the fact of ithholdingshould come from the payor and not from the payee since the payor is in a betterposition to state that the ithholding of tax as in fact made, being the dulyconstituted ithholding agent. The 0TA also pointed out that in case of taxablesales, exchanges or transfers of real property, the buyers (not the sellers) Chether or not engaged in trade or business C are constituted as ithholdingagents. Furthermore, the 0TA held that based on "ection /.-=(;) of ** '/%%/, ;8*Form /%+ issued by the income payor to the payee should be submitted by thetaxpayer since it is the only acceptable evidence that establishes the fact ofithholding relative to the taxpayer4s sale of its real property. (ermac, Inc. v.Commissioner of Internal Revenue, C)* Case No. 776, :une %6, %&1&'

3atching re.uirement on claims for unutilized input VAT on zero-ratedsalesAlthough "ection $$/(A) of the Tax 0ode, as amended, re1uires the presence ofzero'rated or e>ectively zero'rated sales to refund unutilized input VAT attributableto such sales, there is no re1uirement that the zero'rated or e>ectively zero'ratedsales must be made during the same 1uarter hen the input taxes sought to berefunded ere incurred or paid.

8n the instant case, the taxpayer claimed a refund of its unutilized input VATincurred during the fourth 1uarter of /%%& and rst and second 1uarter of /%%+. 8nthe said 1uarters, no amount of zero'rated sales:receipts as reported in thetaxpayer4s VAT returns. As explained by the taxpayer, it as only able to generatezero'rated sales only in the third 1uarter of /%%+. n the ground that no amount ofzero'rated sales:receipts as reported in the taxpayer4s VAT returns for the relevant1uarters, the 0TA initially denied the refund of its input VAT claim.

8n its amended decision, hoever, the 0TA held that the input taxes that are thesub5ect of the refund need not be incurred or paid during the same 1uarter henthe zero'rated or e>ectively sales ere made. As long as there ere zeroratedsales, although at a later date, the input taxes incurred relating to the goods sold

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should be refunded. 9ence, the taxpayer should be entitled to a refund of itsunutilized input VAT that is attributable to its zero'rated sales. (G2) v.Commissioner of Internal Revenue, C)* /+ No. $7 re C)* Case No. !%%, :une %3,%&1&'

Period to appeal a tax assessment at the $TA

!nder "ection //= of the Tax 0ode, decisions, rulings or inaction of the0ommissioner of 8nternal *evenue (08*) are appealable to the 0ourt of Tax Appeals(0TA) ithin % days from receipt of the decision or ruling, or ithin % days fromthe lapse of the $=%'day period xed by la for the 0ommissioner to act on thedisputed assessment.

After receiving the nal decision on disputed assessment (FEEA), the taxpayer,instead of appealing the FEEA to the 0TA, led a re1uest forreconsideration:reinvestigation of the FEEA ith the Assistant Associate0ommissioner of 8nternal *evenue ' Darge Taxpayer4s "ervice (A08*'DT"), hich asgranted by the latter. "ubse1uent to its submission of the pertinent documentssupporting its re1uest for reconsideration:reinvestigation, the taxpayer led apetition for revie ith the 0TA.

The 0TA held that under "ection .$.- of ** $/' implementing "ection //= of theTax 0ode, if a taxpayer elevates his protest to the 08* upon receipt of the FEEA thatas issued by the 08*4s duly authorized representative, the latter4s decision shallnot be considered nal, executory, and demandable. 9oever, the FEEA shall beconsidered the nal decision if the protest is led ith another authorizedrepresentative of the 08*, not the 08* himself. 8n the instant case, the taxpayer ledthe re1uest for reconsideration of the FEEA ith the A08*'DT", and not ith the 08*.Although the taxpayer subse1uently led an appeal ith the 0TA, this as deniedconsidering that the petition as led beyond the %'day period from the receipt ofthe FEEA . Thus, the re1uest for reconsideration led by the taxpayer ith the A08*'DT" did not toll the running of the %'day period to appeal the FEEA ith the 0TA.(Colle4e *ssurance Plan Phils., Inc. v. Commissioner of Internal Revenue, C)* /+ No.$7 re C)* Case No. !%%, :une 1, %&1&'

