WEEKLY TAX UPDATES [JULY 17-21, 2017]

A CTA DECISION ON THE CANCELLATION OF BIR TAX ASSESSMENT DUE TO FAILURE OF DEREK RAMSAY TO RECEIVE THE ASSESSMENT NOTICE

BIR filed a Petition for Review seeking a reversal of the Tax Court’s earlier decision on the cancellation of BIR assessment against Actor Derek Arthur Ramsay.  Both parties raised several issues including the jurisdiction of the court over the case and the legality of the demand for payment given the alleged deprivation of rights. The actor stressed that he did not receive any Letter of Authority and no Final Notice of Assessment was issued. The court finds that the subject assessment notices were not attached to the Formal Letter of Demand (FLD). More so, the Honorable Court finds that the FLD did not state definite time within which to settle the assessment thus, rendering the form itself void, leading to the CANCELLATION of BIR assessment pursuant to Section 228 of the 1997 Tax Code, as implemented by RR No. 12-99, which stressed that the taxpayers must be informed in writing of the law and facts upon which a tax assessment is based otherwise the assessment is VOID. [COMMISSIONER OF INTERNAL REVENUE VS. DEREK ARTHUR RAMSAY, CTA CASE NO. 8456, DATED JUNE 22, 2017]

 

A CTA DECISION ON THE CANCELLATION OF LOCAL TAX ASSESSMENT DUE TO MISCLASSIFICATION OF TAXPAYER

Makati City Hall and Cityland, Inc. filed a separate consolidated Petitions for Review seeking the reversal of the Court’s Decision in CTA AC Case No. 125 (Cityland, Inc. vs. City of Makati) cancelling the assessment of deficiency business tax on Cityland. In CTA EB No. 1428, the petitioners insist that Cityland may be reclassified from real estate “dealer” to “developer”, thus, may be subjected to local business tax. Meanwhile, in CTA EB No. 1439, petitioner Cityland contends that the Court’s assailed Decision has already become final and executory due to respondent’s failure to file a timely and compliant Motion for Reconsideration. The Court ruled that Section 3A.02 (m) of the Revised Makati Revenue Code stating that “owners or operators of real estate developer shall be taxed at the rate prescribed under sub-section (g) of the gross sales/receipts” is inapplicable to Cityland. The imposition of the local business taxes is limited in the application only to the owners and operators of real estate developer. Hence, the Notice of Assessment should have been addressed to the “owners and operators” rather than to Cityland, because of their separate and distinct personalities. Premises considered, the Petitions for Review are DENIED. The Decision of the Third Division of the Court in CTA AC Case No. 125 dated July 2, 2015 and its Resolution dated January 26, 2016 are AFFIRMED. [THE CITY OF MAKATI AND THE CITY TREASURER OF MAKATI CITY VS. CITYLAND, INC. & CITYLAND, INC. VS. CITY OF MAKATI & THE CITY TREASURER OF MAKATI CITY, CTA CASE NO. 1428 & CTA CASE NO. 1439, JUNE 28, 2017]

A CTA DECISION PARTIALLY UPHOLDING BIR ASSESSMENT DUE TO TAXPAYER’S FAILURE TO SUBSTANTIATE EXPENSES & INPUT VAT CLAIM

Ritegroup, Inc. and the CIR sought reconsideration of the Court’s decision which upheld the assessments for deficiency income tax, VAT, EWT, and FBT but with the modifications in the amount. Several issues have been raised including among others, the disallowance of purchases and related input VAT for failure of Ritegroup to substantiate as well as the legality and basis of the imposition of deficiency interest and delinquency interest.

 

According to the Tax Court, since expenses were not claimed as deductions from the reported taxable gross income in petitioner's 2008 Annual Income Tax Return, the same is not required to comply with the substantiation requirements under Section 34 of the NIRC of 1997, as amended.  Moreover, it must be noted that the three (3) elements on the imposition of income tax are: (1) there must be gain or profit, (2) that the gain or profit is realized or received, actually or constructively, and (3) it is not exempted by law or treaty from income tax.  Income tax is assessed on income received from any property, activity or service. Thus, in the imposition or assessment of income tax, there is income, and such income is realized or received by the taxpayer. In this case, the said elements are not present. Respondent merely imposed income tax on petitioner simply because there was allegedly an undeclared or unaccounted expenses. It must be emphasized that for income tax purposes, a taxpayer is free to deduct from its gross income a lesser amount of expenses, or not claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein. As such, even granting that there is an undeclared expense, the same is not prohibited by law. [COMMISSIONER OF INTERNAL REVENUE VS. RITEGROUP INCORPORATED, CTA CASE NO. 8651, DATED JUNE 29, 2017] 

BIR MEDIAL RELEASES

1.      BIR South Makati padlocked two (2) internet cafes operating in Guadalupe, Makati City for failure to comply with the 48-Hour Notice & 5-Day VAT Compliance Notice issued as a result of tax mapping operations. Accordingly, the said establishments were operating with business registration permits obtained from Makati City Hall but without BIR registrations.

 

2.      Caloocan City-based pawnshop charged with tax evasion for willful failure to pay taxes.

 

3.    Retailing company of former PBA Star, QC-based restaurant, and Cebu-based food court companies charged with tax evasion for willful failure to pay long overdue taxes.  

 

4.    BIR issued Press Statement dated July 11, 2017 on the very recent controversy implicating Commissioner, his Chief Legal Counsel, LTS Assistant Commissioner, and 14 other Revenuers for Plunder through conspiracy and connivance for the alleged anomalous reduction of the tax liability of Del Monte Philippines, Inc. (DMPI) from Php 30 Billion to about Php 65.4 Million covering taxable years 2011, 2012, and 2013.