WEEKLY TAX UPDATES [OCTOBER 2-6]

COURT OF TAX APPEALS (CTA) CASE DIGESTS FOR THIS WEEK

 

DIVIDEND INCOME NOT SUBJECT TO LOCAL BUSINESS TAX

Makati City and the City Treasurer of Makati City seeks to reverse and set aside the decision rendered by the Regional Trial Court (RTC)-Branch 143 of Makati City which cancelled the assessment for Local Business Tax (LBT) against Metro Pacific Tollways Development Corporation, herein Respondent. The main controversy lies as to whether respondents dividend income constitutes taxable gross receipts which may be subject to LBT. The Court emphasized that the imposition of taxes on Holding Companies was not expressly prohibited by the Local Government Code of 1991, as amended. However, it is worthy to note that in CTA En Banc case in MICHIGAN HOLDINGS INC v THE CITY OF TREASURER OF MAKATI, the Honourable Court ruled that dividend income is excluded from gross receipts for imposition of LBT. Accordingly, finding no reversible error, the Honourable Court finds no cogent reason or justification to disturb the conclusions reached in the assailed decision and resolution rendered by the RTC. The Petition for Review is DENIED for lack of merit. [MAKATI CITY AND THE CITY TREASURER OF MAKATI CITY VS. METRO PACIFIC TOLLWAYS DEVELOPMENT CORPORATION, CTA AC NO. 172, SEPTEMBER 20, 2017]

 

OFFSETING OF OVER-REMITTED EWT AS A RESULT OF ERROR NOT ALLOWED

New Coast Hotel, Inc. filed a Petition for Review, praying for the Refund or issuance of Tax Credit Certificate (TCC) representing erroneously paid Expanded Withholding (EWT) in the amount of Php 592,273.32. The Petitioner filed its July 2012 EWT return and paid the corresponding tax but the same was later amended resulting to an overpayment of Php 340,769.16. As a result, the Petitioner marked the to be refunded box in its amended return pertaining to the amount and credited the same from his tax liability on EWT for the next month (i.e. August 2012) believing that such is a common practice. Later in March 2014, the BIR informed the Petitioner through a Preliminary Notice that they cannot proceed with the validation of payment on return submitted on August 2012 due to the underpayment of tax in the amount of Php 592,273.32 After several protests, the Petitioner paid the said amount under protest which led to the filing of Petition for Review. Several issues were raised but the main issue is centered on the validity of the offsetting made by the Petitioner. The Court ruled that under Sections 204(C) and 229 of the 1997 Tax Code, it expressly provides that in case of erroneously or illegally assessed or collected tax, the taxpayer has only two (2) options (i.e. refund or issuance of a TCC). The right of taxpayers to claim a refund or issuance of a TCC does not entitle him to credit or offset to other tax liabilities. The Petition for Review was denied for lack of merit. [NEW COAST HOTEL, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9146, SEPTEMBER 19, 2017]

 

FALSITY OF RETURNS LEADING TO THE APPLICATION OF 10-YEAR PRESCRIPTION

OBEN Holdings, Inc. filed a Petition for Review seeking the cancellation of the BIRs deficiency VAT assessment on the ground of substantial under declaration of income which constitutes prima facie evidence of a false return. The Petitioner claims that the error in the amount of gross income indicated in the Original ITR was due to its accounting system program which automatically added the rental income from 2007 which they have corrected in the amended ITR. The Court reiterates that the Petitioner failed to present evidence to overturn the presumption of correctness of the BIRs assessment resulting to a falsity which warrants the application of the ten-year prescriptive period. Further, the amended ITR cannot support the Petitioner's claim that it corrected the ITR because a Letter of Authority (LOA) was already served upon the Petitioner. Thus, the law does not allow the amendment of a return after an LOA has been served.  WHEREFORE, premises considered, the Petition for Review is DENIED for lack of merit. The decision and resolution of the CTA Third Division are AFFIRMED. [R.A. OBEN HOLDINGS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA EB NO. 1454 DATED SEPTEMBER 18, 2017]

 

A CTA DECISION ON VAT ASSESSMENT OF INTEREST INCOME BY SOCIAL LENDING INSTITUTION

TULAY SA PAGUNLAD, INC. (TSPI) filed Consolidated Petitions for Review seeking the cancellation of the BIRs deficiency assessment on VAT and DST for taxable year 2008. The BIR claims that the Petitioners income derived from interest from social lending activities should be subjected to VAT since this is no longer part of its exemption as a non-stock, non-profit corporation engaged in social welfare services. Consequently, other income especially from its social lending activities should be subjected to VAT pursuant to Revenue Regulations No. 16-2005. In addition, the Loan Agreement should be subjected to DST. Further, it was argued that the VAT assessment should be imposed with 50% surcharge instead of the 25% in reference to the amended decision of the Court in Division, hence, the filing of these consolidated Petitions for Review. The Court En Banc denies the Petition filed by TSPI for failure to file a Motion for Reconsideration of the Court in Divisions Amended Decision. On the BIR issue of reduction of surcharge from 50% to 25%, the Court En Banc upheld the earlier decision of the Court in Division as it emphasized that there are no clear and convincing evidence to prove that the Petitioner wilfully neglected the filing of returns. The wilful neglect of the fraudulent intent to evade the payment of taxes cannot be presumed, negligence whether slight or gross, is not equivalent to the fraud with the intent to evade the tax contemplated. Further, mere mistake cannot be considered as fraudulent intent. [TULAY SA PAGUNLAD, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO. 8480, SEPTEMBER 15, 2017]