CTA CASES SEPTEMBER 2014&A% issued before lapse of 45- da) period to repl) to PA%!nder *evenue *egulations @o. (**) $/', as amended, a taxpayer horeceives a

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that the FA@ as void for disregarding the $-'day period accorded taxpayersto protest the

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the notice, registry return receipts, and testimony of the person hopurportedly served the assessment notices. The taxpayer denied that theperson ho received the erence beteen false and fraudulent return2 the former merely impliesdeviation from the truth '' hether intentional or not Q hile the latterimplies intentional or deceitful entry ith intent to evade the taxes due.Failure to declare a substantial portion of VATable receipts in the VAT returnconstitutes a deviation from truth and shall be tantamount to ling of a falsereturn hich can be covered by the $%'year prescription period. 9oever,the -%J fraud penalty under "ection /#= of the Tax 0ode cannot be imposedin the absence of a illful fraudulent act on the part of the taxpayer. "ection

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/#= authorizes the 0ommissioner of 8nternal *evenue (08*) to add a -%Jsurcharge on the deciency tax in case a false or fraudulent return or list isillfully made.

Fraud cannot be presumed but must be proven. Fraudulent intent could not

be deduced from mista7es hoever fre1uent they may be, especially if suchmista7es emanate from erroneous entries or erroneous classication of itemsin accounting methods utilized for determination of tax liabilities. 8n the caseat bar, the taxpayer4s failure to declare its interest income in its VAT returnsdid not arise from a deliberate attempt on its part to evade tax but on thehonest belief that such interest income is not sub5ect to VAT. This issupported by the fact that such interest income ere disclosed in thetaxpayer4s audited nancial statements and reported as taxable income inits annual income tax return. 8n such case, the 0ourt ruled that the ;8* canassess the deciency VAT plus the /%J interest per annum, but not the -%Jsurcharge. (c"onalBs Philippines Realt5 Corporation v. Commissioner of

Internal Revenue, C)* Case No. 6&!, @cto#er %9, %&1$'

Validit) of a *aiver*evenue 6emorandum rder @o. (*6) /%'% clearly states the re1uirementfor strict compliance ith the mandatory re1uisites for a valid aiver. 9ence,failure to comply ith such re1uirements ill ma7e the aiver invalid andithout any binding e>ect.

8n the case at bar, the aiver as executed ithout the notarized rittenauthority of the company4s accountant to sign on behalf of the company.Furthermore, the fact of receipt by the company of its le copy of the aiver

as not indicated in the original copy, and no other evidence as presentedto prove the fact of receipt of the aiver accepted by the 08*. The aiver,therefore, is invalid and cannot suspend the running of the prescriptionperiod for the assessment of the deciency taxes. (Commissioner of InternalRevenue v. Ni==en Philippines, Inc., C)* /+ Case No. 1&6, @cto#er %3,%&1$'

CTA CASES OCTOBER-NOVEMBER 2014

&ailure to compl) *ith R3/ 96-:6 renders the *aiver invalid"ection /% of the Tax 0ode, as amended, provides that the ;8* ordinarilyhas a period of three years ithin hich to assess internal revenue taxes.Any assessment notice issued beyond the three'year prescriptive period shallbe deemed invalid. "uch rule is sub5ect to certain exceptions, such as upon aritten agreement beteen the tax authorities and taxpayer through theexecution of a aiver of the defense of prescription under the statute oflimitations of the Tax 0ode, as amended.

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*6 /%'% sets out the re1uirements for the validity of aiver. ne suchre1uirement is the 08*4s (or her authorized representative4s) signature on theaiver indicating the ;8*4s acceptance and agreement to the aiver. Thedate of such acceptance by the ;8* should also be indicated.

Failure to comply ith these re1uirements ould render the aiver invalidand ould not extend the prescriptive period.

8n the instant case, the taxpayer executed a aiver in "eptember /%%= forthe taxable year /%%- assessment. @otithstanding the 08*4s signaturea?xed on the aiver, the 0ourt found the aiver invalid because there1uirement under *6 /%'% to include the date of acceptance as notmet. Biven the failure to fully comply ith the *6, no valid agreementbeteen the taxpayer and the ;8* could have ta7en place. 0onse1uently, theaiver did not toll the running of the prescriptive period of three years from

the ling of the return as re1uired by the Tax 0ode. (:oanna ee @. 2antos v.Commissioner of Internal Revenue, C)* Case No. 6%1$, Novem#er %!, %&1$'

/ut-of-time claim for the VAT refund"ection $$/ (0) of the Tax 0ode is explicit on the mandatory and5urisdictional nature of the $/%R% day period that has been e>ective sinceGanuary $, $=.

8n the present case, since the administrative claim for refund as led onGuly /$, $, the 08* had $/% days (until @ovember $=, $) to act on theapplication. Khen the $/%'day prescriptive period lapsed ithout an action

by the 08*, the taxpayer should have led its 5udicial claim before the 0ourtof Tax Appeals (0TA) ithin % days or until Eecember $=, $. 9oever,since the taxpayer led its 5udicial claim only on Ganuary , /%%$, theapplication as, therefore, a year and // days late.

As a result of the late ling of said petition, the "0 held that the 0TA did notproperly ac1uire 5urisdiction over the claim. Thus, the "0 reversed thedecision of the 0TA Hn ;anc granting the VAT refund, stating that despite thetaxpayer4s timely ling its administrative case, the 0ourt is constrained todeny the averred tax refund or credit, as its 5udicial claim as led beyondthe $/%R% day period, and hence deemed to be led out of time.

(Commissioner of Internal Revenue v. +urmeister an ain 2caninavianContractor, GR No. 19&&%1, @cto#er %%, %&1$'

$erti;cate of exemption not a prere.uisite for income taxexemptionA certicate of exemption, as prescribed in *6 /%'/%$ and *6 $#'/%%$,is not a prere1uisite for the exemption from income tax of a 1ualied non'stoc7, non'prot educational institution pursuant to "ection % of the Tax

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CTA CASES DECEMBER 2014

trict compliance *ith the re.uirements for claiming tax exemption!nder the franchise of the

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"ection $%& imposes VAT on all 7inds of goods and properties sold in theorded dueprocess of la in assessing tax liability. A valid assessment is a substantive

prere1uisite to tax collection. Eue process dictates that proper sending andactual receipt by taxpayer of the assessment notice.

Khen a letter or document is sent by registered mail, it is presumed that itas received in the regular course of mail. The facts to be proved in order toraise this presumption are2 (a) that the letter as properly addressed iththe postage prepaid3 and (b) that it as mailed.

9oever, even if a mailed letter is deemed received by the addressee in theordinary course of mail, this is still a disputable presumption, and a directdenial of the receipt thereof shifts the burden upon the party favoured by the

presumption to prove that the mailed letter as indeed received by theaddressee.

8n this case, the taxpayer directly denied that he received the preliminaryassessment notice (

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The 0TA ruled against this defense stating that the petitioner4s submission ofprotest ithout supporting documents does not invalidate the ling of theprotest. The lac7 of documentation ill only matter hen the ;8* evaluatesthe merits of the said protests, but should not automatically result in the

deciency assessment becoming nal and executory. (Phil 8oos Properties,Inc. v. CIR, C)* Case No. 616, )hir "ivision, "ecem#er 3, %&1$'

Exception to strict interpretation of the la*The general rule is that tax collection cannot be suspended. 8n case of non'redemption foreclosure sale, capital gains tax (0BT) and documentary stamptax (E"T) should be paid ithin % days and ve days, respectively, after thelapse of the redemption period. 0onse1uently, any penalties and surchargesthat may be imposed should, li7eise, be counted from said redemptionperiod.

9oever, the peculiar circumstances of the case arrant specialconsideration. The taxpayer attempted to pay the 0BT and E"T after theexpiration of the redemption period but as told by the receiving cler7 of the*E that the certicates of nal sale are re1uired before payment of 0BTand E"T. 9oever, hen the certicates of nal sale ere issued and thetaxpayer paid the taxes, it as additionally charged interest and penalties.Biven the circumstances, the 0TA approved the taxpayer4s application forrefund of the interest and penalties charged on the 0BT and E"T.

Khile procedural rules must be folloed, special cases merit exemption torelieve a litigant of an in5ustice not commensurate to the degree of his

thoughtlessness in noncompliance ith the procedure prescribed by la.

The government should not use technicalities to hold on to money that doesnot belong to it. nly a preponderance of evidence is needed to grant aclaim for tax refund based on excess payment. The ;8* should thus refund orissue a tax credit certicate (T00) to the taxpayer representing erroneouslypaid surcharges on the 0BT and real property tax (*

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taxpayer is a>orded the remedy of ling an appeal ith the Docal ;oard ofAssessment Appeals (D;AA). 8f the taxpayer is not satised ith the decisionof the D;AA, he can appeal the decision to the 0entral ;oard of AssessmentAppeals (0;AA) ithin % days after the receipt of the decision.

8n the present case, the taxpayer led an appeal directly ith the *egionalTrial 0ourt (*T0) for the denial of cancellation of * or compensation for the simple reason thatthe government and the taxpayer are not creditors and debtors of eachother. There is a material distinction beteen tax and debt. Eebts are due tothe government in its corporate capacity, hile taxes are due to thegovernment in its sovereign capacity.

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A person cannot refuse to pay tax on the ground that the government oeshim an amount e1ual to or greater than the tax being collected. Thecollection of a tax cannot aait the results of a lasuit against thegovernment. (+a5 Resources "evelopment Corporation v. +** an ocal

)reasurer of Parana>ue, C)* /+ Case No. 1&3!, "ecem#er 1!, %&1$'

VAT #ero-rating of services to nonresident clients!nder "ection $%=(;)(/) of the @ational 8nternal *evenue 0ode (@8*0) of$+, as amended, the folloing re1uisites must be met in order for thesupply of services to be VAT zero'rated2

$. services of a VAT'registered person must not involve processing,manufacturing or repac7ing of goods

/. payment for such services must be in acceptable foreign currency andaccounted for in accordance ith the ;ang7o "entral ng

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rated sales should also be disalloed by the 0TA. therise, it ould be todisregard the substantiation of the taxpayer4s zero'rated sales therebynegating its e>ect on the amount of unutilized input VAT claimed for refund.(Northin Poer "evelopment Corporation v. CIR, C)* /+ Nos. 1&37 D1&$%, "ecem#er 1!, %&1$'

Refunding of amortized input VAT from capital goods"ection $$% (A) of the $+ Tax 0ode is clear that if the aggregateac1uisition cost of the capital goods, excluding the VAT component, exceedsone million pesos in a calendar month, the input tax on capital goods shall bespread over &% months or the estimated useful life of the capital goods,hichever is shorter. "ince there is no provision for exemption, a companygenerating $%%J export or VAT zero'rated sales is not exempt from there1uirement to spread the input VAT.

9ence, even if the taxpayer is sub5ected to zero'rated tax on all its sales, it

can only claim refund based on its creditable input tax attributable to thezero'rated sale during the period. 8n case of input taxes on capital goods,such refundable input tax refers only to the portion amortized during theperiod of claim.

This rule ill not prevent the taxpayer from refunding the rest of theamortized input taxes beyond the to'year prescription period. Thespreading over of the input VAT does not run counter to the provisions of"ection $$/(A) of the $+ Tax 0ode because the spreading over merelydelays the crediting of the input tax and not the ling of the claim. Thetaxpayer is not deprived of his privilege to credit the input tax as long as it

led its claim ithin to years from the close of the taxable 1uarter henthe sales ere made. To emphasize, the rec7oning period for the claim is toyears from the end of the 1uarter hen the pertinent sale or transactionsere made regardless of hen the input VAT as paid. ()a4anito inin4Corporation v. CIR, C)* /+ Case Nos. 93 D 93!, "ecem#er 1!, %&1$E anCIR v. Northin Poer "evelopment Corporation, C)* /+ Nos. 1&37 D 1&$%,"ecem#er 1!, %&1$'

Proving that income on *hich $'T refund is sought is declared inthe !TRA taxpayer claiming for a tax credit or refund of 0KT must prove that it as

shon in the income tax return (8T*) that the income received as declaredas part of the gross income and the fact of ithholding must be establishedby a copy of a statement duly issued by the payor to the payee shoing theamount paid and the amount of tax ithheld.

Although the taxpayer submitted documents li7e Beneral Dedger, Trial;alance, Audited Financial "tatements for /%%+, /%%= and /%%, Annual8ncome Tax *eturns for /%%+ and /%%=, Ouarterly 8ncome Tax *eturns for

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/%%+ and /%%=, schedules and other supporting documents, the court notedthat it failed to present detailed Beneral Dedger, reconciliation schedules orany other document hereby the court can trace the discrepancy and candetermine ith certainty that the all income payments related to the claimed0KT formed part of its taxable gross income in its annual 8T*.

Tax refunds parta7e of the nature of tax exemptions and are thus construedstrictissimi 5uris against the person or entity claiming the exemption. Theburden in claiming tax refund rests upon the taxpayer. 8n this case, petitionerfailed to discharge the necessary burden of proof. (Fnite Coconut Planters+an= v. CIR, C)* /+ No. 1&17, "ecem#er 1!, %&1$'

Refund of erroneousl) *ithheld tax

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8t is a truism that tax refunds are in the nature of tax exemptions and are tobe construed in strictissimi 5uris against the taxpayer and liberally in favor ofthe taxing authority. 9oever, the rule on strict interpretation of taxexemption does not 5ustify a denial of a claim for refund here the taxpayerhas su?ciently proven the factual and legal basis for its exemption and the

fact of payment to the taxing authorities. (+ases Conversion an"evelopment *uthorit5 v. CIR, C)* /+ No. 11%3, "ecem#er 1!, %&1$'

Refund of excess income tax credits upon cessation of business!nder "ection +& of the $+ Tax 0ode, a corporation4s excess income taxcredit or overpaid income tax in a given year may either be refunded (in theform of cash or T00s) or carried over and applied against the income taxliabilities of the succeeding taxable years. nce the option to carry'over hasbeen made, such option becomes irrevocable for that taxable period and noapplication for cash refund or issuance of tax credit certicate shall then bealloed.

8n exercising its option, the corporation is mandated to signify in its annual8T* (by mar7ing the box provided in an appropriate ;8* Form) its intentioneither to carry over the excess credit or to claim a refund3 the remedies arein the alternative and the choice of one precludes the other. 9oever, in theevent of cessation of business, a taxpayer may opt to claim for refund:T00even if it had previously chosen or exercised the irrevocable option to carry'over since there is no more opportunity for it to utilize such excess credits.

9oever, in order to be exempted from the irrevocability rule, the taxpayermust prove that it has indeed permanently ceased its business operations. A

dissolving corporation must abide by the re1uirements as stated in "ections-/(0) and /-(e) of the $+ Tax 0ode, as amended, viz., ($) secure a0erticate of Tax 0learance from the ;8*, and (/) to secure a 0erticate ofEissolution from the "ecurities and Hxchange 0ommissioner ("H0). (N/Co4istics Phil., Inc., v. CIR, C)* Case No. 633, "ecem#er 16, %&1$'

CTA CASES JANUARY 2015

Prescriptive period for refund of indirect taxes passed on to PE#Aenterprises

A

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8n such case, neither the prescriptive periods nor procedural re1uirementsprovided under "ection /$ of the Tari> and 0ustoms 0ode of the